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Ruling

Subject: Living away from home allowance - Fringe benefits tax

Ruling

Question 1

Will the concessional FBT treatment for the living away from home allowance paid to the employee cease on the relevant date.

Advice/Answers

No.

This ruling applies for the following periods:

1 April 2012 to 1 March 2013

1 April 2013 to 31 March 2014

The scheme commences on:

On or after 1 January 2012

Relevant facts and circumstances

An employee is receiving a living away from home allowance.

The employee has been receiving the LAFHA since before X.

The employee's employment arrangement has not changed since X.

The employee has a home which they are renting in Australia.

The employees' usual place of residence is outside Australia.

The employee is in Australia on a 457 visa.

The employee does not have permanent residency.

The employee is not entitled to Medicare or social security benefits.

The employee's spouse is not an Australian resident.

The employee's spouse is also in Australia on a 457 visa.

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 31C(a)

Fringe Benefits Tax Assessment Act 1986, Section 31D.

Income Tax Assessment Act 1936 Section 6(1)A

Tax Laws Amendment (2012 Measures No. 4) Act 2012, Part 3 Sched 1 Section 27

Migration Act 1955

Social Security Act 1991

Issue 1

Question 1

Summary

The taxpayer is a temporary resident within the meaning as defined in section 995-1 of the ITAA 1997. Therefore, as they do not maintain a home in Australia for which they are required to live away from. The concessional treatment of the living-away- from-home allowance (LAFHA) paid to the employee will cease as at Y.

Detailed reasoning

The government has recently reformed the Living away from home allowance concessions under the Fringe Benefits Tax Assessment Act 1986 (FBTAA)

As relevant to your application the treatment of living away from home allowances (LAFHA) under Division 7 of Part III is amended to limit the concessional treatment for LAFHA to certain circumstances

The new 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, Tax Laws Amendment (2012 Measures No. 4) Act 2012 contains transitional provisions that may extend the commencement date of the new living-away - from-home provisions to 1 July 2014.

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:

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

(b) 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.

Paragraph 1.62 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.

Transitional rules also apply to:

· employees who are temporary or foreign residents with employment arrangements in place prior to 7.30 pm (AEST) on 8 May 2012 (Budget time);

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

·  they are maintaining a home in Australia for their immediate use and enjoyment at all times.

In these circumstances, the requirement that the fringe benefits must relate to the first 12 months the employee is living away from home does not apply until 1 July 2014. However, if there is a material change to or renewal of the employment arrangement between 1 October 2012 and 1 July 2014, this rule does apply from the date of the change or renewal. [ Schedule 1, Part 3, subitems 27(2) and (3)]

Further, and in accordance with subsection 27(2) in Part 3 of Schedule 1 to the Tax Laws Amendment (2012 Measures No. 4) Act 2012, an employer may not disregard paragraph 31C(a) during the transitional period if the employee is either a 'temporary resident' or 'foreign resident'. Both of these terms are defined in the Tax Laws Amendment (2012 Measures No. 4) Act 2012.

'temporary resident' and 'foreign resident' have the same meaning as in the Income Tax Assessment Act 1997.

A foreign resident is defined as:

…a person who is not a resident of Australia, for the purposes, of the Income Tax Assessment Act, 1936.

If a person fits within the definition of temporary resident, they will be a temporary resident for the purpose of LAFHA provisions.

As defined in the ITAA 1997 you are a temporary resident if:

(a) you hold a temporary visa granted under the Migration Act 1958; and

(b) you are not an Australian resident within the meaning of the Social Security Act 1991; and

(c) your spouse is not an Australian resident within the meaning of the Social Security Act 1991.

However you are not a temporary resident if you have been an Australian resident (within the meaning of this Act), and any of paragraphs (a), (b) and (c) are not satisfied, at any time after the commencement of this definition.

As the employee :

(i) is in Australia under a 457 visa (a temporary visa under the Migration Act 1955)

(ii) is not an Australia resident within the meaning of the Social Security Act 1991 and

(iii) their spouse is not a resident within the meaning of the Social Security Act 1991

they are a temporary resident for fringe benefits tax purposes. Therefore as the employee does not maintain a home in Australia, which they are required to live away from, the transitional rules, outlined earlier, do not apply. As a consequence the employee is subject to the new LAFHA rules from 1 October 2012. That is any payment made to the employee to cover additional expense (LAFHA) will from 1 October 2012 not be concessionally taxed. It will attract fringe benefits tax.

(iii) their spouse is not a resident within the meaning of the Social Security Act 1991

they are a temporary resident for fringe benefits tax purposes. Therefore as the employee does not maintain a home in Australia, which they are required to live away from, the transitional rules, outlined earlier, do not apply. As a consequence the employee is subject to the new LAFHA rules from 1 October 2012. That is any payment made to the employee to cover additional expense (LAFHA) will from 1 October 2012 not be concessionally taxed. It will attract fringe benefits tax.