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Ruling

Subject: Living away from home allowance

Question 1

Is the payment of a living-away-from-home accommodation component an exempt benefit under subsection 47(5) of the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes

Question 2

Will the taxable value of the living-away-from-home food component fringe benefit provided, not exceed the $42 per week per adult (including a child over 12 years of age), and $21 per week for each child under 12 years of age for an expatriate employee?

Advice

Refuse to rule, as there is no current scheme, nor any future proposed scheme to pay an expatriate employee the living-away-from-home food component.

This ruling applies for the following periods:

1 April 2011 to 31 March 2015

The scheme commences on:

1 July 2011

Relevant facts and circumstances

· An employer has hired an expatriate employee to work for them.

· The employee resides overseas and intends to return to his home country on completion of his employment contract. He is temporarily residing in Australia.

· The employer sponsored the employee through the Department of Immigration and Citizenship (DIAC) in order to hire him on a temporary basis.

· DIAC has issued the employee a temporary Business Entry (Class UC) business (Long Stay) (subclass 457) Visa valid for four years.

· The employment contract is initially for 1 year but will be reviewed and extended annually depending on the employee continuing to meet the 457 Visa requirements.

· Included in the employment contract is a payment of living-away-from-home (LAFH) accommodation allowance.

· The employment contract does not include any payment for additional food costs.

· The employee has provided a LAFH declaration to the employer stating that he is required to live away from his usual place of residence to perform duties of his employment with the employer in Australia for 4 years.

Relevant legislative provisions

Subsection 47(5) of the Fringe Benefits Tax Assessment Act 1986

Subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986

Reasons for decision

Issue 1

Question 1

Summary

The payment of a LAFH accommodation to an expatriate employee is an exempt benefit in accordance with subsection 47(5) of the Fringe Benefits Tax Assessment Act 1986.

Detailed reasoning

The Fringe Benefits Tax Assessment Act 1986 (FBTAA) provides an exempt benefit for the accommodation provided, for a person living-away-from-home where the employer pays an allowance to compensate the employee for the inconvenience of living-away-from his usual place of residence for a short period.

Subsection 47(5) of the FBTAA:

47(5) Living-away-from-home accommodation

Where:

(a) a residual benefit consisting of the subsistence, during a year of tax, of a lease or licence in respect of a unit of accommodation is provided to an employee of an employer in respect of his or her employment;

(b) the unit of accommodation is for the accommodation of eligible family members and is provided solely 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;

(c) the accommodation is not provided while the employee is undertaking travel in the course of performing the duties of that employment; and

(d) either of the following conditions is satisfied:

(i)  subsection (7) applies in relation to the provision of transport for the employee in connection with travel in the period in the year of tax when the lease or licence subsisted, being travel between the employee's usual place of residence and the employee's usual place of employment;

(ii)  the employee gives to the employer, before the declaration date, a declaration, in a form approved by the Commissioner, purporting to set out:

(A) the employee's usual place of residence; and

(B) the place at which the employee actually resided while living away from his or her usual place of residence;

the benefit is an exempt benefit in relation to the year of tax.

The conditions that must be satisfied under subsection 47(5) of the FBTAA are:

1. accommodation is leased or licensed to an employee

2. the accommodation is required solely because the employee is required to live away from home in order to perform employment duties

3. the accommodation is not provided while the employee is undertaking business travel; and

4. the employee provides the employer with a living away from home declaration.

Application to your circumstances

The expatriate employee has been issued with a subclass 457 Visa, which entitles the employee to work in Australia for a maximum period of four years.

The sponsoring employer has employed the expatriate for a four-year term; however, his contract will be reviewed yearly and extended dependant on the employee meeting the Visa requirements.

Condition 1 A unit of accommodation is leased or licensed to the employee

The employee has stated that he is now living at an address in Australia. He resides at these premises leased for the ensuring period. He has a lease (which includes sublease) as defined in subsection 136(1) of the FBTAA over the property.

A unit of accommodation as defined in subsection 136(1) of the FBTAA includes a house, flat, home unit, amongst other structures and includes accommodation in a house, flat, home unit, hotel, motel, guesthouse amongst other things. The premises leased fits within this definition.

Therefore, this condition is satisfied.

Condition 2 Employee is living away from home.

The employer sponsored him for his skills, which will be performed in Australia. For the duration of the visa, he has to perform employment duties for his sponsoring employer, otherwise he is in violation of the terms of his visa, and he has to return to his home country earlier than anticipated.

To satisfy this condition the employee must be living-away-from their 'usual place of residence' whilst performing their employment duties.

There is no statutory definition of 'usual place of residence' but in the context of the definition of a 'place of residence' as defined in subsection 136(1) of the FBTAA stated below, should be taken to mean habitual or customary. Usually a person will have one usual place of residence at any one time even though this can be for a short time.

A 'place of residence' means:

(a) a place at which a 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.

The expatriate employee has been provided clearance to work in Australia for a limited period of four years by DIAC.

In the employee's circumstances, it is accepted his usual place of residence is overseas. Therefore he is required to live away from his usual place of residence (with the intention of returning to his usual place of residence), in order to perform employment duties for the sponsoring employer. Hence, the accommodation is provided because he is living-away-from his home.

Therefore, this condition is satisfied.

Condition 3 Business travel exclusion

The tax office's view regarding the difference between travelling on business and living-away-from-home allowance is detailed in MT2030.

The distinction has to be made because travelling on business gives a different income tax treatment to living-away-from-home allowance, which is subject to fringe benefits tax legislation.

To qualify for this part of the exemption, an employee cannot be travelling on business, which occurs when an employee travels in the course of performing his or her employment duties. This means the employee does not change his usual place of residence.

If a person is living-away-from-home, the allowance provided is not included in the employee's assessable income and he is required by his employer to move away from his usual place of residence and reside elsewhere to perform his employment duties for a short period.

Generally, if the duration of the travel away from home is less than 21 days, the allowance will be considered paid because the employee is travelling on business.

In this case, the employee has been given a working visa in Australia for maximum of four years, and intends returning to his home country at the end of the term. He has leased a unit of accommodation. The lease is paid for in whole or in part by the employer because he is living-away-from home. Hence he is not travelling on business, but living-away-from-home.

This condition is satisfied.

Condition 4 Employee declaration provided to employer.

The employee has to provide the employer with a LAFH declaration by the due date for lodgement of the FBT return.

The declaration sets out his usual place of residence overseas and his temporary place of abode where he will reside during the period he lives away from home, in Australia.

The employee has provided the employer with a declaration.

This condition is satisfied.

Conclusion:

All the conditions outlined in subsection 47(5) of the FBTAA have been satisfied, therefore the LAFH accommodation allowance provided to the employee, will be an exempt benefit and not subject to fringe benefits tax.

Question 2

Summary

There is no payment of a LAFH food component to the current employee. There is no definite amount that will be paid to future employees. Therefore, the tax office cannot rule on an issue where there are no facts or an arrangement to pay a food component of LAFH allowance.

Detailed reasoning

Although we will not be ruling on the food component of LAFHA, the following general advice is provided.

A private ruling is a written expression of the Commissioner's opinion about the way in which a relevant provision applies or would apply to you.

A private ruling must be in relation to a specified scheme.

'Scheme' is widely defined to mean 'any arrangement', or 'any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise'.

Food component of LAFHA:

There is no arrangement for the payment of a food component to the current employee or for future employees. Without the exact arrangement or proposed arrangement, we cannot provide you with a private ruling on this part of LAFHA, because a private ruling will bind the Commissioner and the employer if they follow the private ruling.

Unfortunately, this means applying for a new private ruling if your client is paying a food component to an employee (or reasonably certain of the amount that would be paid as per a draft employment contract).

Alternatively, your client would be able to self-assess the amount of FBT due from providing a LAFHA which includes the food component.

The following will assist you and your client in working out the FBT payable if LAFHA food component is provided with reasonable certainty.

Chapter 11 of the tax office's publication Fringe Benefits Tax: a Guide for employers, includes discussion on the reasonable accommodation and food components of a LAFHA and lists factors that could be taken into account when determining the amount for each component. It is entirely up to the employer's discretion as to the amounts to be paid to the employee.

Taxation Determination TD 2011/4 provides a list of amounts that represent a reasonable food component for expatriate employees for the FBT year that commenced on 1 April 2011. This should be read in conjunction with Miscellaneous Taxation Ruling MT 2040.

These references are available on www.ato.gov.au.