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Ruling

Subject: board fringe benefits

Question

Can the taxable value of board meals provided to employees who work at remote sites on a roster basis be reduced to nil under section 37 of FBTAA?

Answer

Yes.

This ruling applies for the following periods:

Year ended 31 March 2008

Year ended 31 March 2009

Year ended 31 March 2010

Year ended 31 March 2011

Year ended 31 March 2012

Year ended 31 March 2013

Year ended 31 March 2014

The scheme commences on:

1 July 2007

Relevant facts and circumstances

The employer operates a mine located in an area that Practice Statement Law Administration PS LA 2000/6 Fringe benefits tax: what is considered to be remote for the purposes of the remote area housing benefit lists as remote (as in outside of an eligible urban area) for the purpose of section 140 of the FBTAA.

Employees are supplied with as part of their employment, accommodation at a nearby mine camp whilst they are working at the mine. Included in the supply of accommodation is the supply of three meals per day whilst employees are staying at camp.

The relevant employees work on a roster basis of 7 days on and 7 days off.

Employees are required to maintain a place of residence elsewhere and during their rostered time off are not permitted to stay at camp or use any facilities that the camp provides, including the provision of meals. The employer enforces these rules with all employees and no exceptions are made.

Family members are not permitted to accompany the employee to the camp or the work site.

The employees work shifts are between 10 to l2 hours depending on the time of day the shifts are undertaken.

The employees are provided with accommodation and meals as described above for the following reasons:

· The provision of accommodation and meals as described is consistent with the Enterprise Bargaining Agreement that applies to these employees.

· Daily travel between the employee's usual place of residence and the work site would not be consistent with the health and safety policy due to the length of the shifts and the remote location of the worksite.

Generally employees are transported between the camp and the work site and a work site policy does not permit employees to drive private vehicles to the site.

The meals provided are basic breakfast, lunch and dinner meals. Alcohol is not included with the meals provided.

The applicant also states that:

· Accommodation options are limited in the local area.

· There is a lack of dining facilities located in and around the mine camp.

· The accommodation provided at the camp is single quarter accommodation with one bed and ensuite.

The meals being provided are board meals as defined in subsection 136(1) of the FBTAA.

Relevant legislative provisions

FBTAA section 35

FBTAA section 36

FBTAA section 37

FBTAA subsection 136(1)

Reasons for decision

A board fringe benefit arises under section 35 of the FBTAA where a board meal is provided to an employee. A board meal is defined in subsection 136(1) of the FBTAA These two sections are summarised in chapter 13 of the publication Fringe benefit tax - a guide for employers (NAT 1054) which states in part:

Providing a meal to an employee is a board fringe benefit if the employee is entitled to have accommodation provided and all of the following conditions are satisfied:

· there is an entitlement under an industrial award to be provided with at least two meals a day, or under an employment arrangement at least two meals a day are ordinarily provided

· the meal is supplied by you (the employer) - if you are a company, the meal may be supplied by a related company in a wholly owned group

· the meal is cooked or prepared on your (or a related company's) premises or on a worksite or place adjacent to a worksite

· the meal is supplied on your premises (or the worksite) or on the premises of a related company.

The taxable value of a board fringe benefit is set in section 36 of the FBTAA at $2 or $1 depending on the recipients age at the beginning of a fringe benefits tax (FBT) year.

Section 37 of the FBTAA allows for a reduction in this taxable value the extent that the employee would have been entitled to a income tax deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for expenditure incurred, if the recipient had, at the time when the benefit was provided, incurred and paid the unreimbursed expenditure. This is commonly referred to as the Otherwise Deductible Rule (ODR).

It is the application of the ODR to the provision of the board fringe benefit that is the subject of this ruling.

Under paragraph 37(a) of the FBTAA the ODR only applies to benefits provided to employees and not associates of employees. In this case the recipients of the meals are employees (as family are banned from site) so this paragraph will be satisfied.

As for the remaining conditions ATO Interpretative Decision ATO ID 2001/120 Fringe Benefits Tax Fringe benefits tax 'otherwise deductible' rule specifically looks at the application of the ODR for a number of fringe benefits (including board fringe benefits) provided by the employer to certain employees working at remote work sites.

Paragraph 2 of the reasons for decision in ATO ID 2001/120 states:

The meals provided to the employees are board fringe benefits that have a taxable value of $2.00 each under paragraph 36(a) (FBTAA). The 'otherwise deductible' rule in section 37 (FBTAA) may apply to reduce the taxable value of the board fringe benefit to nil depending on the particular facts of the case.

Accordingly, it is necessary to establish that the relevant employees would have been entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) (former subsection 51(1) of the Income Tax Assessment Act 1936 (ITAA 1936)) had they incurred and paid unreimbursed expenditure on the meals.

The decision of Hill J in Roads and Traffic Authority of NSW v. FC of T (1993) 43 FCR 223 considered the circumstances in which various allowances paid to road construction and repair crews, who were required to camp away from home, could be considered to be paid to compensate for outgoings, which if incurred by the employee would have been deductible expenses. In the process of determining that the hypothetical expenditure on meals by the employees would have been deductible expenses according to the definition in subsection 136(1) (FBTAA), that is they would have been deductible in terms of subsection 51(1) (ITAA 1936), Hill J set down a general rule by which deductibility of such expenditure is to be determined (at 240):

'Where a taxpayer is required by his employer, and for the purposes of his employer, to reside, for periods of time, away from home and at the work site, and that employee incurs expenditure for the cost of sustenance, or indeed other necessary expenditure which, if the taxpayer had been living at home, would clearly be private expenditure, the circumstance in which the expenditure is incurred, that is to say, the occasion of the outgoing operates to stamp that outgoing as having a business or employment related character.'

His Honour (at 240) noted the following features of the RTA employees' working conditions that supported claims for deductibility of expenditure on sustenance and other necessary items:

...they are required, as an incident of their employment, by their employer and for the purposes of their employer to live close by their work site for relatively short periods of time. No question arises of their choosing to live in these places. Each of the persons in question has a permanent house in which he lives when not in camp. None of the employees spend inordinate periods of time in the camps so that the camp becomes their home. Their house is retained and the employees in question travel home at weekends. They do not remain in the camps.'

However, Hill J did observe that where an employee has no private home and is employed indefinitely to work at a particular site, then that employee might be said to have chosen to live at the site so that the cost of the employee's accommodation there would be private.

The question of whether an employee has chosen to live at the site is one of fact and degree. In the present case, having regard to the relevant facts including:

· remoteness of the sites;

· living conditions at these sites;

· a general requirement for employees to leave the sites whilst not on duty;

· an inability to have family or friends visit the site;

· working conditions involving 12 hour shifts for 7 days a week;

· fixed period contracts of employment; and

· the limited life of most mining sites,

it could not be said that the employees had chosen the accommodation provided by the employer at or near the mine site to be their home, such that their usual place of residence had ceased to be their home.

Accordingly, it is possible to conclude on the facts of the case that an income tax deduction would have been allowable to the recipient of the board fringe benefit if the recipient had incurred unreimbursed expenditure in respect of the acquisition of the benefit. On this basis, the ODR in section 37 (FBTAA) will apply and the taxable value of the board fringe benefits is reduced to nil.

In this case:

· the mine site is considered remote for FBT purposes

· the employees are required to maintain a place of residence away from the mine site which they are required to return to on their days off

· there is no choice by the employee in relation to the nature of their accommodation working and living at the mine site;

· the employees reside in single quarter accommodation with one double bed and ensuite on a campsite near the mine;

· the employees work shifts of 10 to 12 hours with a half hour break for 7 days, and

· the employees are not accompanied by family members on their rosters.

Based on these factors and the reasons contained in paragraph 2 of ATO ID 2001/120 it could not be concluded that the employees had chosen the accommodation provided by the employer at or near the mine site to be their home. It is the residence they are required to maintain and return to when not on roster that could be said to be their usual place of residence.

Therefore in accordance with ATO ID 2001/120 and the reasons given within (particularly in respect of the application of Roads and Traffic Authority of NSW v. FC of T (1993) 43 FCR 223) the ODR in section 37 of the FBTAA will apply to reduce the taxable value of the board fringe benefits to nil.