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Ruling

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

Question 1

Will the allowance paid to your employee be a living-away-from-home allowance (LAFHA) 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 allowance be reduced by any exempt accommodation component?

Answer

Yes.

This ruling applies for the following periods:

Year ended 31 March 2012

Year ended 31 March 2013

Year ended 31 March 2014

The scheme commenced on:

During 2011

Relevant facts and circumstances

You have employed an interstate resident in a permanent position within your organisation.

The employee is required to perform the duties of his employment at your headquarters. For this purpose he travels from his interstate home on Mondays and returns on Fridays.

The employee has rented a furnished apartment situated near your headquarters on a twelve month lease. He has no intention of permanently relocating himself or his family to the city in which your headquarters are located. Although his employment with you is a permanent position he considers his interstate residence to be his home and intends to return there upon termination of his employment with you.

The employee recently purchased a family home in his state of origin, in which he and his family reside. His wife and children will continue to reside there with the employee travelling to your headquarters on a weekly basis for the purpose of his employment.

The employee's rented apartment contains possessions necessary for the performance of his duties of employment, such as a corporate wardrobe.

His furniture remains in his family home interstate.

The majority of the employee's social network is located in his state of origin. He also maintains his professional connections there.

The employee has no intention of acquiring any property or other significant investments in the city in which your headquarters is located.

The employee will maintain his postal address and registration on the electoral roll at his interstate address.

The employee's children are completing their education in the city in which his interstate residence is located.

The employment contract entered into between you and your employee states you are providing him an accommodation allowance. This is based on market rents for similar properties near your headquarters.

The employee will provide you with a living-away-from-home declaration for each year he is considered to be living away from home.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Subsection 30(1)

Fringe Benefits Tax Assessment Act 1986 Section 30

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Income Tax Assessment Act 1936 Section 51A

Reasons for decision

Question 1

Will the allowance paid to your employee be a LAFHA 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

(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.

(b) Is the allowance to be paid for additional non deductible expenses and other disadvantages?

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

(c) Will 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 will 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 (MT2030).

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.

Further guidance is also provided at paragraph 43 which states:

That is not to say that an unaccompanied employee should always be treated as travelling and an accompanied one regarded as living away from home. While those factors may be indicative of the nature of the employee's absence, the tests for determining the purpose of an allowance are as previously explained. To illustrate the point, an employee who lives during the working week in the country town where his permanent job is located but who travels perhaps several hundred kilometres to live during weekends with his wife and children in the family home located in another town would be, during the week living away from home…It is not where the family is that determines the nature of the allowance but where the employee is in relation to the usual place of residence and whether, on the facts, the employee can be said to be travelling on the job or living away from home.

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 Case B47, 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 the usual place of residence will be the employee's interstate residence because the employee:

§ owns the residence interstate

§ and his family reside in the interstate residence

§ will be commuting to his place of employment from his interstate residence on a weekly basis

§ will be accommodated in furnished short-term rental accommodation located near your headquarters whilst he is working

§ will maintain family, social and professional relationships interstate

§ has no intention of permanently relocating himself or his family to the city in which your headquarters is located, and

§ intends to return to his interstate residence upon the termination of his employment with you.

Therefore as the usual place of residence is interstate and the employment location is in the state in which your headquarters are located, it is accepted that the expenses arise as a result of the employee being 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 to be 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 allowance be reduced by any exempt accommodation?

Section 31 of the FBTAA sets out the method for calculating the taxable value of a LAFHA. It states that where fringe benefit is covered by subsection 30(1) the taxable value is:

the amount of the recipients allowance reduced by:

(i)  any exempt accommodation component; and

(ii)  any exempt food component; or

'Exempt accommodation component' is defined in subsection 136(1) of the FBTAA. The definition provides that the exempt amount will depend upon whether the employee provides a living-away-from-home declaration. If a declaration is not provided, the exempt component 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 reasonably be expected to incur.

As the accommodation component will be based on the rent for similar properties located near your headquarters, the amount of the accommodation component will be the exempt accommodation component if the employee provides the necessary declaration.

Conclusion

If the employee provides a declaration the taxable value of the LAFHA will be reduced by the exempt accommodation component.