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Ruling

Subject: Fringe benefits tax: living-away-from-home allowance

Question 1

Is the allowance to be paid to your employee a living-away-from-home allowance benefit pursuant to subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

Question 2

If the answer to Question 1 is yes, will the taxable value of the living-away-from-home allowance benefit be reduced by the exempt accommodation and exempt food components in accordance with section 31 of the FBTAA?

Answer

Yes.

Question 3

Will the above answers change if the employee is granted permanent resident status?

Answer

Yes.

This ruling applies for the following periods:

Year ended 31 March 2012

Year ended 31 March 2013

Year ended 31 March 2014

Year ended 31 March 2015

Year ended 31 March 2016

The scheme will commence on

1 September 2011

Relevant facts and circumstances

You have offered an overseas resident employment within your organisation.

Your employee will be employed by you under a subclass 457 temporary resident visa on a fixed term contract.

Your employee will be seeking permanent Australian residency. He has stated his intention in doing so is to enable him to be eligible to apply for Australian Government grants that will be relevant to his employment with you.

The employee has been employed by several different employers at different locations including overseas.

Your employee and his wife own a residence in their country of origin which is currently rented out to third parties. He intends to either continue renting the property and later selling it or to hold it until his return.

The employee intends to return to his country of origin at least once per year to visit family. He also expects to return there if he is unable to secure another tenant for his property or decides to sell it. He will consider selling if he is unable to secure a reasonable rent or if he decides to reside in Australia permanently at the expiration of his appointment with you.

Your employee will maintain bank accounts, investments and memberships of professional associations in his country of origin whilst he is in Australia.

The LAFHA provided to the employee consists of an accommodation component based on the employee's rent and food component which is based on the amount in the annual Taxation Determinations less the statutory food amount.

Your employee has agreed to provide you with an annual living-away-from-home allowance declaration.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 30

Fringe Benefits Tax Assessment Act 1986 Subsection 30(1)

Fringe Benefits Tax Assessment Act 1986 Section 31

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Income Tax Assessment Act 1936 Section 51A

Reasons for decision

Question 1

Is the allowance to be paid to your employee a living-away-from-home allowance benefit pursuant to subsection 30(1) of the FBTAA?

Section 30 of the FBTAA sets out the circumstances in which a payment to an employee will be a living-away-from-home allowance benefit.

Subsection 30(1) 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;

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, 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.

In summarising these requirements an allowance will be a living-away-from home-allowance if:

(a) it is reasonable to conclude from all the surrounding circumstances that some or all of the allowance is in the nature of compensation to the employee for:

· additional non deductible expenses incurred by the employee during a period; or

· additional non deductible expenses and other additional disadvantages to which the employee is subject during a period; and

(a) the additional expenses and other disadvantages arise because the employee is required to live away from his or her usual place of residence in order to perform the duties of employment.

(a) Is the allowance paid for additional non deductible expenses and other disadvantages?

The allowance will be paid to compensate the employee for additional food expenses and accommodation expenses. As he will not be able to claim an income tax deduction for these expenses this requirement is satisfied.

(b) Do the additional expenses arise because the employee is required to live away from

his or her usual place of residence in order to perform the duties of employment?

In determining whether the additional expenses arise as a result of the employee being required to live away from his usual place of residence it is necessary to identify the usual place of residence.

The FBTAA does not define 'usual place of residence'. However, in subsection 136(1) it does define a 'place of residence' to mean:

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

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

whether on a permanent or temporary basis and whether or not on a shared basis.

In the absence of a legislative reference it is relevant to refer to the ordinary meaning of 'usual'. The Macquarie Dictionary defines 'usual' to mean:

1. habitual or customary: his usual skill.
2. such as is commonly met with or observed in experience; ordinary: the usual January weather.
3. in common use; common: say the usual things.

noun

4. that which is usual or habitual.

phrase

5. as usual, as is (or was) usual; in the customary or ordinary manner: he will come as usual.

Guidelines for determining an employee's usual place of residence are provided by Miscellaneous Taxation Ruling MT 2030 Fringe benefits tax: living-away-from-home allowance benefits.

Paragraphs 15 to 18 refer to various decisions of Taxation Boards of Review relating to the former 51A of the Income Tax Assessment Act 1936. In referring to these decisions paragraph 14 of MT 2030 states:

As the decisions illustrate, 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. This would be relevant even if the employee is living in temporary quarters close to a temporary job site.

Further discussion occurs at paragraphs 19 to 25. 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. For example, a construction worker having to travel to a construction site to live and work would be in this category unless he had abandoned the former place of residence upon moving to the locality of the site. A case of the latter situation would be where the employee decided to permanently leave the former home, e.g., if a resident of Sydney, on obtaining a job for two years on a construction site in a remote part of Western Australia, decided to "sell up" in Sydney and move permanently to Western Australia to live.

As an example of the application of this general rule paragraph 22 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.

These principles and the various cases that have considered usual place of abode or usual place of residence were discussed by the Administrative Appeals Tribunal (AAT) in Compass Group (Vic) Pty Ltd (as trustee for White Roche & Associates Hybrid Trust) v. FC of T [2008] AATA 845; 2008 ATC 10-051. At paragraphs 55 and 56 Deputy President S A Forgie said:

55. There are several principles that can be gleaned from these cases. The first is that the fact that s 30 and, before it, s 51A, are concerned with what is described as a living-away-from-home allowance. That allowance is paid by an employer to an employee in respect of the employee's employment. It is a payment in the nature of compensation. The compensation is to meet additional expenses the employee incurs during a particular period and for other additional disadvantages he or she faces in that period but only if the expenses are incurred because he or she is required to live away from his or her usual place of residence in order to perform the duties of employment. As Mr Cotes alluded to in CaseB47, it necessarily assumes that the taxpayer has two places that could be described as his or her place of residence before one or the other needs to be identified as the "usual place of residence".

56. Putting to one side the case of Case 50, all cases looked to the taxpayer's place of residence before he or she acquired another place of residence. Each looked to the taxpayer's continuing connection with the first place of residence including matters such as whether his or her family continued to live there, the frequency of the taxpayer's visits there and whether or not that was a place to which the taxpayer could return at will if he or she so wished. Also relevant was the nature of the employment and whether the move to another place was a temporary or permanent move.

In considering the factors referred to by the AAT the following factors indicate that the employee's usual place of residence will be his country of origin:

· he is a citizen of his country of origin

· he is in Australia on a 457 temporary resident visa

· he owns a residence in his country of origin

· he will maintain membership of professional associations based in his country of origin whilst working in Australia

· he will maintain investments and bank accounts in his country of origin whilst he is working in Australia, and

· he intends to return to his country of origin on termination of his employment contract with you

However, the following factors indicate the employee's residence is in Australia:

· his previous residence prior to arriving in Australia was rented accommodation to which he will not be returning

· the employee visits to his country of origin are to extended family

· the employee has been employed by several different employers which indicates a person regularly changing employment locations.

In weighing up the above positions the factors indicating the employee is living away from his usual place of residence are more dominant as the employee is on a 457 temporary resident visa. We therefore consider that the employee is living away from his usual place of residence.

Given the usual place of residence is in the employee's country of origin the employment duties will be performed in Australia it is accepted the employee is required to live away from his usual place of residence in order to perform his duties of employment.

Conclusion

As all the required conditions have been met, the allowance paid to the employee will be a living-away-from-home allowance benefit pursuant to subsection 30(1) of the FBTAA.

Question 2

If the answer to Question 1 is yes, will the taxable value of the living-away-from-home allowance benefit be reduced to nil by the exempt accommodation and exempt food components in accordance with section 31 of the FBTAA?

Section 31 of the FBTAA states that 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) ...

'Exempt accommodation component' and 'exempt food component' are defined in subsection 136(1) of the FBTAA. Both definitions provide that the exempt amount will depend upon whether the employee provides a living-away-from-home declaration. Where a declaration is not provided, the exempt components will have a nil value.

Exempt accommodation expenses

If a declaration is provided, the exempt accommodation component is so much of the allowance as is reasonable compensation for additional expenses on accommodation that the employee could be reasonable expect to incur.

As the accommodation component will be based on the rent the employee will be paying the amount of the accommodation component will be the exempt accommodation component if the employee provides the necessary declaration.

Exempt food component

If a declaration is provided, the exempt food component is so much of the allowance as is reasonable compensation for additional expenses on food. It is arrived at by first ascertaining the 'food component' of the allowance. If the amount of the 'food component' is set with the intention that it covers all food costs of the employee and family, the exempt food component is the excess of that component over what the employee would normally spend on food if he or she was not living away from home. However, if the food component of the allowance has been set to reflect only additional costs by reducing the allowance for home food costs, and the amount of the reduction on this account equals or exceeds the statutory food amounts, the amount of the net food component is the exempt food component.

You have advised that the amount of the food component will be determined on the basis of the rates set out in the annual Taxation Determination that sets out the amounts that represent a reasonable food component of a LAFHA for expatriate employees. The amount set out in the Taxation Determination will be reduced by the statutory food amounts. As the food component of the allowance is the excess over what the employee would normally spend on food if he was not living away from home and the amount of the reduction equals the statutory food amount, the amount of the food component will be the exempt food component if the employee provides the necessary declaration.

Conclusion

As the employee will provide you with a declaration the taxable value of the living-away-from-home allowance will be reduced by the exempt accommodation and exempt food components.

Question 3

Will the above answers change if the employee is granted permanent resident status?

As set out above, the classification of the allowance as a living-away-from-home allowance depends upon whether the employee is living way from his usual place of residence.

You have advised that the employee will be making an application for permanent resident status. In general terms, an Australian permanent resident is a person who is not a citizen of Australia, but is able to remain in Australia for an indefinite period. The benefits of becoming a permanent resident may include:

· an unrestricted right to live, work and study in Australia, and

· access to domestic fees for education.

In your application you indicated that the employee will be applying for permanent residency so that he will be able to apply for research grant funding in Australia. You have also stated that he may decide to sell his home in his country of origin if he decides to move to Australia permanently over and above the initial five years of his employment appointment.

While it is accepted that the change from a temporary 457 visa to a permanent resident does not prevent the employee from returning to his country of origin at the end of his contract in the subsequent year 20xx, the change in status will remove one of the factors that supported the employee's usual place of residence being in his country of origin.

As stated in paragraph 56 of the Compass Case, Deputy President SA Forgie referred to cases considering a person's usual place of residence. Factors to consider were:

(a) taxpayer's place of residence before he or she acquired another place of residence

This was rented accommodation in his country of origin to which the employee will not be returning. The employee also advised that this address was temporary.

(b) the taxpayer's continuing connection with the first place of residence, including whether his or her family continued to live there

There is no evidence of a continuing connection with this residence as the immediate family is in Australia with the employee.

(c) the frequency of the taxpayer's visits there

The employee intends to visit his extended family each year.

(d) the nature of the employment

the employee has been employed at several different places of employment, and

(e) whether the move to another place was a temporary or permanent move

The employee is granted permanent residency.

In re-evaluating the factors discussed in question 1, there will no longer be a requirement for the employee to leave Australia at the expiration of the 457 visa. Therefore the only factors that support an intention to return to the country of origin are:

· the employee's citizenship of his country of origin

· maintaining of memberships of professional associations while working in Australia

· the yearly visits to the country of origin to visit family, and

· the investments held in the country of origin.

None of these factors are determinative as the same factors could exist in relation to a person born in the employee's country of origin whose usual place of residence is in Australia.

Further, although the employee owns a property in his country of origin, this property was not the employee's usual place of residence before coming to Australia. Given the employee was renting this property and has indicated the property may be sold while he is in Australia, the ownership of this property also does not provide a basis for concluding that the employee has an intention to return to his country of origin.

By contrast the following factors indicate the usual place of residence will be Australia:

· the place of residence in the country of origin, prior to obtaining a new residence, was rented to which the employee will not be returning

· the employee has been employed at several different locations which indicates a person regularly changing employment locations

· the employee obtaining permanent residency status.

Although you have stated that the sole reason for your employee applying for permanent residency is so that he can apply for grants, you also state that he could stay in Australia at the end of his employment contract with you. If he has already obtained permanent resident status there would be no requirement for him to leave as would be the case if he had a 457 visa

In weighing up the above positions the change in the usual place of residence to Australia will become more dominant if the employee becomes a permanent resident.