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Ruling

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

Question 1

Will the allowance to be paid to your employee be a living-away-from-home allowance 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 fringe benefit be reduced by the exempt accommodation and the exempt food components?

Answer

Yes.

This ruling is based on the living-away-from-home allowance provisions that are currently contained in sections 30 and 31 of the FBTAA. Under these provisions, an employer who pays a living-away-from-home allowance to an employee may be liable to pay fringe benefits tax on the taxable value of a living-away-from-home allowance. Currently, the taxable value on which the employer pays tax is the amount of the allowance less the exempt accommodation component and the exempt food component.

The Treasurer as part of the Mid-Year Economic and Fiscal Outlook announced that the Government will introduce reforms to these provisions. Under the reforms which are proposed to apply from 1 July 2012:

· access to the exemptions that apply in relation to the food and accommodation components of a living-away-from-home allowance that is paid to a temporary resident will be limited to those temporary residents who maintain a residence for their own use in Australia, which they are living away from for work purposes, such as 'fly-in fly-out' workers; and

· individuals will be required to substantiate their actual expenditure on accommodation and food beyond a statutory amount.

However, if the law has been substantively changed, the part of the private ruling dealing with the changed law ceases to apply.

This ruling applies for the following periods:

Year ended 31 March 2012

Year ended 31 March 2013

Year ended 31 March 2014

Year ended 31 March 2015

The scheme commenced on:

1 April 2011

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You have employed a person of Country A under a subclass 457 temporary resident visa. The employment is of limited duration and he intends to return to Country A upon the expiration of his visa.

The employee's family reside in Country A and he has returned to visit them whilst he has been working in Australia. He also intends to do so in future.

The employee is maintaining his professional accreditation in Country A while he is working in Australia.

The employee has retained a number of personal effects in Country A.

You and the employee will enter into a new employment agreement. Under the terms of the employment agreement you will pay the employee an allowance to compensate him for the additional costs of living away from his usual place of residence in order to perform his duties of employment.

The employee will provide you with a living-away-from-home declaration.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 30

Fringe Benefits Tax Assessment Act 1986 Subsection 30(1)

Fringe Benefits Tax Assessment Act 1986 Section 31

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Income Tax Assessment Act 1936 Section 51A

Reasons for decision

Question 1

Will the allowance to be paid to your employee be a living-away-from-home allowance 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:

a. additional non deductible expenses incurred by the employee during a period; or

b. 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.

(a) 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 food expenses and accommodation expenses. As he will not be able to claim an income tax deduction for these expenses this requirement is satisfied.

(b) 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.

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 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.

In considering the factors referred to by the AAT the following factors indicate that the employee's usual place of residence is in Country A because the employee:

· is in Australia on a Subclass 457 temporary resident visa

· has family living in Country A

· the employee is maintaining professional accreditation in Country A, and

· the employee intends to return to Country A upon the expiration of his visa.

Therefore as the usual place of residence is in Country A and the employment location is in Australia 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 fringe benefit be reduced by the exempt accommodation and the exempt food components?

Section 31 of the FBTAA sets out the method for calculating the taxable value of a living-away-from-home allowance. 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. 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, 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 annual rent being paid by the employee the amount of the accommodation component will be the exempt accommodation component if the employee provides the necessary declaration.

Exempt food component

If a declaration is provided, 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.

The amount of the food component is the amount stated in the annual Taxation Determination, TD 2011/4, set at the rate considered reasonable for expatriate employees reduced by the statutory food amount provided in subsection 136(1) of the FBTAA.

Conclusion

If the employee provides a declaration the taxable value of the living-away-from-home allowance will be reduced by the exempt accommodation and food components.