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Ruling

Subject: Fringe benefits Tax - Living Away From Home Allowance

Question 1

Will the Commissioner treat the allowance paid by the employer to the employee as a living-away-from-home allowance pursuant to section 30 of the Fringe Benefits Tax Assessment Act 1986?

Answer : No

Question 2

If the answer to Question 1 is yes, will the taxable value of the allowance be reduced to nil pursuant to section 31 of the Fringe Benefits Tax Assessment Act 1986?

Answer : Answer to Question 1 is no, therefore, Question 2 is not applicable

This ruling applies for the following periods:

Fringe Benefits Tax year ended 31 March 2012

Fringe Benefits Tax year ended 31 March 2013

Fringe Benefits Tax year ended 31 March 2014

Fringe Benefits Tax year ended 31 March 2015

The scheme commences on:

Not commenced.

Relevant facts and circumstances

Your registered office is located in Town A. You commenced trading from September 2010.

The only person working for you is a director of your company and not treated by you as an employee. Your director stated that he/she is living away from his place of residence at Town B in order to undertake his/her duties of employment.

The director is often required to work long hours approximately 20 days in an average month.

You did not take Pay As You Go (PAYG) withholding from payments to the director.

The director pays tax at the end of the year out of the "company payments" and on income from his/her rental property.

You will pay an allowance per week to the director to compensate him/her being living away from his/her home in Town B. It is his/her intention to go back to Town B when he/she no longer needs to be based in Town A. The work is currently on-going in the city near Town A.

Currently, you have three contracts. You provide tools to the director in order to perform the duties. You are required to fix any defects in work at your own cost.

You are paid a contracted price by way of periodic payments.

The director purchased a property in Town B many years ago. The director was unable to find work in the area at the time. Therefore he/she moved to Town A to commence work a number of years ago. The last time he/she resided permanently at the property in Town B was a number of years ago.

The director still owns the property in Town B. The property in Town B has been rented out for a number of years and he/she is receiving rental income. The director may return to the property in Town B when needed, for example, he/she undertook a major repair to the property which required him/her to spend a few weeks there.

The director owned the property in Town A and commenced living there with his/her family many years ago. As a result of a divorce settlement, the property in Town A is now owned by the director's ex-spouse and the director maintained the ownership of the property in Town B. The property at Town A has a granny flat which the director rents from his/her ex-spouse.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 30

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Taxation Administration Act 1953 Schedule 1 Section 12-35

Reasons for decision

Issue 1

Summary

The amounts that you pay to your director to cover living away from home and meals expenses will not be a living-away-from-home allowance (LAFHA) pursuant to section 30 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Detailed reasoning

A LAFHA is a category of fringe benefits and covered by sections 30 and 31 of the FBTAA. As it is a fringe benefit it is a person's employer and not the person receiving the benefit that is responsible for any fringe benefits tax payable on the LAFHA.

As the employer is responsible for paying fringe benefits tax, it is the employer and not the recipient an allowance that can request a ruling on whether the allowance is a LAFHA pursuant to section 30 of the FBTAA, and whether the taxable value of the LAFHA is reduced to nil pursuant to section 31 of the FBTAA.

For a benefit to be a fringe benefit (such as a LAFHA fringe benefit) the needs to be an employer/employee relationship. That is in accordance with subsection 136(1) of the FBTAA a fringe benefit is a benefit provided in respect of employment that effectively means the benefit is provided to some one because they are an employee.

A person acting in his/her capacity as a director of a company is not an employee of the company. However, a person may act in a dual capacity, i.e. as both director and employee of a company (e.g. Lincoln Mills (Aust) Ltd v Gough (1964) VR 193; Freeman & Ors v FC of T 83 ATC 4456. Thus, a director may also be, for example, the managing director, general manager or company secretary. For a director to also be an employee, there must be an express or implied contract of employment with the company. In Lee v Lee's Air Farming Ltd (1961) AC 12; (1960) 3 WLR 758, the Privy Council held that a person's position as governing director and principal shareholder of a company did not preclude him from making a contract of employment with himself on the company's behalf.

In accordance with the above mentioned caught decisions your director as a working director may be considered an employee if he/she has an express or implied contract with you.

Note: if your director is determined to be an employee, you are required by section 12-35 of the Taxation Administration Act 1953 to withhold amounts from payments made to him/her. The fact that no amounts have been withheld by you from payments to the director suggests that there is no express or implied contract with him/her and therefore he/she is not an employee. It follows that if the director is not an employee he/her cannot be paid a LAFHA.

Apart from the employer/employee relationship consideration there are other facts that need to be considered in determining whether an allowance paid to a person is a LAFHA. The most important of which is whether the person being paid the allowance is living away from their usual place of residence in order to perform their work duties.

Taxation Ruling TR 92/15 which in explaining the difference between an allowance and a reimbursement states at paragraph 2.

You are considering paying the director a set amount each week to cover living away from home and meal expenses. This is the character of an allowance.

As stated above what needs to be determined next is whether those additional expenses are a result of the director being required to live away from his/her usual place of residence.

Place of residence of a person is defined in subsection 136(1) to mean:

o a place at which the person resides; or

o a place at which the person has sleeping accommodation…

It is considered that whether an employee is living away from his or her usual place of residence normally involves a choice between two places. Your director has two places of residence, one in Town A and one in Town B.

The issue of what is meant by the term usual place of residence is addressed in paragraphs 11 to 25 of Miscellaneous Tax ruling MT 2030..

An employee's usual place of residence is determined by considering various factors and applying appropriate weightings to those factors. These factors include:

(a) The nature of the employee's employment and whether the move to another place was temporary or permanent move.

(b) The employee's place of residence (other place of residence) before he obtained another place of residence (the temporary residence).

(c) The employee's continuing connection/ties with the other place of residence, in particular:

(i) whether the employee maintained/retained the other place of residence during the period the employee resided at the temporary residence

(ii) whether or not the other place of residence was a place to which the employee could return at will

(iii) whether the employee's family continued to live in the other place of residence during the employee's temporary absence, and

(iv) the frequency of the employee's visits to the other place of residence.

(d) Whether the employee intends or expects to return to live at the other place of residence on cessation of work at the temporary locality.

(e) Any unique or special circumstances.

In paragraph 19 of MT 2030 it is concluded that an underlying theme of the various cases it describes in paragraphs 15 to 18 is the general presumption that the employee's usual place of residence will be close to where he or she is permanently employed.

Paragraph 19 of MT 2030 also goes on to say that an employee who changes his or her usual place of residence because of a change in the location of a permanent job, whether by reason of a transfer with the same employer or a change of employment, would not usually be living away from home on moving to a new place of residence close to the new job location.

The following facts suggest that the director's employment with you is of a permanent nature:

o the original request for a private ruling submitted by the director was for thirteen years

o the employee is the director of the company

o there is no specified period after which the director will return to his/her usual place of residence in Town B

Further, the fact that the position is permanent may not be the only factor to consider. Your director does not have a sufficient connection with his/her home in Town B. This is based on the fact that:

o the director rarely goes to Town B

o the director's residence at Town B has been rented out for a number of years

o the last time the director resided permanently at the property at town B was a number of years ago.

Rather the facts indicate that the director has a much stronger connection with his/her residence at Town A:

o the director has lived there for eight years of the a number of years in the city

o although now living in separate buildings on the same property, the director's children continue to live in the main house at the property in Town A.

Although the director indicated that it is his/her intention to return to his/her home at Town B once Town A is no longer the base of his/her employment, this alone is insufficient to conclude that the director's usual place of residence is in Town B.

It is noted that the contact number provided for this ruling application, both telephone and fax, is located in Town B which would appear to be a Town B number, which if correct and the director's usual place of residence was accepted as being the property at Town B, would indicate that he/she is probably not living away from his/her usual place of residence.

As you were only commenced trading in September 2010 and the director was already residing in Town A when employed by you it has not been established that the director has been required to move away from his/her usual place of residence in order to perform his/her duties of employment for you. The allowance you intend to pay to him/her will therefore not be a LAFHA fringe benefit for the purpose of subsection 30(1) of the FBTAA.

Additional information:

This ruling is based on the LAFHA provisions that are currently contained in sections 30 and 31 of the FBTAA.

As part of the Mid-Year Economic and Fiscal Outlook 2011-12, the Treasurer announced that the government will introduce reforms to the LAFHA 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.

More information regarding the proposed reforms is available in:

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

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