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Ruling

Subject: Living-away-from-home allowance

Question 1

Will the allowance proposed to be paid by the employer to the employee be a living-away-from-home allowance benefit under subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986?

Answer

No

Question 2

If the answer to Question 1 is yes, will the taxable value of the living-away-from-home allowance fringe benefit that arises from the payment of the allowance be reduced by the accommodation component and the food component of the allowance under section 31 of the Fringe Benefits Tax Assessment Act 1986?

Answer

Not necessary to answer

This ruling applies for the following fringe benefits tax years:

Year ending 31 March 2012

Year ending 31 March 2013

Year ending 31 March 2014

Relevant facts and circumstances

The employer proposes to provide an annual allowance to an employee. The allowance will consist of an accommodation component and a food component.

The employment agreement states that the employee's remuneration consists of salary, superannuation and any bonuses as determined by the employer.

Under the employment agreement the employee is to be provided with a motor vehicle, laptop computer, mobile phone and the reimbursement of business expenses.

The employee's total remuneration (inclusive of allowance) will not change after the allowance commences.

The employee is in Australia on a 457 visa for which they are sponsored by the employer.

The employee has a residence in their country of origin where their immediate family lives and where they also have a bank account and other assets.

The employee intends to return to their country of origin when their employment ceases at the end of the visa and will provide the employer with a Living-away-from-home declaration.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 30.

Reasons for decision

Summary

It cannot be concluded that the proposed allowance is in the nature of compensation for additional non-deductible expenses that the employee will incur. Therefore the allowance will not be a living-away-from-home allowance benefit (LAFHA) and will form part of the employee's assessable income.

Detailed reasoning

Section 30 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) sets out the circumstances in which an allowance is a LAFHA.

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 the requirements of subsection 30(1), an allowance will be a LAFHA if:

(i) 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

(i) 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.

Can it be concluded that the proposed allowance will be provided to compensate the employee for additional non-deductible expenses and other disadvantages?

Although the employee may be incurring additional non-deductible expenses it needs to be concluded that some or all of the allowance will be in the nature of compensation for those additional expenses.

The amount of the proposed allowance will not be in addition to the employee's current remuneration.

The employment agreement does not state that the employee is entitled to be compensated for any additional non-deductible expenses such as accommodation and food. When the employer commences to provide the allowance the total remuneration will not be changed.

These facts do not support the conclusion that the proposed allowance is in the nature of compensation for additional accommodation and food expenses. Rather the facts support the conclusion that the employee will continue to be paid the same remuneration amount and that part of that remuneration will be renamed a LAFHA.

We have therefore concluded that the proposed allowance will not be in the nature of compensation for additional expenses for accommodation and food. Consequently, the conditions in paragraph 30(1)(b) of the FBTAA will not be satisfied and the allowance is not a LAFHA.

Is the employee required to live away from their usual place of residence in order to perform the duties of employment?

In determining whether the additional expenses arise because of a requirement to live away from the usual place of residence it is necessary to identify the usual place of residence.

The FBTAA does not define 'usual place of residence'. However, subsection 136(1) 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.

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 of MT 2030 refer to various decisions of Taxation Boards of Review relating to the former 51A of the ITAA 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.

Paragraph 20 of MT 2030 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.

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

The following facts indicate that the employee's usual place of residence is in their country of origin:

· The employee is a citizen of a foreign country.

· The employee is in Australia on a 457 visa for a period of four years.

· The employee has a residence in their country of origin and intends to return to that residence at the end of the visa.

· The employee does not have any immediate family in Australia, they are in the country of origin.

Therefore, it is accepted that the employee is required to live away from their usual place of residence in order to perform their duties of employment.

Conclusion

Since it cannot be concluded that the proposed allowance will be in the nature of compensation for the employee's additional accommodation and food expenses, the allowance will not be a LAFHA. Rather, the allowance will be part of the employee's salary that will form part of their assessable income.