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Ruling

Subject: Fringe benefits tax - living away from home allowance

Question 1

Does the allowance paid to the employee by the employer qualify as a living away from home allowance (LAFHA) fringe benefit pursuant to section 30 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986)?

Answer

Yes

Question 2

If the answer to (1) is yes, then is the employer entitled to reduce the taxable value of the LAFHA benefit provided by the exempt accommodation component and exempt food component under section 31 of the FBTAA 1986?

Answer

Yes

This ruling applies for the following periods:

31 March 2012

31 March 2013

31 March 2014

31 March 2015

The scheme commences on:

1 April 2011

Relevant facts and circumstances

Your employee is a key business leader who is developing a business service line.

You (the employer) are very keen to retain the employee's skills and are seeking to ensure your employee's services for a further four years.

Your employee is in Australia on a temporary Class 457 Australian work VISA initially for a four year period to be extended for a further three or four years, on mutually agreed terms of employment.

Your employee is a citizen Country X and is accompanied by his wife and his youngest son.

It is expected that your employee will return to his home country.

During his stay in Australia your employee and his family have resided in rented accommodation.

Based on the success of the project, your employee was asked to extend his stay in Australia and move to anther capital city to establish a business line and team there to deliver services to clients based in a specific region.

Your employee has now successfully built a team of X specialists with significant business and team growth projected.

A key part of your employee's function going forward is to meet your objectives to develop and grow a business which includes recruiting and training teams of specialists.

At present your employee is the most senior and experienced specialist in his field that is currently employed by you in Australia.

Your grounds for retaining the services of your employee in Australia for an additional four year period is to expand market share in this sector and the skilling of key Australian employees in the process.

Your employee had lived in Country X since 19XX and this is where his home is located, which he maintains ownership of and is currently occupied by his son.

Your employee returns to his home with his wife at least once a year and considers Country X to be his home location.

Your employee's contract states that at the end of his fixed tenure he and his family will be repatriated to Country X at the employer's cost.

It is your employee's intention to return to Country X once he is no longer required to work in Australia.

Your employee is still listed on the electoral roll of Country X and continues to vote in their government elections.

You pay an allowance to your employee for their additional private accommodation and food costs incurred due to living away from their usual place of residence overseas to perform their duties of employment with you.

You have advised that the amount of the food component will be determined on the basis of the rates in the Taxation Determination that sets out the amounts that represent a reasonable food component of a LAFHA for expatriate employees.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 30

Fringe Benefits Tax Assessment Act 1986 Section 31

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Reasons for decision

Issue 1

Question 1

Summary

An allowance constitutes a living-away-from-home allowance benefit under subsection 30(1) of the Fringe Benefits Tax Assessment Act (FBTAA 1986) where:

(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.

As both of these conditions are met the allowance paid to your employee will be a living-away-from-home allowance.

Detailed reasoning

Discussion of law

Section 30 of the FBTAA 1986 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:

(c) 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

(d) 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.

Usual place of residence

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 1986 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 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.

Application of the law

Is the allowance paid for additional non deductible expenses and other disadvantages?

You pay an allowance to your employee for their additional private accommodation and food costs incurred due to living away from their usual place of residence overseas to perform their duties of employment with you. 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 considering the factors referred to by the AAT the following factors indicate the employee's usual place of residence is in the Country X:

· the employee is a citizen Country X;

· the employee is in Australia on a temporary VISA initially for a four year period to be extended for a further three or four years, on mutually agreed terms of employment.

· the employee has retained ownership of their residence in Country X;

· it is the employee's intention to return to Country X once they is no longer required to work in Australia; and

· the employee's contract states that at the end of their fixed tenure he and his family will be repatriated to Country X at his employer's cost.

Conclusion

The employee is considered to be currently living away from his usual place of residence. Given the usual place of residence is in Country X and the employment duties are being performed in Australia it is accepted the employee is required to live away from his usual place of residence in order to perform his duties of employment.

As all the required conditions have been met, the allowance paid to the employee is a living-away-from-home allowance benefit pursuant to section 30(1) of the FBTAA 1986.

Question 2

Summary

The employer will be entitled to reduce the taxable value of the LAFHA benefit provided by the exempt accommodation component and exempt food component under section 31 of the FBTAA 1986.

Detailed reasoning

Discussion of law

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' and 'exempt food component' are defined in subsection 136(1) of the FBTAA 1986. Both definitions provide 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 components will have a nil value.

Exempt accommodation expenses

If a declaration is provided, paragraph 4 of MT 2030 explains that the exempt accommodation component is so much of the allowance as is reasonable compensation for additional expenses on accommodation.

Exempt food component

If a declaration is provided, paragraphs 5-7 of MT 2030 explain the exempt food component is so much of the allowance as is reasonable compensation for additional expenses on food. It is arrived at by first ascertaining the 'food component' of the allowance. If the amount of the 'food component' is set with the intention that it covers all food costs of the employee and family, the exempt food component is the excess of that component over what the employee would normally spend on food if he or she was not living away from home. However, if the food component of the allowance has been set to reflect only additional costs by reducing the allowance for home food costs, and the amount of the reduction on this account equals or exceeds the statutory food amounts, the amount of the net food component is the exempt food component.

Application of the law to your circumstances

Exempt accommodation expenses

You pay an allowance to your employee for their additional private accommodation incurred due to living away from their usual place of residence overseas to perform their duties of employment with you. On this basis, it is considered that this part of the allowance paid to the employee is reasonable compensation for the employee being required to incur additional accommodation expenses because of having to work in Australia. Therefore, it is considered that this part of the allowances meets the requirements of being an exempt accommodation component.

Exempt food component

You have advised that the amount of the food component will be determined on the basis of the rates in the Taxation Determination that sets out the amounts that represent a reasonable food component of a living-away-from-home allowance for expatriate employees.

Conclusion

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