Edited version of private ruling

Authorisation Number: 1011744579312

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Subject: Treatment of Allowances Paid to Workers working on an oil rig or other petroleum or gas installation site

Question 1

Is the allowance paid to workers working on an oil rig or other petroleum or gas installation site under the agreement a living-away-from-home allowance pursuant to the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes

Question 2

If the answer to question 1 is yes, will the taxable value of the fringe benefit be reduced to nil pursuant to section 31 of the FBTAA?

Answer

No

This ruling applies for the following period

1 April 2011 to 31 March 2011

1 April 2011 to 31 March 2012

1 April 2012 to 31 March 2013

1 April 2013 to 31 March 2014

The scheme commenced on

1 April 2011

Relevant facts

Your employees work offshore.

All food and accommodation on offshore is provided by the company.

The company also transport the employees to and from offshore site.

In accordance with the agreement the employees are paid an allowance.

The relevant clause is headed Living Away from Home Allowance and it includes a reference to the allowance being a living-away-from-home allowance.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 subsection 30(2)

Fringe Benefits Tax Assessment Act 1986 section 31

Is the allowance a living-away-from-home allowance pursuant to the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Generally when an allowance is paid to an employee it will form part of the employee's assessable income. However, an allowance which is a living-away-from-home allowance will be a fringe benefit.

As a fringe benefit, a living-away-from-home allowance will not be part of the employee's assessable income. However, the employer may be liable to pay fringe benefits tax on the amount of the allowance.

Therefore, in determining how the allowance is to be treated the initial question to consider is whether the allowance is a living-away-from-home allowance.

For the allowance to be a living-away-from-home allowance it must come within either subsection 30(1) or 30(2) of the FBTAA.

Subsection 30(1) sets out the conditions that must be satisfied where the allowance is in the nature of compensation for either:

(a) additional expenses for which an income tax deduction cannot be claimed that were incurred by the employee as a result of being required to live away from the usual place of residence in order to perform the duties of employment; or

(b) additional expenses for which an income tax deduction cannot be claimed that were incurred by the employee and other additional disadvantages to which the employee is subject as a result of being required to live away from the usual place of residence in order to perform the duties of employment.

Subsection 30(2) sets out the conditions to be satisfied where an employee whose usual place of employment is on an oil rig, or other petroleum or gas installation at sea receives an allowance which is expressed as being a 'living-away-from-home allowance', but does not come within subsection 30(1).

As your employees undertake their duties on an offshore site at sea the initial subsection to consider is subsection 30(2).

Is the allowance a living-away-from-home allowance under subsection 30(2) of the FBTAA/

Subsection 30(2) of the FBTAA was introduced into the Act in response to the effect of the decision of the Federal Court in Atwood Oceanics Australia Pty Ltd v FC of T (1989) 20 ATR 742; (1989) 30 IR 58; 20 ATR 742; 89 ATC 4808 (Atwood's case). It states:

If:

· at a particular time after 10 October 1991, in respect of the employment of an employee of an employer, the employer pays an allowance to the employee; and

· the employee's usual place of employment is on an oil rig, or other petroleum or gas installation, at sea; and

· the employee is provided with residential accommodation at or near that usual place of employment; and

· the allowance is expressed to be paid as a living-away-from-home allowance; and

· no part of the allowance is covered by subsection (1); and

· it would be concluded that the whole or a part of the allowance is in the nature of compensation to the employee for disadvantages to which the employee is subject, during a period, by reason that the employee is required to live away from his or her usual place of residence in order to perform the duties of that employment;

· the payment of the whole of the allowance constitutes a benefit provided by the employer to the employee at that time.

In considering these conditions:

(a) Is the allowance paid after 10 October 1991?

The allowance is paid after 10 October 1991.

(b) Is the employee's usual place of employment on an oil rig or other petroleum or gas installation at sea?

Yes.

(c) Are the employees provided with accommodation at or near the usual place of employment?

Yes.

(d) Is the allowance expressed to be paid as a living-away-from-home allowance?

The allowance is expressed as being a living-away-from-home allowance in the award.

(e) Is any part of the allowance covered by subsection 30(1)?

The application of subsection 30(1) was considered by Lee J in Atwood's case. In discussing the application of paragraph 30(1)(b) to an allowance paid to workers who worked on an offshore drilling rig Lee J said at ATC4816:

The required character of the allowance was that it be a payment to an employee in the nature of compensation for additional expenses incurred by the employee during a period of employment, or for additional expenses so incurred and other additional disadvantages to which the employee was subject during that period by reason of the fact that the employee was required to live away from his usual place of residence.

The allowance does not have this character as it is not paid for additional expenses. It is only paid for additional disadvantages. As the allowance does not have the required character it will not come within subsection 30(1).

(f) Can it be concluded that the allowance is in the nature of compensation to the employee for disadvantages to which the employee is subject as a result of having to live away from the usual place of residence in order to perform the duties of employment?

This paragraph contains two conditions. To satisfy this paragraph:

· the allowance must be in the nature of compensation for disadvantages to which the employee is subject; and

· the disadvantages must arise as a result of the employee being required to live away from the usual place of employment in order to perform the duties of that employment.

Is the allowance in the nature of compensation for disadvantages to which the employee is subject?

The allowance is paid to cover the disadvantages associated with:

· isolation;

· accumulating days off;

· the lack of normal amenities of town or city dwelling;

· sharing accommodation; and

· the type of facilities and living conditions available when working on a platform.

Therefore, it is accepted that the allowance is in the nature of compensation for disadvantages.

Do the disadvantages arise as a result of the employee being required to live away from the usual place of employment in order to perform the duties of that employment?

The issue of what is meant by the term usual place of residence is addressed in paragraphs 11 to 25 of Miscellaneous Tax ruling MT 2030 (MT 2030). Paragraph 20 provides the following general rule:

Employees who move to a new locality to take up a position of limited duration with an intention to return to the old locality at the end of the appointment would generally be treated as living away from their usual place of residence.

To illustrate the principles contained in paragraphs 11 to 23, paragraph 24 lists some examples of employees who will generally be regarded as living away from their usual place of residence. The examples include oil industry employees living on offshore oil rigs.

In applying these guidelines it is accepted that the employees are living away from their usual place of residence as they only work on the oil rigs or other petroleum or gas installation site for a limited duration and return to their residence during their off periods.

Conclusion

As all of the requirements of subsection 30(2) are met the allowance will be a living-away-from-home allowance.

Will the taxable value of the living-away-from-home allowance be reduced to nil pursuant to section 31 of the FBTAA?

Section 31 of the FBTAA sets out the method for calculating the taxable value of a living-away-from-home allowance fringe benefit. It states:

Subject to this Part, the taxable value of a living-away-from-home allowance fringe benefit in relation to a year of tax is:

(a) if the fringe benefit is covered by subsection 30(1) - the amount of the recipients allowance reduced by:

(i) any exempt accommodation component; and

(ii) any exempt food component; or

(b) if the fringe benefit is covered by subsection 30(2) - the amount of the recipients allowance.

As the fringe benefit is covered by subsection 30(2) the taxable value of the fringe benefit will be the amount of the allowance.