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Ruling

Subject: FBT - living-away-from-home

Question 1

Will the accommodation benefits provided to each of the employees during the period 1 April 2012 to 30 September 2012 be exempt benefits under subsection 47(5) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

Question 2

Will the accommodation benefits provided to each of the employees during the period 1 October 2012 to 30 June 2014 be exempt benefits under subsection 47(5) of the FBTAA?

Answer

Yes.

Question 3

Will the accommodation benefits provided to each of the employees during the period 1 July 2014 to 30 June 2015 be exempt benefits under subsection 47(5) of the FBTAA?

Answer

Yes.

Question 4

Will the accommodation benefits provided to each of the employees during the period 1 July 2015 to 31 March 2016 be exempt benefits under subsection 47(5) of the FBTAA?

Answer

No.

This ruling applies for the following periods:

1 April 2012 to 31 March 2016

The scheme commences on:

1 April 2012

Relevant facts and circumstances

The employer employs a range of staff whose role depends on their ability to reside on site in order to perform their duties. The employer provides accommodation on site for some staff to perform their duties of employment.

The ATO has previously issued a private ruling to the employer on this subject.

The employer has now applied for a private ruling in respect of a number of employees (the employees).

The employer provided information relevant to each employee and confirmed that each of the employees:

· is a permanent resident of Australia

· did have an employment arrangement and was receiving living away from home accommodation benefits prior to 7:30pm (AEST) on 8 May 2012 (Budget time)

· was receiving and continues to receive living away from home accommodation benefits after Budget time

· did not have their employment arrangements materially varied or renewed before Budget time

· will not have their employment arrangements materially varied or renewed prior to 1 July 2014

· maintains a home in Australia and will continue to do so from 1 July 2014 through to 30 June 2016, and

· will provide a declaration to the employer in the approved format by the declaration date.

The accommodation provided by the employer to the employee is for the accommodation of eligible family members and is provided solely by reason that the employee is required to live away from home in order to perform the duties of that employment.

Assumptions

The employment arrangement in respect of each of the employees will not be materially varied or renewed prior to 1 July 2014.

From 1 July 2014 through to 30 June 2016 each of the employees will maintain a normal residence in Australia.

Each of the employees will provide a declaration in the approved format by the declaration date.

Relevant legislative provisions

Subsection 47(5) of the Fringe Benefits Tax Assessment Act 1986

Section 31C of the Fringe Benefits Tax Assessment Act 1986

Section 31D of the Fringe Benefits Tax Assessment Act 1986

Section 31F of the Fringe Benefits Tax Assessment Act 1986

Subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986

Relevant legislation

All legislative references are to the Fringe Benefits Tax Assessment Act 1986 (FBTAA) unless otherwise noted.

Subsection 47(5) states that:

Where:

(a) a residual benefit consisting of the subsistence, during a year of tax, of a lease or licence in respect of a unit of accommodation is provided to an employee of an employer in respect of his or her employment; and

(b) the unit of accommodation is for the accommodation of eligible family members and is provided solely because the duties of that employment require the employee to live away from his or her normal residence; and

(ba) the employee satisfies:

(i) sections 31C (about maintaining an Australian home) and 31D (about the first 12 months); or

(ii) section 31E (about fly-in fly-out and drive-in drive-out requirements); and

(c) the accommodation is not provided while the employee is undertaking travel in the course of performing the duties of that employment; and

(d) any of the following conditions is satisfied:

(i) subsection (7) applies in relation to the provision of transport for the employee in connection with travel in the period in the year of tax when the lease or licence subsisted, being travel between the employee's usual place of residence and the employee's usual place of employment;

(ii) if the employee satisfies sections 31C and 31D - the employee gives to the employer, before the declaration date, a declaration, in a form approved by the Commissioner, purporting to set out the matters in subparagraphs 31F(1)(a)(i) to (iii);

(iii) if the employee satisfies section 31E - the employee gives to the employer, before the declaration date, a declaration, in a form approved by the Commissioner, purporting to set out the matters in subparagraphs 31F(1)(b)(i) to (iii);

the benefit is an exempt benefit in relation to the year of tax.

Section 31C states that

The employee satisfies this section if:

(a) the place in Australia where the employee usually resides when in Australia:

(i) is a unit of accommodation in which the employee or the employee's spouse has an ownership interest (within the meaning of the Income Tax Assessment Act 1997); and

(ii) continues to be available for the employee's immediate use and enjoyment during the period that the duties of that employment require the employee to live away from it; and

(b) it is reasonable to expect that the employee will resume living at that place when that period ends.

Subsection 31D(1) states that:

The employee satisfies this section if the fringe benefit relates only to all or part of the first 12 months that the duties of that employment require the employee to live away from the place in Australia where he or she usually resides when in Australia.

Subsection 31D(2) states that

Each of the following paragraphs applies for the purposes of subsection (1):

(a) the employer may pause the 12-month period;

(b) start a separate 12-month period if:

(i) the employer later requires the employee to live at another location for the purposes of that employment; and

(ii) it would be unreasonable to expect the employee to commute to that other location from an earlier location for which the employer provided a benefit of the same kind to the employee;

(c) other changes in the nature of that employment are irrelevant;

(d) treat as one employer any of the employee's earlier employers that is or has been an associate of the current employer.

Subsection 31F(1) states:

The employee satisfies this section if the employee gives the employer a declaration, in a form approved by the Commissioner, purporting to set out:

(a) for a fringe benefit to which section 31 (about employees who maintain an Australian home) applies:

(i) the address of the place in Australia where the employee usually resides when in Australia; and

(ii) that section 31C is satisfied for that place; and

(iii) the address of each place where the employee actually resided during the period to which the benefit relates; or

…

Reasons for decision - Question 1

Summary

The employees do satisfy the requirements to be receiving exempt accommodation benefits for the period 1 April 2012 to 30 September 2012 under subsection 47(5).

Detailed reasoning

To be an exempt benefit, the employees are required to satisfy the 5 requirements in subsection 47(5) that applied prior to the recent fringe benefits tax (FBT) living away from home reforms which commenced on 1 October 2012. The 5 requirements are these:

1. the unit of accommodation is provided solely 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; and

2. the benefit is a residual benefit consisting of the subsistence, during the year of tax, of a lease or licence in respect of a unit of accommodation provided to the employee of the employer in respect of his or her employment; and

3. the unit of accommodation is for the accommodation of eligible family members as the term is defined in subsection 136(1); and

4. the accommodation is not provided while the employee is undertaking travel in the course of performing the duties of that employment; and

5. the employee gives to the employer, before the declaration date, a declaration, in a form approved by the Commissioner, purporting to set out:

(A) the employee's usual place of residence; and

(B) the place at which the employee actually resided while living away from his or her usual place of residence.

All the employees satisfied the abovementioned requirements of subsection 47(5).

Consequently, the accommodation benefits provided to each of the employees during the period 1 April 2012 to 30 September 2012 are exempt benefits under subsection 47(5).

Reasons for decision - Question 2

Summary

For the period 1 October 2012 to 30 June 2014, the requirements for exemption under the amended subsection 47(5) are satisfied due to the application of the transitional rules.

Detailed reasoning

Subsection 47(5) was included in the recent reforms that have tightened the FBT concessional tax treatment of LAFH allowances and benefits.

The reformed rules apply generally to employees who are living away from their normal residence on or after 1 October 2012 in respect of all allowances and benefits provided in relation to the periods commencing on or after 1 October 2012.

However, there are transitional rules that may apply to employment arrangements for living-away-from-home allowances and benefits in place prior to Budget time at 7.30pm (AEST) on 8 May 2012.

Paragraph 1.54 of the Explanatory Memorandum to the Tax Laws Amendment (2012 Measures No. 4) Act 2012 (EM) states that the transitional rules apply to:

· employees who are permanent residents with employment arrangements in place prior to 7:30pm (AEST) on 8 May 2012 (Budget time); and

· the employment arrangement was not materially varied or renewed between Budget time and 1 October 2012.

The legislation for the transitional arrangements is in Part 3 of Schedule 1 to the Tax Laws Amendment (2012 Measures No. 4) Act 2012. Specifically, subsection 27(1) of that Part states that:

(1) During the transitional period, disregard paragraph 31C(a) and section 31D of the Fringe Benefits Tax Assessment Act 1986 if:

the employee is neither a temporary resident nor a foreign resident; and

(a) during the entire period:

(i) starting at the Budget time; and

(ii) ending on 30 September 2012;

that employment was covered by an eligible employment arrangement that was neither varied in a material way nor renewed.

The transitional period means the period:

a) starting on 1 October 2012; and

b) ending at the earliest of:

i. 30 June 2014; and

ii. the time the eligible employment arrangement referred to in paragraph (1)(a) or (2)(b) ends; and

iii. the first time that eligible employment arrangement is varied in a material way or renewed.

In accordance with paragraph 1.59 of the EM, for the purposes of the transitional rules, a material variation occurs when fundamental changes are made to the employment arrangement. The EM explains that:

You have not made a material change to the employment arrangement if:

· an employee's salary is adjusted as a result of an annual salary review

· other annual adjustments are made, such as to the food component of a living-away-from-home allowance

· an employee is promoted and the underlying terms of the employment arrangement do not change.

You have made a material variation to the employment arrangement if, for example, an employee is promoted and there are fundamental changes to the employment arrangement as a result of the promotion.

Transitional rules apply to both permanent and temporary residents. However, an employer may not disregard paragraph 31C(a) during the transitional period if the employee is either a temporary resident or a foreign resident.

The restriction referred to in the above paragraph does not apply in this ruling because all the employees are permanent residents.

Each of the employees had an employment arrangement in place prior to 7.30 pm (AEST) on 8 May 2012 under which LAFH benefits were being provided. Each of the employees was covered by an eligible employment arrangement that was not materially varied or renewed between 8 May 2012 and 1 October 2012.

As the transitional requirements are met for each of the employees, the employer can disregard paragraph 31C(a) and section 31D. That is, employees are not required to maintain a home in Australia for their immediate use and enjoyment at all times for the concessional treatment to apply and the concession is not limited to a maximum period of 12 months until the earlier of 1 July 2014 or the date a new employment contract is entered into, or the existing contract is varied in a material way.

Therefore, the accommodation benefits provided to each of the employees during the period 1 July 2014 to 30 June 2015 will be exempt benefits under subsection 47(5) as all of the requirements in this subsection will be met.

Reasons for decision - Question 3

Summary

The accommodation benefits provided to each of the employees during the period 1 July 2014 to 30 June 2015 will be exempt benefits under subsection 47(5).

Detailed reasoning

We note that the transitional period ends on 30 June 2014. After the end of the transitional period, the concessional treatment from 1 July 2014 is limited to a maximum period of 12 months for an employee while the employee is living away from home at a particular work location.

The FBT LAFH reforms limit the concessional tax treatment of LAFH allowances and benefits to those provided to employees (other than those working on a 'fly-in fly-out' or 'drive-in drive-out' basis) for a maximum period of 12 months who:

· maintain a home in Australia (at which they usually reside) for their immediate use and enjoyment at all times while living away from that home for their work; and

· have provided their employer with a declaration about living away from home.

Employee maintains a home in Australia

Paragraphs 1.24 - 1.28 of the EM state:

1.24 An employee's home in Australia (the place in Australia where the employee usually resides) can be a unit of accommodation as defined in subsection 136(1) of the FBTAA. This definition is broad and includes a house, flat, home unit, caravan or accommodation in living quarters.

1.25 To maintain a home in Australia, the employee, or their spouse, must have an ownership interest in a unit of accommodation and that home must be available for their immediate use and enjoyment at all times while they are living away from it. It must also be reasonable to expect that the employee will resume living at that home when they are no longer living away from home for the purposes of their employment.

1.26 Ownership interest has the meaning given by the Income Tax Assessment Act 1997. Section 118-130 of that Act provides that an ownership interest includes both a legal or equitable interest and a licence or right to occupy a dwelling. Therefore, an employee, or their spouse, can have an ownership interest in a home they own or rent.

1.27 ...

1.28 For the employee to maintain a home for their immediate use and enjoyment at all times, the home cannot be rented out or sub-let while they are living away from it. That is, the employee must incur the ongoing costs of maintaining the residence such as mortgage or rental payments and rates. The employee must be able to return to the home at any time and take up immediate occupancy.

Each of the employees maintains a home in Australia (at which they usually reside) for their immediate use and enjoyment at all times while they are required to live away from that home for their work. They will continue to maintain a home in Australia within the meaning of the term in section 31C from 1 July 2014 through to 30 June 2016.

First 12 months employee is required to live away from home

In order to meet the requirements in subparagraph 47(5)(ba)(i), in addition to satisfying section 31C about maintaining a home in Australia, the employee also needs to satisfy section 31D about the restriction of the concessional tax treatment to a maximum of 12 months.

Section 31D contains two subsections as quoted above.

In regards to this section the EM explains:

1.30 The fringe benefit has to relate to all or part of the first 12 months that an employee is living away from home in Australia for the purposes of their employment.

1.31 The employer may choose to pause the 12-month period. For example, the employer may choose to pause the period because the employee is taking leave, such as annual leave, long service leave or sick leave. This provides the employer with flexibility to pause the period when circumstances arise in which it is appropriate and beneficial to do so.

...

1.33 A new 12-month period starts if the employee's work location changes; that is, the employee moves to another location to perform the duties of employment. It must also be unreasonable to expect the employee to commute to the new location from the earlier location for which a LAFHA fringe benefit was provided.

1.34 All other changes in the nature of the employee's employment are irrelevant for the purposes of the 12-month period. Changes to the conditions of employment, such as a promotion of the employee to a management position, or a change in the employee's job title, within the same work location, do not affect the 12-month period.

On the basis that the transitional rules do apply for the purposes of this ruling and the employees will not have their employment arrangements materially varied or renewed prior to 1 July 2014, we consider that the 12 month period will commence from 1 July 2014.

Employee provides a declaration

As relevant to the facts in this ruling, subparagraph 47(5)(d)(ii) requires that if the employee satisfies sections 31C and 31D, the employee give to the employer, before the declaration date, a declaration, in a form approved by the Commissioner, purporting to set out the matters in subparagraphs 31F(1)(a)(i) to (iii).

The term 'declaration date' is defined in subsection 136(1) as the date the employer lodges the FBT return for that year or a later date as allowed by the Commissioner.

The relevant facts for this ruling indicate that each of the employees will provide the employer with a declaration in the approved format by the declaration date.

The accommodation benefits provided to each of the employees during the period 1 July 2014 to 30 June 2015 will be exempt benefits under subsection 47(5) as all of the requirements of that section, including:

· subparagraph 47(5)(ba)(i) (about maintaining an Australian home - 31C and about the first 12 months - 31D) and

· subparagraph 47(5)(d)(ii) (about the employee providing the employer with a declaration purporting to set out the matters in subparagraphs 31F(1)(a)(i) to (iii))

will be satisfied.

Reasons for decision - Question 4

Summary

The accommodation benefits provided to each of the employees during the period 1 July 2015 to 31 March 2016 will not be exempt benefits under subsection 47(5) because subparagraph 47(5)(ba)(i) will not be satisfied.

Detailed reasoning

As mentioned in the reasons for decision provided to Question 3 above, the concessional treatment for LAFH benefits is now limited to all or part of the first 12 months that an employee is living away from home in Australia (at one particular location) for the purposes of their employment.

Specifically, in order to satisfy subparagraph 47(5)(ba)(i) section 31D must be met.

The employees will satisfy subsection 31D(1) if the benefits provided to them relate only to all or part of the first 12 months that the duties of their employment require them to live away from the place in Australia where they usually resides when in Australia.

The relevant facts for this ruling indicate that when the employees are living away from home, each of them will be living at one particular location. On the basis that each employee will have received living away from home accommodation benefits for 12 months during the period 1 July 2014 to 30 June 2015 (refer to the reasons for decision provided to Question 3 above), no part of any LAFH benefit provided from 1 July 2015 can satisfy section 31D.

Subsection 31D(2) will not apply to the scheme that is the subject of this private ruling based on the relevant facts provided. On this basis and for the reasons given above the accommodation benefits provided to each of the employees during the period 1 July 2015 to 31 March 2016 will not be exempt benefits under subsection 47(5).