Edited version of your private ruling

Authorisation Number: 1012065297654

This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.

Ruling

Subject: Living away from home allowance

Question 1

Can a living away from home allowance be paid by the employer to employees who will be sent overseas for training?

Answer

Yes

Question 2

If the employees travelled back and forth between the two countries with only relative short stays overseas would this change the view?

Answer

Refusal to rule. The employer is not seriously contemplating the arrangement. However, some general advice is provided.

This ruling applies for the following periods:

1 April 2011 to 31 March 2014

The scheme will commence in 1 April 2011

Relevant facts and circumstances

The employer wishes to send employees overseas for specific training purposes. The period away from Australia will be between 4 to 7 months.

The employer states that all employees will return to Australia after the training is completed. All employees reside and have their usual place of residence in Australia.

The employee may fly home once, for a short break, during their stay overseas.

The employer wishes to pay an allowance for accommodation and food.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 30(1),

Fringe Benefits Tax Assessment Act 1986 31,

Fringe Benefits Tax Assessment Act 1986 136(1),

Fringe Benefits Tax Assessment Act 1986 61A,

Fringe Benefits Tax Assessment Act 1986 143C,

Income Tax Assessment Act 1997 15-2 and

Income Tax Assessment Act 1997 8-1.

Reasons for decision

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

Question 1

Summary

The employer will send employees overseas for special training. Their duration overseas is more than 21 days and they will be returning to their usual place of residence in Australia after the completion of their training. Therefore, the employees will not be considered travelling and can be paid a living away from home allowance (LAFHA).

Detailed reasoning

An employee is regarded as living away from their usual place of residence if they are required to do so in order to perform their employment-related duties and could have continued to live at their usual place of abode if they did not have to work temporarily in a different locality.

The term usual place of residence refers to where the employee resides for income tax and fringe benefit tax purposes.

The employer is sending employees overseas for a period between 4 to 7 months. The employees will be sent overseas for training purposes. The training is required to keep the employees up to date with technology and use of the specific machinery.

Subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) deals with living away from home allowance benefits only if there is an employee/employer relationship and the payment is in respect of the employee's employment.

The tax office position regarding LAFHA is stated in Miscellaneous Ruling MT2030, which includes distinction between the travelling allowance and LAFHA. The tax treatment for a travelling allowance and LAFHA are different in the hands of the employee.

A travelling allowance is paid if the employee is travelling on duty and their usual place of residence does not change, whereas a LAFHA (from the circumstances surrounding each case) is paid if the employee has to move residences because their employer requires them to perform duties away from the usual place of residence, on a finite temporary basis.

The travelling allowance is included in the employee's income tax return as assessable income (section 15-2(1) of the Income Tax Assessment Act 1997 (ITAA 1997)). The employee claims a deduction against the allowance, for the costs incurred generally for food and accommodation under section 8-1 ITAA1997, as long as the employee can substantiate the costs incurred and produce the relevant receipts and documentation.

In contrast, LAFHA will not be included in the employee's assessable income because it is a fringe benefit, and therefore the employee cannot claim a deduction for additional accommodation and food costs.

The employer in both cases can claim a business related company deduction for both allowances. However, PAYGW has to be deducted from the travelling allowance.

Generally, if it cannot be determined if the payment is a LAFHA or a travelling allowance, the tax office accepts if the period away is less than 21 days, the payment will be a travelling allowance.

In this case, the employer is sending these employees to be trained. The employees will return to Australia after a short period overseas, work for their current employer and live in their usual place of abode.

Therefore, it can be concluded from the circumstances of this case that the allowance to be provided to the employees will be a LAFHA and not a travelling allowance.

As the employer pays the LAFHA, they must obtain a declaration from each of the employees that they will be living away from their usual place of abode in Australia for the duration, overseas. This is important when calculating the taxable value as outlined in subsection 31(1) of the FBTAA.

The following terms in subsection 31(1) are defined in subsection 136(1) of the FBTAA, 'exempt accommodation component' and 'eligible family member' and 'exempt food component' and 'statutory food amount', which will assist you in calculating the taxable LAFHA fringe benefits (if any).

Note: a LAFHA is paid to compensate the employee for additional expenses incurred due to living away from their usual place of residence for a relatively short period of time.

Question 2

Summary

Refusal to rule.

Detailed reasoning

The employer is not seriously contemplating the arrangement. However, some general advice is provided. If the employee flies back and forth between Australia and another country and stays in the other country for a short period at a time, it is most likely that the payment will treat the employee as travelling on duty and the payment is a travelling allowance.