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Ruling

Subject: Exempt income: Living-away-from-home allowance

Question

Will the allowance from your employer form part of your assessable income?

Answer

No.

This ruling is based on the living-away-from-home allowance provisions that are currently contained in sections 30 and 31 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)

As part of the Mid-Year Economic and Fiscal Outlook 2011-12, the Treasurer announced that the Government will introduce reforms to the living-away-from-home allowance and benefits provisions.

If enacted, these proposed reforms will apply from 1 July 2012.

You should note that if the law has been substantively changed, the part of the private ruling dealing with the changed law ceases to apply.

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

More information regarding the proposed reforms is available in:

· The Treasurers Media Release No. 148 of 2011 'Tax Measures in Mid-Year Economic and Fiscal Outlook', 29 November 2011; and

· The Consultation Paper titled 'Fringe Benefits Tax (FBT) Reform Living-away-from-home benefits' 29 November 2011.

This ruling applies for the following period:

Year ended 30 June 2012

The scheme commenced on:

1 July 2011

Relevant facts and circumstances

You were born in, and are a citizen of, Country X.

You are employed in Australia under a 457 temporary resident visa.

You are accompanied in Australia by your wife who was also born in, and a citizen of, Country X.

You both intend to return to Country X within two to three years of your arrival in Australia. Neither of you intend to apply for permanent Australian residency.

You do not intend to purchase property in Australia. You and your wife own property in Country X, including the residence in which you resided before departing from Country X.

You and your wife have investments in Country X including superannuation to which you are still contributing, life insurance, bank accounts and retail managed funds.

You and your wife have family living in Country X.

You will be entering into a new employment agreement with your employer. Under the terms of the agreement your employer will pay you an allowance to compensate you for the additional expenses you incur because you are required to live away from home in order to perform the duties of your employment.

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 Subsection 136(1)

Income Tax Assessment Act 1936 Subsection 23L(1)

Income Tax Assessment Act 1997 Subsection 6-1(1)

Income Tax Assessment Act 1997 Subsection 6-15(3)

Income Tax Assessment Act 1997 Section 6-23

Reasons for decision

Will the allowance paid by your employer be assessable income?

Subsection 6(1) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that assessable income consists of ordinary and statutory income. However, this is qualified by subsection 6-15(3) which states:

If an amount is non-assessable non-exempt income, it is not assessable income.

'Non-assessable non-exempt income' is defined in section 6-23 to be an amount which the ITAA or another Commonwealth law states is not assessable income and is not exempt income.

An example of income that is not assessable income, nor exempt income is provided by subsection 23L(1) of the Income Tax Assessment Act 1936 (ITAA 1936) which states:

Income derived by a taxpayer by way of the provision of a fringe benefit is not assessable income and is not exempt income of the taxpayer.

In general terms, a 'fringe benefit' is defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) as a benefit provided to an employee in respect of the 'employment' of the employee. However, paragraph (f) of the 'fringe benefit' definition provides that a payment of 'salary or wages' will not be a fringe benefit.

'Salary or wages' is defined in subsection 136(1) of the FBTAA to mean a payment from which an amount must be withheld under either section 12-35, 12-40, 12-45, 12-115 or 12-120 of Schedule 1 to the Taxation Administration Act 1953 (TAA). The relevant section for the purpose of this ruling is section 12-35 which 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).

In considering which Act applies to the payments, paragraph 1 of Taxation Ruling TR 92/15 Income tax and fringe benefits tax: The difference between an allowance and a reimbursement (TR 92/15) states:

Other than living-away-from-home allowances, most allowances will fall for consideration under the ITAA.

Will the payments be a living-away-from-home allowance?

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:

· 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

· 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.

Will the payments be paid for additional non-deductible expenses and other disadvantages?

The allowance will be paid to compensate you for the additional expenses incurred by living in Australia. As you will not be able to claim an income tax deduction for these expenses this condition is satisfied.

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 arise as a result of you being required to live away from your 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 place at which the person resides; or

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.

Paragraphs 15 to 18 refer to various decisions of Taxation Boards of Review relating to the former 51A of the 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. Federal Commissioner of Taxation [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 that you are living away from your usual place of residence:

· you are a citizen of Country X

· you are in Australia on a 457 temporary resident visa

· you own your residence in Country X and intend to return to it to reside there within the next two to three years

· you did not intend to apply for permanent Australian residency

· you have family in Country X

· you have property and financial investments in Country X and

· you continue to contribute to your superannuation fund held in Country X.

Conclusion

As all the required conditions have been met, the proposed payments will be a living-away-from-home allowance benefit pursuant to subsection 30(1) of the FBTAA.

Such benefits are a 'fringe benefit' as defined by subsection 136(1) of the FBTAA and are therefore not assessable income by virtue of subsection 23L(1) of the ITAA 1936.

Further issues for you to consider

Although the living-away-from-home allowance will not form part of your assessable income, your employer will be liable to pay fringe benefits tax on the allowance.

The taxable value of the benefit under section 31 of the FBTAA is the amount of the allowance less the exempt accommodation and exempt food components.

Further information about the calculation is contained in chapter 11 of the publication Fringe benefits tax: a guide for employers.

In addition, the grossed up taxable value may be a reportable fringe benefit that will be shown on your payments summary.