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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 employees as a living-away-from-home allowance pursuant to section 30 of the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes

This ruling applies for the following periods:

1 April 2012 to 31 March 2014

The scheme commenced on

1 April 2012

Relevant facts and circumstances

You have a number of offices around Australia. You employed a number of expatriate managers from overseas, who are working in Australia on temporary business assignments for the next two years.

To cover the extreme cost of living away from home for these expatriate managers and their families, you currently pay for the food and accommodation expenses, incurred by them whilst in Australia via a living-away-from-home allowance (LAFHA).

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 30

Fringe Benefits Tax Assessment Act 1986 Section 31

Fringe Benefits Tax Assessment Act 1986 Section 63

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 Section 21

Income Tax Assessment Act 1997 Subsection 8-1(2)

Reasons for decision

Question 1

Summary:

The allowance paid to the employees is a LAFHA under section 30 of the FBTAA as it can be concluded that it has been paid to the employees to compensate them for additional food and accommodation expenses they have incurred because they are required to live away from their usual place of residence in order to perform their duties of employment in Australia.

Detailed reasoning:

Section 30 of the FBTAA 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.

The allowance paid to the employees will be a LAFHA if it is reasonable to conclude that the allowance that the employees being paid are in the nature of compensation for additional expenses incurred because the employee is required to live away from their usual place of residence in order to perform the duties of their employment.

The allowance currently being paid to the employees is to cover their additional expenses for accommodation and food whilst they are employed in Australia. They are required to live in Australia in order to undertake their duties of employment. Therefore, the location of their usual place of residence must be determined.

Place of residence is defined in subsection 136(1) of the FBTAA in relation to a person, means:

(a) a place at which the person resides; or

(b) a place at which the person has sleeping accommodation;

· whether on a permanent or temporary basis and whether or not on a shared basis

For the purposes of the FBTAA, their home country and Australia may be places of residence for the employees.

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. Paragraph 14 states:

…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.

Paragraphs 15 to 18 provide a brief description of the decisions from some cases which illustrate this point. It is concluded at 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'.

Employees who move in order to undertake a position of limited duration and who intend to return to the old locality at the end of that employment will generally be considered to be living away from their usual place of residence. By way of illustrating this, paragraph 22 of the MT 2030 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.

It is considered that the allowance is being paid to compensate for additional (non-deductible) expenses incurred by the employees because the employees are required to live away from the employees' usual place of residence in order to perform the duties of their employment. This conclusion is based on the fact that:

The employees and their families moved from their home country to Australia are temporary to enable them to work in Australia in the managerial role in the executive functions of your organisation.

At the end of the period, the employees will return to their usual place of residence in their home country.

The employees maintaining their principal residence in their home country during the said period.

The employer intends paying the allowance to the employees to cover the estimated private residential rental incurred by the employees while they are in Australia performing the agreed duties for the employer.

These additional expenses will be non-deductible pursuant to paragraph 8-1(2) of the Income Tax Assessment Act 1997 (ITAA 1997) on the basis that they are of a private or domestic nature.

Consequently the allowance is a LAFHA for the purpose of subsection 30(1) of the FBTAA.