Edited version of private ruling

Authorisation Number: 1011841252214

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Ruling

Subject: Living-away-from-home allowance

Question

Will the allowance that you will receive from your employer for accommodation, food and education form part of your assessable income?

Answer

No. However, your employer may have a fringe benefits tax liability and a reportable fringe benefits amount may be shown on your Payment Summary.

Relevant facts and circumstances

You are a foreign national who has been contracted to work in Australia under a sub-class 457 temporary business visa.

You are employed by a public benevolent Institution.

While undertaking your employment duties in Australia you have been residing in a residence that you are renting.

When you initially came to Australia your spouse and children remained in the foreign country. They have since joined you in Australia.

Since coming to Australia you have returned to the foreign country on seven occasions.

You intend to return to the foreign country with your family, when your current visa expires.

You are currently receiving the following benefits under the terms of your current employment contract:

· meal entertainment expenses using a meal card;

· motor vehicle expenses; and

· the payment of the rental expenses for the residence you are renting.

You are in the process of renewing your employment contract. Under the new contract you will continue to receive motor vehicle expenses, but will receive an allowance instead of the meal entertainment expenses and the payment of rental expenses.

The allowance will comprise:

· a component paid to compensate you for the cost of renting accommodation while living away from your home

· a component paid to compensate you for the cost of garden maintenance;

· a component paid to compensate for food, and

· a component for education and school expenses.

You are registered as a member of several professional groups.

You own a house in the foreign country which you have retained.

You hold and have maintained a bank account and superannuation in the foreign country.

You have retained membership in a sporting club and professional association in the foreign country.

You will provide your employer with a 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 subsection 136(1)

Income Tax Assessment Act 1936 subsection 23L(1)

Income Tax Assessment Act 1997 section 6-15

Reasons for decision

Will the allowance that you will receive from your employer for accommodation, food and education form part of your assessable income?

Section 23L of the Income Tax Assessment Act 1936 (ITAA 1936) provides that certain benefits will not be assessable.

If the benefit is a fringe benefit, it is not assessable income and is not exempt income under 23L(1) of the ITAA 1936. Alternatively, if the benefit is an exempt benefit it will be exempt income under subsection 23L(1A) of the ITAA 1936.

In either situation, the benefit will not form part of the recipient's assessable income as:

· subsection 6-15(2) of the ITAA 1997 provides that an amount that is 'exempt income' will not be assessable income; and

· subsection 6-15(3) of the ITAA 1997 provides that an amount that is non-assessable non-exempt income is not assessable income.

In general terms, a 'fringe benefit' is defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) as a benefit provided to an employee by the employer in respect of the employee's employment which is not one of the benefits excluded from the fringe benefit definition by paragraphs (f) to (s) of the 'fringe benefit' definition.

For the purpose of this ruling the relevant paragraphs are paragraphs (f) and (g). Paragraph (f) provides that a payment of salary or wages or a payment that would be salary or wages if salary or wages included exempt income for the purposes of the ITAA 1936 will not be a 'fringe benefit'. Paragraph (g) provides that a benefit that is an exempt benefit will not be a fringe benefit.

Generally, most allowances are treated as a payment of 'salary or wages'. However, a living-away-from-home allowance (LAFHA) does not come within the definition of 'salary or wages' and will generally be a 'fringe benefit'.

However, section 57A of the FBTAA provides that the benefits that would otherwise be fringe benefits will be exempt benefits where the employer is a type of employer that comes within section 57A. One type of employer which is listed in section 57A is an employer who is an endorsed public benevolent institution. Where the employer is an endorsed public benevolent institution subsection 57A(1) provides that the benefits provided in respect of the employment of an employee will be exempt benefits.

Therefore, in determining whether the allowance that you will receive will form part of your assessable income, the initial question to consider is whether the allowance is a LAFHA. If it is, then it will be an exempt benefit under subsection 57A(1) of the FBTAA and will not form part of your assessable income.

Will the allowance be a LAFHA?

Section 30 of the FBTAA sets out the circumstances in which an allowance will be 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) of the FBTAA, an allowance will be a living-away-from-home allowance if:

(a) it is reasonable to conclude from all of 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

(b) 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 you for the rental expenses and additional food costs that you will incur while living in Australia. As you would not have incurred the rental expenses or the additional food costs if you had not been living in Australia, it is accepted that the allowance is a payment for additional expenses.

Further, as you will be living in Australia for a period of four years, you will not be able to claim an income tax deduction for these expenses. Therefore, the allowance is paid for the additional non-deductible expenses.

(b) Do the additional expenses arise because of a requirement to live away from your 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, in subsection 136(1) of that Act, 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 (MT 2030).

Paragraphs 15 to 18 of MT 2030 refer to various Taxation Boards of Review decisions relating to the former section 51A of the Income Tax assessment Act 1936 (ITAA 1936). In referring to these decisions, paragraph 14 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 of 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. 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 to 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 a usual place of abode or usual place of residence were discussed by the Administrative Appeals Tribunal 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 Administrative Appeals Tribunal, the following factors indicate that you are living away from your usual place of residence:

· you are a citizen of a foreign country;

· you are in Australia on a four year fixed term class 457 visa, and you will not be able to remain in Australia once this visa has expired;

· you have retained various ties to the foreign country, including ownership of your previous residence, a bank account, a superannuation fund and your professional membership;

· since commencing your employment in Australia, you have regularly returned to the foreign country;

· you have indicated your intention to return to the foreign country at the end of the visa expiry period and, subsequently occupy your place of residence in the foreign country, and

· you will be providing your employer with a living-away-from-home allowance declaration.

Therefore, as your usual place of residence is in the foreign country, and the employment location is in Australia, it is accepted that the accommodation, additional food and education expenses arise as a result of you being required to live away from your usual place of residence in order to perform your duties of employment.

The allowance paid to you for accommodation, the additional cost of food and education, will be a LAFHA benefit. As the allowance is an exempt benefit, it will not form part of your assessable income.

Other matters to consider

Although the allowance will not form part of your assessable income, it may impact on the fringe benefits tax liability of your employer and on the reportable fringe benefits amount shown on your Payment Summary.

Your employer's fringe benefits tax liability

As your employer is a public benevolent institution, it will be liable to pay fringe benefits tax where the grossed up value of most benefits that would be a 'fringe benefit' if the employer was not a public benevolent institution exceed $30,000.

The calculation of the non-exempt amount, which is the amount on which the employer pays fringe benefits tax, does not include:

· benefits that constitute the provision of meal entertainment;

· car parking benefits;

· benefits whose taxable values are wholly or partly attributable to entertainment facility leasing expenses; and

· benefits that are exempt benefits for employers that are not a public benevolent institution.

Under your current employment contract you are receiving meal entertainment by using a meal card and your rental expenses are being reimbursed. Neither of these benefits are included in the calculation of your non exempt amount as the calculation does not include meal entertainment benefits and the reimbursement of rental expenses incurred by an employee who is required to live away from his or her usual place of residence in order to perform their duties of employment is an exempt benefit under section 21 of the FBTAA for all employers.

By contrast, a LAFHA is a benefit that is included in the calculation of the non exempt amount as it is a benefit that is a fringe benefit for employers that are not a public benevolent institution.

The amount of the LAFHA that will be included in the calculation of the non-exempt amount is the amount calculated under section 31 of the FBTAA. This will be the amount of the allowance less:

· the exempt accommodation component; and

· the exempt food component.

The definition of exempt accommodation component and exempt food component in subsection 136(1) of the FBTAA provide that:

· the exempt accommodation component is the amount of the allowance that is compensation for the additional expenses that you might reasonably be expected to be incurred in respect of a lease or licence of a unit of accommodation; and

· the exempt food component is the amount of the allowance that is compensation for the additional food costs that you can be expected to incur as a result of having to live away from your usual place of residence. In calculating this amount:

o the FBTAA provides a statutory food amount which is the amount that is taken to be the amount that you would spend at your usual residence.

o In addition, the Tax Office issues an annual Taxation determination which lists the amounts that are considered reasonable for an overseas employee working in Australia. For the year ended 31 March 2012 the rates are set out in Taxation Determination TD 2011/4.

Therefore, the non exempt calculation may include the portion of the allowance that relates to:

· the garden maintenance expenses as these expenses are not for a lease or licence in respect of a unit of accommodation;

· the education and school expenses;

· the portion of the food component (if any) that is in excess of the reasonable amount; and

· the portion of the food component that is the amount you would be incurring if you were still at your usual place of residence.

As the non exempt amount will also include the amount of the car expenses, the $30,000 exemption that applies to a public benevolent institution may be exceeded. If this occurs your employer will have a fringe benefits tax liability.

This advice is based on the education and school expenses being included as part of the allowance. If instead of receiving an allowance for these expenses you were to be reimbursed, the value of the resulting expense payment benefit may be able to be reduced to nil under section 65A of the FBTAA.

The reportable fringe benefits amount

If the value of certain benefits that you receive exceed $2,000 in a fringe benefits tax year the grossed-up value of the benefits will be shown on your Payment Summary. You will not be liable to pay income tax on this amount, but the amount will be included in a number of income tests including those that apply to:

· the Medicare levy surcharge;

· the deduction for personal super contributions;

· super co-contribution;

· tax offset for eligible spouse super contributions;

· Higher Education Loan Programme and Student Financial Supplement Scheme repayments;

· child support obligations; and

· the entitlement to certain income-tested government benefits.

As with the calculation of the employer's fringe benefits tax liability the calculation of your reportable fringe benefits amount does not include:

· benefits that constitute the provision of meal entertainment; and

· benefits that are exempt benefits for employers that are not a public benevolent institution.

Therefore, the benefits that you have received by using your meal card and the rental reimbursement will not have been included in the calculation of your reportable fringe benefits amount.

However, the value of a LAFHA is a reportable payment. Therefore, if the amount of the LAFHA will be more than $2,000 the grossed-up value of the LAFHA and the benefits that arise from the payment of your car expenses will be reported on your Payment Summary.