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Ruling

Subject: Living away from home allowance

Question 1

Will an allowance received from your Company to cover the cost of accommodation and food needs to be included in your assessable income pursuant to section 15-2 of the Income Tax assessment Act 1997?

Answer : Yes

This ruling applies for the following periods:

Income tax year ended 30 June 2012

Income tax year ended 30 June 2013

Income tax year ended 30 June 2014

Income tax year ended 30 June 2015

The scheme commences on:

Not commenced

Relevant facts and circumstances

The registered office for your company is located at Town A. Your company commenced trading from September 20XX. Your company has not commenced paying any living away from home allowance to you at this stage.

You are the only person working for your company and you are a director of your company and not treated by your company as an employee. You stated that you are living away from your place of residence at Town B in order to undertake your duties of employment.

You often required working more than xx hours in a single shift for approximately xx days in an average month.

Your company did not take Pay As You Go (PAYG) withholding from payments to you (which you called advanced company payments).

You pay tax at the end of the year out of the "company payments" and on income from your rental property.

Your company will pay an allowance to you every week. It is your intention to go back to Town B when you no longer need to be based in Town A. The work is currently on-going near Town A.

Currently, the company has three contracts. Your company provides tools to you in order to perform your duties. Your company is required to fix any defects in work at it's own cost.

Your company is paid a contracted price by way of periodic payments.

You purchased the property at Town B a number of years ago. You were unable to find work in the area at the time. Therefore you moved to Town A to commence work a number of years ago. The last time you resided permanently at the property in Town B was a number of years ago.

You still own property in Town B. The property in Town B has been rented out for twenty years and you are receiving rental income. You may return to the property in Town B when needed.

You owned the property at Town A and commenced living there with your family eight years ago. As a result of a divorce settlement, the property in Town A is now owned by your ex-spouse and you maintained the ownership of the property at Town B. The property at Town A has a granny flat which you rent from your ex-spouse.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 30

Fringe Benefits Tax Assessment Act 1986 Section 66

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Taxation Administration Act 1953 Schedule 1 Section 12-35

Income Tax Assessment Act 1997 section 15-2

Income Tax Assessment Act 1936 subsection 23L(1)

Reasons for decision

Issue 1

Question 1

Summary

The amounts of allowance that you will receive from your company 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). Therefore, you need to include the amount of allowance received from your company in your assessable income in the relevant income tax year pursuant to section 15-2 of the Income Tax assessment Act 1997 (ITAA 1997).

Detailed reasoning

An allowance paid to cover the cost of accommodation and meals may be a travel allowance or a living-away-from-home allowance (LAFHA).

A travel allowance is usually paid for a period of no more 21 days. It is assessable to the recipient with deductions able to be claimed against it because they are considered travelling on work.

Where a person is away from their usual place of residence for more than 21 days they are not considered travelling on work but either living-away-from-home or have relocated.

In your case you have already been in Town A working for more than 21 days, hence any allowance received to cover accommodation or meals will not be a travel allowance. It may however be a LAFHA.

A LAFHA fringe Benefit is defined in section 30 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) as an allowance, in whole or part, that is seen as the compensation provided to the employee for additional expenses or other disadvantages the employee is subject to by reason that the employee is required to live away from their usual place of residence in order to perform the duties of employment.

A LAFHA may be paid, at the discretion of the employer, where the employee has moved and taken up temporary residence away from his or her usual place of residence so as to be able to carry out employment duties for a time at the new (but temporary) workplace.

Miscellaneous Taxation Ruling MT 2030 further clarifies the application of the allowance by explaining that a basic assumption about living away from home is that the employee must have a home or abode to live away from. That ruling states that 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 (unless) he/she had abandoned the former place of residence upon moving to the site.

A person is regarded as living away from their usual place of residence if, but for having to change residence in order to work temporarily for their employer at another locality, they would have continued to live at the former place. There is an intention or expectation that the employee would return to the former place once the work at the temporary job locality is completed.

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 (section 66 of the FBTAA).

A LAFHA is exempt income in the hands of the employee (subsection 23L(1) of the Income Tax Assessment Act 1936) and as such does not form part of their assessable income for tax purposes. Consequently, any amount incurred in relation to the LAFHA received is not deductible as it is related to the earning of exempt income.

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) requires 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 court decisions, you as a working director may be considered an employee if your company has an express or implied contract with you.

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

A payment is an allowance when a person is paid a definite predetermined amount to cover an estimated expense. It is paid regardless of whether the recipient incurs the expected expense. The recipient has the discretion whether or not to expend the allowance.

Your company is considering paying you 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 you being required to live away from your 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. You have 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:

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

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

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

o whether the employee maintained/retained the other place of residence during the period the employee resided at the temporary residence

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

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

o the frequency of the employee's visits to the other place of residence.

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

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 your employment with your company is of a permanent nature:

· the original request for a private ruling submitted by you was for thirteen years

· you are the director of your company

· there is no specified period after which you will return to your usual place of residence in Town B.

Further, the fact that the position is permanent may not be the only factor to consider. You do not have a sufficient connection with your home in Town B. This is based on the fact that:

· you rarely go to the property in Town B.

· your residence at Town B has been rented out for twenty years

· the last time you resided permanently at the Town B was a number of years ago.

Rather the facts indicate that you have a much stronger connection with your residence at Town A:

· you have lived in Town A for eight years of the a number of years in the city near Town A

· although now living in separate buildings on the same property, your children continue to live in the main house at the Town A residence.

Although you indicated that it is your intention to return to your home at Town B once Town A is no longer the base of your employment, this alone is insufficient to conclude that your usual place of residence is in Town B.

It is noted that the contact number provided for this ruling application, both telephone and fax number is appear to be a Town B number, which if correct and your usual place of residence was accepted as being the property at Town B, would indicate that you are probably not living away from your usual place of residence.

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

As the allowance is not a living away from home allowance, it will be assessable income in terms of section 15-2 of the Income tax assessment Act 1997(ITAA 1997). Section 15-2 of the ITAA 1997 states:

Your assessable income includes the value to you of all allowances, gratuities, compensation, benefits, bonuses and premiums *provided to you in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by you (including any service as a member of the Defence Force).

This is so whether the things were *provided in money or in any other form.

You have to include the amount of allowance received in your assessable income in the relevant year of income.

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

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

ATO view documents

Miscellaneous Taxation Ruling MT 2030: Fringe benefits tax: Living-Away-From-Home allowance benefits

Fringe benefits tax - a guide for employers, NAT 1054

Taxation Ruling TR 92/15 Income Tax: Income tax and fringe benefits tax: the difference between an allowance and a reimbursement

Taxation Ruling TR 2005/16 Income Tax: Pay As You Go - withholding from payments to employees