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Ruling

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

Question

Is the allowance paid by the employer to the employee a living-away-from-home allowance benefit under subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes

This ruling applies for the following period:

Fringe benefits tax period ended 31 March 2012

Fringe benefits tax period ending 31 March 2013

Fringe benefits tax period ending 31 March 2014

Relevant facts and circumstances

The employer entered into a contract of employment with the employee.

The employee lives in a city where he owns and occupies a property.

Under the terms of the contract, the employee is required to be located in another city to perform his duties of employment.

It is the employee's intention to travel to the city in which he is employed during the week to perform his duties of employment and return to his home city on weekends.

The employee does not have a spouse or any children.

The employee's contract of employment is for a limited period, at which time the employee's intention is to return to live in his home city.

Under the terms of the contract, the employee's remuneration package includes an allowance for accommodation and meal expenses whilst performing his duties of employment. The allowance is a predetermined amount paid fortnightly to cover estimated accommodation and food expenses.

The employee has a number of professional commitments in his home city that will continue whilst undertaking his employment duties.

The employee will provide the employer with a 'Living away from home declaration'.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 subsection 30(1) and

Fringe Benefits Tax Assessment Act 1986 subsection 136(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.

Detailed reasoning

A living-away-from-home allowance (LAFHA) benefit arises under subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) in circumstances where:

· an allowance is paid by an employer to an employee in respect of the employment of the employee, and

· it can be concluded that the allowance is paid to compensate for additional expenses incurred, or additional expenses incurred and other disadvantages to which the employee is subject, because the employee is required to live away from their usual place of residence in order to perform their employment duties.

'Additional expenses' does not include expenses the employee would be entitled to claim as an income tax deduction.

Therefore, a LAFHA benefit exists under the arrangement between the employer and the employee if all of the following criteria are satisfied:

· the payment by the employer is an allowance paid to the employee in respect of the employee's employment

· the employee is required to live away from their usual place of residence to perform the duties of that employment, and

· it can be concluded that the allowance is compensation for non-deductible additional expenses incurred, or non-deductible additional expenses incurred and other disadvantages suffered, because of the requirement to live away from the usual place of residence.

The payment being made by the employer to cover accommodation and food expenses satisfies the criteria as follows:

The employer pays an allowance in respect of the employee's employment

The FBTAA does not provide a definition of the word 'allowance'.

Taxation Ruling TR 92/15 explains that an allowance is the payment of a definite predetermined amount to cover an estimated expense. An allowance is paid regardless of whether the recipient incurs the expected expense. The recipient has the discretion whether or not to expend the allowance.

The employee is being paid an amount of money by the employer in accordance with the employment agreement in respect of accommodation and food. The payment is made regardless of whether the employee actually incurs the expected expenses.

The payment made by the employer to the employee is an allowance.

The allowance is paid as part of the employee's remuneration and to enable the employee to live in accommodation in the city where the employee carries out employment duties for the employer and, therefore, the allowance is being paid in respect of the employment of the employee.

This criterion is satisfied.

The employee is required to live away from their usual place of residence to perform their employment duties.

Paragraphs 11 to 25 of Taxation Ruling MT 2030 discuss what is meant by 'usual place of residence'.

Whether an employee is living away from their usual place of residence normally involves a choice between the place of residence where the employee is living at the time and another place of residence.

An employee is regarded as living away from their usual place of residence if they would have continued to live at their former place of residence if they did not have to work temporarily in a different locality.

Paragraphs 15 to 18 of MT 2030 briefly describe a number of decisions by Boards of Review to illustrate this point. It is concluded in paragraph 19 that 'an underlying theme of the cases is the general presumption that the employee's usual place of residence will be close to where he or she is permanently employed.'

An employee who moves to a new locality with an intention to return to their old locality at the end of the appointment would generally be treated as living away from their usual place of residence.

The location of the employee's usual place of residence depends on whether he has had a change in permanent job location or has taken up a position of limited duration.

The following factors indicate that the employee has taken up a position of limited duration and that his usual place of residence is in a certain city:

The employee has retained ownership of his place of residence in his home city.

The intention of the employer and the employee is that the employee will only remain in the city of employment for the duration of the employment contract.

The employee intends to return to live in his home city residence at the end of the employment contract.

The employee returns to his home city periodically to continue to fulfil ongoing professional commitments.

Therefore it is accepted that the employee is required to live away from his usual place of residence in order to perform his duties of employment.

This criterion is satisfied.

(c) It can be concluded that the allowance is compensation for non-deductible additional expenses incurred, or non-deductible additional expenses incurred and other disadvantages suffered, because of the requirement to live away from the usual place of residence.

Paragraphs 27 and 28 of MT 2030 explain that an allowance is not ordinarily a precise measure of actual expenses of the recipient. A LAFHA is paid to compensate for accommodation and additional living costs that the employee might be expected to incur as a consequence of living away from their usual place of residence. The allowance may also include compensation for general disadvantages.

The employee is living away from his usual place of residence and, under the terms of the employment agreement, a fixed amount of money is paid by the employer to cover private expenses that are expected to be incurred by the employee in respect of accommodation and food.

It can be concluded that the allowance is being paid to compensate the employee for non deductible additional expenses the employee is expected to incur because he is required to live away from his usual place of residence in order to perform his duties of employment.

This criterion is satisfied.

Further issues for you to consider

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.

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.