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Ruling

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

Question 1

Will a Pay-As-You-Go (PAYG) withholding obligation arise in relation to the allowance for food and accommodation paid to a visiting academic who is:

· a student?

· an employee of another Australian university?

· an employee of an overseas university?

Answer

· No

· No, if the allowance is a living-away-from-home allowance

· Unable to rule

Question 2

Will a fringe benefits tax (FBT) liability arise where you make a payment on behalf of or reimburse the cost of accommodation, food and travel expenses of a visiting academic who is:

· a student?

· an employee of another Australian university?

· an employee of an overseas university?

Answer

· No

· No

· unable to rule

This ruling applies for the following periods:

01 April 2011 - 31 March 2012

01 April 2012 - 31 March 2013

01 April 2013 - 31 March 2014

01 April 2014 - 31 March 2015

01 April 2015 - 31 March 2016

The scheme commences on:

01 April 2011

Relevant facts and circumstances

You are a University operating in Australia.

You invite visiting academics (the Visitors) to assist in delivering your academic, research and commercial/operational outcomes.

You advise the Visitors, in your invitation to attend your university, that they are not your employee, partner or agent and that they are not entitled to salary or any other employment related benefits.

You have a Visitor Terms and Information sheet on your website which states that your Workers Compensation Insurance and Personal Accident Insurance does not generally apply to visitors.

Some of the Visitors receive a payment(s) that represent a contribution towards their living expenses. They receive no other payment or reimbursement.

Other Visitors are with you for less than 21 days.

The Visitors that are non-residents, and holding a Subclass 419 visa or similar non sponsored visa, relocate for a semester, which is not more than six months.

Certain Visitors arrive on a visa which allows people to complete a workplace-based training in Australia on a temporary basis, up to two years. The training must provide people with additional or enhanced skills in the nominated occupations, tertiary studies or fields of expertise.

Some of these Visitors can be paid via your payroll system in accordance with your Enterprise Agreement if the work is directly linked to their program. Alternatively they can be paid an allowance towards living expenses in Australia and travel costs.

It is your preferred practice to pay directly for both accommodation and airfares or reimburse the travelling costs.

You provide accommodation and pay for the travel costs for the overseas visiting academic including airfares.

You provide an allowance for food and accommodation, or

You will reimburse the Visitor for food/meals, visa costs and medical insurance.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 section 30

Taxation Administration Act 1953 Division 12

Reasons for decision

Question 1

Will a Pay-As-You-Go Withholding obligation arise in relation to the allowance for food and accommodation to a visiting academic who is:

· a student?

Division 12 of Schedule 1 of the Taxation Administration Act 1953 (TAA) sets out the payments from which an amount must be withheld.

Section 12-35 of the TAA states:

An entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity).

However, section 12-1 sets out the general exceptions where withholding is not required. Subsection 12-1(2) provides that:

In working out how much to withhold under 12-35, 12-40, 12-45, 12-47, 12-115, 12-120, 12-315, or 12-317 from a payment, disregard so much of the payment as is a living-away-from-home allowance benefit as defined by section 136 of the Fringe Benefits Tax Assessment Act 1986.

Therefore it is necessary to determine whether:

· the visiting student is an employee and

· whether the allowance is a living-away-from-home allowance (LAFHA).

· Is the visiting student an employee?

The ATO publication Volunteers and tax Treatment of transactions between non-profit organisations and volunteers (NAT 4612-04 2008) (the Guide) provides guidelines as to whether allowances, payments or reimbursements to volunteers will be assessable income.

The Guide states at page 3:

Volunteers can be paid in cash, given non-cash benefits or given a combination of both cash and non-cash benefits. These payments are given various descriptions, including honoraria, reimbursements and allowances. Sometimes they are given no name at all.

How an amount is described does not determine its treatment for tax purposes. Whether a payment is assessable income in the hands of a volunteer depends on the nature of the payment and the recipient's circumstances.

Generally, receipts which are earned, expected, relied upon and have an element of periodicity, recurrence or regularity are treated as assessable income.

Where a person's activities are a pastime or hobby rather than income-producing, money and other benefits received from those activities are not assessable income.

A payment to a volunteer that is not assessable will have many of the following characteristics.

The payment is to meet incurred or anticipated expenses.

The payment has no connection to the recipient's income-producing activities or services.

The payment is not received as remuneration or as a consequence of employment.

The payment is not relied upon or expected by the recipient for day-to-day living.

The payment is not legally required or expected.

There is no obligation on the part of the payer to make the payment.

The payment is a token amount compared to the services provided or expenses incurred by the recipient. Whether the payment is token depends on the full facts surrounding the payment and recipient's circumstances.

The Guide also concludes on page 4 that an allowance paid to a volunteer may be assessable where the allowance has no regard to the actual expenses and there is no requirement to repay unspent monies.

Whether the allowance is assessable income of the visiting student depends on the facts surrounding the payment and the relationship between you and the student.

Regard should be made to the listed characteristics above.

Therefore, we consider that the visiting student would be similar to a volunteer as the payment of an allowance would not be in connection with employment. The allowance is paid to cover food, accommodation and travel expenses only. It is not a reward or recognition for services provided. The student would not be considered an employee.

(2) Is the allowance a LAFHA?

Section 30 of the FBTAA sets out the circumstances in which a payment to an employee will be a LAFHA 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 the allowance will be a living-away-from home-allowance if:

(a) the allowance is paid to an employee of the employer, and

(b) 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

(c) 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 to an employee?

In your situation you are the provider of the allowance. As you are not the employer of the visiting student there will be no fringe benefit.

As stated previously, the allowance paid to the visiting student is not assessable income as it is similar to payments made to volunteers therefore you will have no PAYG withholding obligation.

(b) an employee of another Australian university

As set out above a PAYG withholding obligation will arise where you pay an allowance to an employee or an employee of another entity. You will not be required to withhold from the payment of an allowance that is a LAFHA under subsection 12-1(2) of the TAA.

Is the allowance a LAFHA?

As discussed above the allowance will be a LAFHA where the following conditions apply:

(a) the allowance is paid to an employee of the employer, and

(b) 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

(c) 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.

In this situation the employee is an employee of another university. You are the provider of the allowance. Therefore, you will not have an FBT liability.

However, you may be required to provide details of the allowance to the employee's employer if the allowance is a LAFHA.

If the allowance is not a LAFHA then the allowance will be assessable income of the visiting employee. Taxation Ruling IT 2612 Income tax: assessability of fellowship moneys received from an overseas university (IT 2612) states at paragraph 15:

In the case before the Tribunal the fellowship was only available to scholars holding academic posts. The taxpayer was able to apply for and to secure the fellowship because she or he was a member of the academic staff of her or his home university. The possible receipt of the fellowship benefit was a recognised incident of the taxpayer's employment. In the taxpayer's hands the benefits received were benefits she or he was entitled to receive by virtue of her or his employment. The benefits that the taxpayer was able to receive under the fellowship were therefore incidental to her or his employment. The taxpayer's employment is considered to have been a substantial reason why the fellowship was paid.

Your situation is similar to the one above. You invite academics to assist you in delivering your academic, research and commercial/operational outcomes. The allowance paid by you is considered to incidental to their employment.

If the allowance is not a LAFHA you may have a PAYG withholding obligation. It may, however, not be necessary to withhold if the allowance paid is a travel allowance as defined in subsection 900-30(3) of the Income Tax Assessment Act 1997 (ITAA 1997).

Taxation Ruling 2004/6 Income tax: substantiation exception for reasonable travel and overtime meal allowance expenses states at paragraph 12:

Unless the following exception applies, all allowances must be shown as assessable income in the employee's tax return. However where:

· the allowance is not shown on the employee's payment summary;

· the allowance received is a bona fide overtime meal allowance or a bona fide travel allowance;

· the allowance received does not exceed the reasonable amount; and

· the allowance has been fully expended on deductible expenses,

the allowance received is not required to be shown as assessable income in the employee's tax return. Where the allowance is not required to be shown as assessable income in the employee's tax return, and is not shown, a deduction for the expense cannot be claimed in the tax return. (See Pay As You Go (PAYG) Bulletin No. 1 - Taxing of allowances for the 2000/01 and future years).

(c) an employee of an overseas university

We are unable to rule on this arrangement due to insufficient information provided.

However, where Australia has a Double Tax Agreement (DTA) with the home country of the visiting employee, teaching and research remuneration of visiting professors and teachers is usually exempt from tax in the country being visited provided the visit does not exceed two years.

If there is no DTA then the visiting employee may be required to pay tax on remuneration received.

Question 2

Will a FBT liability arise where you make a payment on behalf of or reimburse the cost of accommodation, food and travel expenses of a visiting academic who is:

a student?

Broadly, the definition of a fringe benefit in subsection 136(1) of the FBTAA provides that a fringe benefit arises when:

· a benefit

· is provided to an employee, or an associate of an employee

· by the employer, an associate of the employer, or a third party under an arrangement involving either the employer, or an associate of the employer

· in respect of the employment of the employee

· if the benefit is not one of the benefits listed in paragraphs (f) to (r) of the fringe benefit definition.

· Was a benefit provided

The definition of the term 'benefit' in subsection 136(1) of the FBTAA provides that a benefit includes:

any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under:

· an arrangement for or in relation to:

· the performance of work (including work of a professional nature), whether with or without the provision of property;

· the provision of, or of the use of facilities for, entertainment, recreation or instruction; or

· the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction;

· a contract of insurance; or

· an arrangement for or in relation to the lending of money.

You have either made a payment on behalf of or reimbursed the visiting student for expenses incurred on accommodation and food while they were assisting you meet your academic, research and commercial/operational outcomes.

Therefore a benefit has been provided.

(ii) Was the benefit provided to an employee or an associate of an employee?

As discussed in question 1(a) above we consider that the visiting student is not an employee. Therefore, as the benefit has not been provided to an employee it will not be a fringe benefit. No FBT liability will arise.

(b) an employee of another Australian university?

As discussed above the reimbursement of food and accommodation expenses will be a benefit.

Section 20 of the FBTAA states:

Where a person (in this section referred to as the "provider");

makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the "recipient") to pay an amount to a third person in respect of the expenditure incurred by the recipient; or

reimburses another person (in this section also referred to as the "recipient"), in whole or in part, in respect of an amount of expenditure incurred by the recipient;

the making of the payment referred to in paragraph (a), or the reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit by the provider to the recipient.

The reimbursement of the food and accommodation expenses will be an expense payment benefit as per paragraph (b) above.

As stated in paragraph 15 of IT 2612 above, the benefit received by the visiting employee is incidental to their employment. Therefore the benefit will be a fringe benefit.

Subsection 66(1) of the FBTAA provides that it is the employer that pays the FBT. Therefore as you are the provider of the expense payment benefit you will not be liable for the FBT, however, you may be required to provide details of the benefit to the visiting employee's employer.

In determining whether there will be a PAYG withholding obligation subsection 12-1(3) of Schedule 1 of the TAA states:

In working out how much to withhold under section 12-35, 12-40, 12-45, 12-47, 12-115, 12-120, 12-315 or 12-317 from a payment, disregard so much of the payment as:

is an expense payment benefit as defined by section 136 of the Fringe Benefits Tax Assessment Act 1986; and

…

As the benefit is an expense payment benefit there will be no PAYG withholding obligation.

(c) an employee of an overseas university?

Unable to rule as insufficient information provided.

As stated above, where Australia has a Double Tax Agreement (DTA) with the home country of the visiting employee, teaching and research remuneration of visiting professors and teachers is usually exempt from tax in the country being visited provided the visit does not exceed two years.

If there is no DTA then the visiting employee may be required to pay tax on remuneration received.