Edited version of private ruling

Authorisation Number: 1011768316148

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Ruling

Subject: Fringe benefits tax

Question 1

Will the Commissioner treat the allowance paid by the employer to the employee as a living-away-from-home allowance benefit pursuant to section 30 of the Fringe Benefits Tax Assessment Act 1986 where the employee has accepted an extension to the original period of the assignment in Australia?

Answer

Yes

Question 2

If the answer to question one is yes, will the taxable value of the allowance be reduced to nil pursuant to section 31 of the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes

Question 3

Will the Commissioner treat the additional rental subsidy paid by the employer to the employee by way of reimbursement as an exempt accommodation expense payment benefit pursuant to section 21 of the Fringe Benefits Tax Assessment Act 1986 where the employee has accepted an extension to the original period of the assignment in Australia?

Answer

Yes

This ruling applies for the following periods:

Year ended 31 March 2011

Year ended 31 March 2012

Year ended 31 March 2013

The scheme commences on:

1 April 2010

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The employer is a company that is a subsidiary of an overseas company whose operations are spread across the world

The employer company was established in Australia recently and has grown significantly. It employs a number of people, led primarily by the employee.

The employee has been an employee of the overseas company for some time and has gained significant experience in that company.

In 2007, the employee was offered an assignment to Australia to take up a management role. The original term of the assignment was intended to be for three years.

The employee arrived in Australia 2007 on a temporary long stay sub-class 457 visa.

As the employer company was in its fledgling stages, the employee was empowered to set up its operations here and develop the Australian business of the company.

The employee has been instrumental in the growth of the employer company and the Australian business expanded and the number of employees has grown.

The employee was scheduled to return to the home country in the recent year. However, at the time there was a restructure.

Due to this restructure the employee will continue to work in Australia.

The extension is for a period ending in 2013 at the latest. The employee's 457 Visa has been extended for a further four years. The current visa is sponsored by the employer.

The reasons for the employee continuing in Australia during the transitional period are:

Continuity reasons: Australian business needs to have an experienced leader during this period.

It is important for the existing local leader to oversee the operating business model change and prepare the path for a more stable environment.

It assists to ensure continuing growth of the Australian business during the changeover period.

It allows the employee to bring significant knowledge of local Australian market and networks to the business.

At the time of the employee's original appointment to Australia the change to the business model was not anticipated.

It remains the intention of the employee to return to the home country at the end of the assignment period.

The employee does not own any property in Australia. The employee lives in rental accommodation which is partly paid by the employer.

The employee owns an apartment in the home country and has a home to return to upon the completion of the assignment.

The employee retains bank accounts in the home country and does not have any assets in Australia.

The employee continues to contribute to the home country pension scheme.

The employee's entire family and extended family connections are all in the home country. The employee does not have any family in Australia.

The employee continues to be a member of a local sporting club in the home country.

The employee returns to the home country for a combination of social and business purposes two to three times a year.

The employer reimburses part of the employee's rental expenses.

The employer also provides the employee with an allowance to cover food costs. The employer is only paying for food above the statutory food amount. The amount has been calculated in accordance with the ATO guidelines for expatriates.

The employee has provided living away from home declarations to the employer stating that the home country is the usual place of residence. The employer retains these declarations with its FBT records.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 30,

Fringe Benefits Tax Assessment Act 1986 Section 31,

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1) and

Fringe Benefits Tax Assessment Act 1986 Section 21.

Reasons for decision

All references made in these reasons for decision are to the Fringe Benefits Tax Assessment Act 1986 unless otherwise stated.

Question 1

Summary

The allowance paid to the employee is a living-away-from-home allowance benefit (LAFHA) under section 30 as it can be concluded that it has been paid to the employee to compensate for food expenses incurred because the employee is required to live away from the employee's usual place of residence in order to perform duties of employment.

Detailed reasoning

Section 30 states:

Where:

(a) at a particular time, in respect of the employment of an employee of an employer, the employer pays an allowance to the employee; and

(b) it would be concluded that the whole or a part of the allowance is in the nature of compensation to the employee for -

(i) additional expenses (not being deductible expenses) incurred by the employee during a period; or

(ii) additional expenses (not being deductible expenses) incurred by the employee, and other additional disadvantages to which the employee is subject, during a period,

(c) 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,

(d) the payment of the whole, or of the part, as the case may be, of the allowance constitutes a benefit provided by the employer to the employee at that time.

The allowance paid to the employee will be a LAFHA if it is reasonable to conclude that the allowance is in the nature of compensation for additional expenses incurred because the employee is required to live away from the usual place of residence in order to perform duties of employment.

The allowance currently being paid to the employee is to cover food costs whilst the employee is employed in Australia. The employee is required to live in Australia in order to undertake duties of employment. Therefore, the location of the employee's usual place of residence must be determined.

Place of residence is defined in subsection 136(1):

…in relation to a person, means:

(a) a place at which the person resides; or

(b) a place at which the person has sleeping accommodation;

(c) whether on a permanent or temporary basis and whether or not on a shared basis

For the purposes of the Fringe Benefits Tax Assessment Act 1986, Australia and the home country may be places of residence for the employee.

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. Paragraph 14 states:

…The question whether an employee is living away from his or her usual place of residence normally involves a choice between two places of residence, i.e. the place where the employee is living at the time or some other place. A person is regarded as living away from a usual place of residence if, but for having to change residence in order to work temporarily for his employer at another locality, the employee would have continued to live at the former place. It would be relevant in reaching that view that there is an intention or expectation of the employee returning to live at the former place of residence on cessation of work at the temporary job locality.

Paragraphs 15 to 18 provide a brief description of the decisions from some cases which illustrate this point. It is concluded at paragraph 19 that 'an underlying theme of the cases is the general presumption that the employee's usual place of residence will be close to where he or she is permanently employed'.

Employees who move in order to undertake a position of limited duration and who intend to return to the old locality at the end of that employment will generally be considered to be living away from their usual place of residence. By way of illustrating this, paragraph 22 of the MT 2030 states:

Examples of employees on appointments of finite duration who will generally be living away from their usual place of residence are foreign nationals employed in Australia on a temporary basis and Australian residents (e.g., export consultants, diplomats, immigration officials, etc.) stationed in a foreign country for a time. Provided the appointment is for a limited period and the employee can be expected in the normal course to return to the same city or district of the home country to live, the employee may be treated as living away from his or her usual place of residence.

This is contrasted in paragraph 25 of MT 2030 with employees who are in occupations where it is necessary to accept regular transfers from one location to another. Employees in these situations will generally be treated as not living away from home when they move or transfer to live in proximity to the current work place.

Prior to arriving in Australia, the employee had mostly worked in the home country. This indicates that the nature of the employee's work is not one which requires the employee to accept regular transfers.

The employee was initially required to be in Australia for three years and intended to return to the home country at the end of that term. The employee now intends to return to the home country at the end of the assignment period which is 2013.

The employee came to Australia take up a role for which the employee is particularly qualified. As a result of the company's decision to restructure the employer has extended the employee's period of employment in Australia. This is because the employee's particular skills are required for the transition period.

This change was not anticipated when the employee commenced employment in Australia and it is the reason the employee is staying in Australia the additional years. Therefore regardless of the fact that the employee will be employed in Australia for an additional three years it is accepted that the period of appointment is still of a finite nature.

In relation to the employee's ties with both places of residence, it is concluded that the employee has greater ties with the home country. The employee owns an apartment in the home country to which the employee intends to return but does not own property in Australia. The employee has family, social and economic ties in the home country, but does not have any assets or family in Australia. Additionally, the employee returns to the home country for a combination of business and social purposes two to three times a year.

Therefore the employee's usual place of residence is in the home country rather than Australia.

Since the employee:

· is being paid an allowance to cover food costs whilst in Australia, and

· is required to live in away from home in order to undertake duties of employment,

· it would be reasonable to conclude that the allowance is in the nature of compensation for additional expenses incurred because the employee is required to live away from the usual place of residence in order to perform duties of employment.

Consequently, the allowance is a LAFHA benefit in accordance with section 30.

As the benefit is provided to the employee in respect of employment by the employer it is a fringe benefit as defined in subsection 136(1) and the taxable value will be determined under section 31.

Question 2

Summary

As the employer is only compensating the employee for increased food costs, the taxable value of the allowance will be reduced to nil pursuant to section 31.

Detailed reasoning

The taxable value of the LAFHA paid to the employee is the amount of the allowance paid less:

· the exempt accommodation component, and/or

· the exempt food component.

In order to apply this reduction the employer must obtain from the employee a declaration setting out the employee's usual place of residence and actual place of residence during the period of the allowance.

To calculate the exempt food component, the employer must first calculate the food component of the LAFHA. The food component is the amount of the LAFHA that is compensation for expenses the employee could reasonably be expected to incur on food and drink.

The food component of the allowance can be calculated as follows:

· compensation for total food costs

· compensation for increased food costs where the estimated home food costs equals or exceeds the statutory food amount, or

· compensation for increased food costs where estimated home food costs are less than the statutory amount.

The statutory food amount is $42 a week for one adult.

The employee is being paid a LAFHA that is comprised of a food component only and that is to compensate for increased food costs. The employee has been providing LAFHA declarations to the employer.

The amount paid has been calculated in accordance with ATO guidelines, which for the 2012 year is Taxation Determination TD 2011/4.

Since the employer is not paying the statutory food amount, the amount of the food component being paid to the employee will be the exempt food component.

Therefore the taxable value of the LAFHA will be reduced to nil.

Question 3

Summary

The reimbursement of part of the employee's rental expenses will be an exempt benefit as the accommodation was required solely by reason that the employee is required to live away from the usual place of residence in the home country, in order to perform duties of employment.

Detailed reasoning

Section 21 exempts accommodation expense payment benefits where:

· the expense payment benefit is provided to a current employee in respect of their employment

· the recipients expenditure is in respect of accommodation for eligible family members

· the accommodation was not provided while the employee was travelling in the course of their employment

· the accommodation is required solely by reason that the employee is required to live away from their usual place of residence in order to perform the duties of their employment, and

· the employee gives to the employer a LAFHA declaration before the declaration date usually the date the fringe benefits tax return for that year is lodged).

The exemption will only apply if all these conditions have been satisfied.

The employer is reimbursing the employee, who is a current employee, for part of the accommodation expenses incurred. The employee is residing in the accommodation whilst working in Australia and is an eligible family member. Therefore the first three conditions are satisfied.

As explained in the reasons for decision for question one, the employee is required to live in Australia in order to undertake duties of employment. The employee's usual place of residence is in the home country. The accommodation is required because the employee is residing away from the home country in order to undertake duties of employment in Australia.

The employee will provide LAFHA declarations to the employer by the relevant declaration dates.

Therefore the reimbursement of the employee's accommodation expenses is an exempt benefit under section 21.