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Ruling

Subject: Fringe Benefits Tax - Living-away-from-home allowance

Question

Will the allowance paid to the employee cease to be a living-away-from-home allowance when the employee is relocated from Perth to Sydney?

Answer

No

Relevant facts and circumstances

The employee is a citizen of an overseas country.

Their parents continue to live in the overseas country.

They were employed in an associated company in the overseas country.

In August 2009 the employee was offered a secondment to work for you.

The letter of offer states that the expected duration of the assignment was to be for 18 months after which he would be repatriated to the home country.

The employee arrived in Australia in October 2009 on a business sub-class 457 visa where they commenced duties in your Perth branch.

Under the terms of the secondment the employee was paid a living-away- from-home allowance (LAFHA) to compensate him for the additional expenses and/or disadvantages associated with being required to live away from his usual place of residence.

At the conclusion of his original assignment, the employee was transferred to Sydney. This position became available following the sudden departure of the employee's predecessor. As you were unable to find a suitable replacement at short notice the position was offered to the employee who commenced duties in May 2011.

The employee's partner moved to Sydney with the employee and intends to work full time whilst studying part time. The studies will be completed in 18 to 24 months at which point they both plan to return to the overseas country. At this point the employee plans to withdraw all funds paid into his superannuation fund in Australia and contribute the monies into the home country pension plan.

While the position is ongoing the employee's express intention is to limit it to a two year maximum time frame. At that stage the partner's studies will have been completed. In this regard, the employee's time in Australia is limited by the 457 visa which will expire in October 2013.

The employee has retained several bank accounts and a credit card in the home country. These accounts are used during his trips to the home country and they plan to keep these open indefinitely. He does not hold any other assets in the Home country.

Since coming to Australia they have returned to the Home country on a twice annual basis to visit their parent, grandparent and friends. They have stated that this network of valuable friendships is the reason why they wish to return to the Home country.

Reasons for decision

Will the allowance paid to the employee cease to be a living-away-from-home allowance when the employee is relocated from Perth to Sydney?

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 the requirements of subsection 30(1), 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

(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.

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 the employee would not be able to claim an income tax deduction for these expenses this requirement is satisfied.

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 place at which the person resides; or

· 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 Maquarie 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 decision of Taxation Boards of Review relating to the former 51A of the Income Tax Assessment Act 1936 (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.

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 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 general rules set out in MT 2030 and the factors discussed by the AAT:

· the employee's substantive employment remains with your related overseas company; and

· the employee's letter of offer, for their initial assignment in Australia, states that at the end of their secondment they will be repatriated back to the Home country.

These factors indicate the place of permanent employment is in the Home country. This has not altered with the assignment to Australia and in accordance with paragraph 19 of MT 2030 is an indication that the usual place of residence during the relevant years is in the Home country.

Support for this conclusion is provided by paragraph 20 which provides that 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 will generally be treated as living away from home.

Although the employee has remained in Australia at the conclusion of the initial assignment, this was to meet your business needs that resulted in an extension of the original secondment. It did not change the permanent job location. The undertaking contained in the original assignment to return the employee to his original employment in the home country at the end of the secondment has not altered.

In reaching this conclusion, it is noted that and that the extension of the assignment has not altered the length of the visa. The visa still restricts the employee's stay in Australia to a four year period.

Therefore, in applying paragraph 22 of MT 2030 it is accepted that the employee will continue to be living away from his usual place of residence for the additional two years he is in Australia.

Further support for this conclusion is provided by the following factors which establish an ongoing connection with the home country:

· the employee has retained family, social and economic ties in the Home country;

· the employee has not purchased a residence in Australia, but resides in rental accommodation;

· the employee is regularly returning to the Home country to visit family and friends; and

· the investment assets held in the Home country.

Therefore, the two year extension of the secondment will not affect the conclusion that the employee is living away from his usual place of residence.

As the additional expenses for which the allowance is being paid are a result of the employee being seconded to work in Australia which is away from the usual place of residence the allowance will continue to be a living-away-from-home allowance.