Edited version of your private ruling

Authorisation Number: 1012450241713

Ruling

Subject: FBT for Salary Packaging

The employer seeks guidance on the following issues that refer to situations where the employer may choose to reimburse the employee as an 'expense payment fringe benefit' as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Question 1

Does the employee's expenditure incurred in the packaging, transit and insurance of household effects, whilst in transit, as a result of relocation in order to perform duties of new employment, satisfy the paragraph 58B(2)b of the FBTAA 1986 requirement of being 'recipients expenditure that is incurred wholly in respect of the removal or storage of household effects and consists of the transport, packing, unpacking or insurance of the household effects in connection with the removal or storage of the household effects', and therefore be an exempt benefit under section 58B of the FBTAA?

Answer

Yes

Question 2

Does the employee's expenditure incurred in the sale of real property (mortgage discharge fees and other related bank charges, settlement agents fees and expenses, selling agents fees and marketing etc) as a result of relocation in order to perform duties of new employment, satisfy the paragraph 58C(2)(a)(i) of the FBTAA 1986 requirement of being 'recipients expenditure that is incidental to the sale of an interest or right in property', and therefore be an exempt benefit under section 58C(2) of the FBTAA?

Answer

Yes

Question 3

Does the employee's expenditure incurred in the acquisition of real property (stamp duty, registration fee, settlement agents fees and expenses, mortgage fees and other related bank fees etc) as a result of relocation in order to perform duties of new employment, satisfy the paragraph 58C(3)(e)(i) of the FBTAA 1986 requirement of being 'recipients expenditure that is incidental to the acquisition of an interest or right in property', and therefore be an exempt benefit under section 58C(3) of the FBTAA?

Answer

Yes

Question 4

Does the employee's expenditure incurred in the acquisition of property (re-connecting electricity and gas) as a result of relocation in order to perform duties of new employment, satisfy the paragraph 58C(3)(e)(iii) of the FBTAA 1986 requirement of being 'recipients expenditure that is in respect of the act of re-connecting electricity to the acquired dwelling', and therefore be an exempt benefit under section 58C(3) of the FBTAA?

Answer

Yes

Question 5

Does the employee's expenditure incurred in the acquisition of property (re-connecting a telephone service) as a result of relocation in order to perform duties of new employment, satisfy the paragraph 58C(3)(e)(v) of the FBTAA 1986 requirement of being 'recipients expenditure that is in respect of the act of re-connecting a telephone service to the acquired dwelling', and therefore be an exempt benefit under section 58C(3) of the FBTAA?

Answer

Yes

Question 6

Does the employee's expenditure incurred in relocation travel costs (car expenses of fuel, oil, service from Town A to City B then for a return trip from City B to Town A, and back to City B, to attend to pre-sale matters and final family relocation) as a result of relocation in order to perform duties of new employment, satisfy section 143A as a benefit in respect of relocation transport and the paragraph 58F(b) of the FBTAA 1986 requirement of being 'recipients expenditure that is in respect of relocation transport,' and therefore be an exempt benefit under section 58F of the FBTAA?

Answer

Yes

Question 7

Does the employee's expenditure incurred in respect of temporary on-site caravan park accommodation as a result of relocation in order to perform duties of new employment, become a fringe benefit eligible for reduction of its taxable value under section 61C of the FBTAA?

Answer

Yes, but only for the period from yy April up until yy October 2012.

Question 8

Is the employee eligible for the reimbursement of an exempt food component as a Living Away from Home Allowance during the period yy Aprilyy April to xx November 2012 (29 weeks) based on a reasonable weekly food component of $250 per week for 1 adult (TD2012/5), less the statutory food component of $42 per week, therefore $208 per week be an exempt benefit under section 30(1) of the FBTAA?

Answer

Yes, but only for the period yy Aprilyy April to xx July 2012.

No, for the period yy July 2012 to xx November 2012

This ruling applies for the following periods:

FBT year ending 31 March 2013

FBT year ending 31 March 2014

The scheme commences on:

xxApril 2012

Relevant facts and circumstances

You supplied the following relevant facts and circumstances

1) The employee has relocated from Town A to City B commencing permanent employment on yy April 2012, and lived in temporary accommodation for 35 weeks, prior to purchasing a dwelling in City B and moving into the new residence on xx December 2012.

2) The employee marketed and sold a principal place of residence in Town A xx November 2012 and moved family and possessions to City B as a result of new employment.

3) On the sale of the principal place of residence in Town A, the employee engaged a carrier to transport household effects as a result of relocation for employment, including packing, transit, storage and insurance, until a suitable dwelling could be occupied in City B. The carrier was also required to transport one family vehicle from Town A to City B.

4) The employee lived in temporary on-site caravan park accommodation from xxApril 2012 before purchasing a principle place of residence in City B and moving into the new residence on xx December 2012.

5) The new principal place of residence required electricity and gas connection. The employee had electricity and gas connection at the previous residence.

6) The new principal place of residence required telephone/internet connection. The employee had telephone/internet connection at the previous residence.

7) The employee drove a car on yy Aprilyy April 2012 from Town A to City B in order to commence new employment, then returned by car yy November 2012 from City B to Town A to attend to property and family relocation matters on the sale of the Town A principal place of residence, before returning by car on zz November 2012 from Town A to City B to complete family relocation.

8) The employee lived away from home from yy April 2012 until returning xx November 2012 and relocating the family on yy November 2012. The family remained in temporary accommodation from xx November until moving into a new residence on xx December 2012.

You provided the following additional information in response to requests made by the ATO to provide further information and answer specific questions.

· The employee did not work for the employer at any time prior to commencement.

· The employee's family did not relocate from Town A to City B until after xx November 2012.

· There was no variation of the relevant employee's contract of employment between May 2012 and September 2012.

· The Town A property was advertised for sale from xx July 2012.

· The employee entered negotiations to purchase the City B property on xx November 2012

· The employee commenced attending open homes from xx September 2012

· The employee did not close any bank accounts, as he or she operated by internet banking during the relevant period. Postal redirection was arranged from xx November 2012.

· The employee's electoral roll details were updated in early in the recent year.

· The position was advertised as a permanent position, and accepted upon that basis.

· The employee was first offered the position, which required him or her to perform duties in City B in late March or early April 2012.

· At the time of the private ruling application, the employer had not yet been provided with documentary evidence of the employee's expenditure relating to the questions raised in this ruling (expenditure incurred in the sale of the Town A property, the purchase of the City B property, the installation of gas, electricity and telephone services at the City B property, removal and storage of household effects, relocation travel, etc). However, it is anticipated that receipts will be provided if and when a favourable private ruling is issued.

· All expenses incurred by the employee relating to the questions raised in this ruling (expenditure incurred in the sale of the Town A property, the purchase of the City B property, the installation of gas, electricity and telephone services at the City B property, removal and storage of household effects, relocation travel, etc) were conducted on an arms-length basis, on ordinary commercial terms.

· At the time of the private ruling application, the employer had not yet been provided with relevant declarations required by the relevant provisions. However, it is anticipated that such declarations will be provided if and when a favourable private ruling is issued.

· The FBT related salary packing arrangements discussed in this ruling are proposed, but have not yet been entered into or finalised.

The employee's intention was to look for long-term accommodation once permanent employment had been achieved. After the completion of a probation period, ended xx July 2012, the employee intended to put the Town A residence up for sale, then when a sale contract was in place on the Town A residence and money was certain, source and purchase a property in City B. The process extended through July-Dec 2012.

From xx April 2012 basic research of the City B market was carried out via the internet and on-line viewing, to determine comparability to the Town A market and setting broad options available . From xx July 2012 the employee was able to research more thoroughly to narrow the field on potential locations, affordability, access to public transport and housing suitability for family needs, however the employee did not have sufficient funds, or certainty of funds, to consider making offers until the Town A residence was sold. xx September 2012 is significant because this is when the employee's spouse initially visited from Town A for a week, and provided the first opportunity for both to commence a physical inspection of properties in partnership and share ideas on the suitability aspects. The employee continued inspecting home opens for suitable properties each weekend, until required to return to Town A in November 2012.

Did the employee originally intend to return, or contemplate returning, to reside permanently at the Town A property, at any point between yy April and xx November?

The employee entered a contract of employment effective from yy April 2012, which became permanent on xx July 2012 after completing a 3 month probation period. The employee has advised that they would have returned to the Town A residence if the probation period was unsuccessful; however from the date of permanency (xx July 2012) the employee's intention was to relocate the principal place of residence from Town A to City B. The employee's postal address for notices was maintained in Town A for the duration until the Town A residence was sold. At no time was mail sent or diverted to the temporary address.

If the employee's answer to the question above is 'yes,' please provide a statement outlining the employee's intentions concerning the Town A property during this period.

The answer above is "Yes" then "No", based on the permanency of employment. At the point of permanent employment, a selling agency agreement for the Town A residence was entered into with a local real estate agent (yy July 2012) by the employee, so from that time on the Town A residence was advertised for sale and the intention was to move the principal place of residence to City B as a consequence of the new employment. As mentioned previously this process of relocation extended from July to December 2012.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 20.

Fringe Benefits Tax Assessment Act 1986 Subsection 30(1),

Fringe Benefits Tax Assessment Act 1986 Section 31,

Fringe Benefits Tax Assessment Act 1986 Section 58B,

Fringe Benefits Tax Assessment Act 1986 Section 58C,

Fringe Benefits Tax Assessment Act 1986 Section 58F,

Fringe Benefits Tax Assessment Act 1986 Section 61C,

Fringe Benefits Tax Assessment Act 1986 Section 136, and

Fringe Benefits Tax Assessment Act 1986 Section 143A

Reasons for decision

Reasons for decision

Question 1

Summary

Yes. This proposed arrangement will be an exempt benefit under section 58B of the FBTAA, for the FBT year ending 31 March 2014, because all the necessary conditions set out in subsection 58B(1) have been satisfied.

Detailed Reasoning

Section 58B of the FBTAA provides that benefits provided by an employer in respect of the removal or storage of the employee's household effects will be regarded as exempt benefits for FBT purposes, where several conditions have been met.

An expense payment relating to the removal or storage of household effects will be exempt if several conditions are satisfied.

1. The relevant benefit must either be an expense payment benefit, or a residual benefit, that relates to the removal or storage of the employee's household effects, and is provided in, or in respect of, a year of tax in respect of the employment of an employee.

2. The removal or storage must be required solely because the employee is required to live away from, return to, or change his or her usual place of residence, in order to perform employment duties.

3. Paragraph 58(1)(c) relevantly provides that the removal or storage must be required to enable a family member to take up residence, or continue to reside, at the employee's new usual place of residence.

4. The removal or storage must be provided within 12 months after the day on which the employee commenced duties at the new place of employment.

5. The benefit must not be provided under a non-arm's length arrangement.

6. If the benefit occurs where the employee was required to change his or her principal place of residence, documentary evidence of the recipients expenditure must have been given to the employer before the declaration date.

7. The removal or storage must not have been provided in connection with travel undertaken by the employee in the course of performing duties of employment.

These conditions will be considered below.

1. Is the relevant benefit an expense payment benefit, or a residual benefit, relating to the removal or storage of the employee's household effects, which is provided in, or in respect of, a year of tax in respect of the employment of an employee?.

This condition is satisfied.

Section 58B of the Fringe Benefits Assessment Act 1986 (FBTAA) will only apply to these circumstances if the proposed arrangement constitutes a fringe benefit.

'Fringe benefit' is defined in section 136 of the FBTAA. The definition can be summarised (with appropriate simplifications) as a benefit provided, in respect of a year of tax, by an employer to an employee in respect of the employment of that employee.

Taxation Ruling No. IT 2614 (IT 2614) emphasises that the definition of 'fringe benefit' includes reimbursements, but excludes payments of salary and wages, including allowances.

Therefore, the arrangements discussed in this ruling will only be fringe benefits under section 136 of the FBTAA if they can be characterised as reimbursements rather than allowances.

The distinction between an allowance and a reimbursement is discussed in Taxation Ruling TR 92/15 (TR 92/15). TR 92/15 explains that the following characteristics tend to indicate that an amount is an allowance:

· Definite predetermined amounts to cover an estimated expense

· Paid regardless of whether or not the recipient incurs the expected expense

· The provider regards the expense as an expense incurred by the employee, rather than its own expense

· The recipient has a discretion whether or not to expend the allowance

· The recipient is not required to account or vouch for their expenditure, for example, by providing receipts to their employer

· The recipient is not required to reimburse the employer for any excess money remaining after the expenditure has been met

Reimbursements, on the other hand, have the following alternate characteristics:

· An exact compensation (either full or in part) for an expense already incurred by the employee

· The expenses are considered by the provider to be its own expense, rather than the recipient's expense. The recipient is considered to incur the expenditure on behalf of the provider.

· The recipient may be required to vouch for expenses, for example, by providing receipts to the provider to account for the expenditure

· The recipient may be required to reimburse the provider for unexpended amounts

The proposed arrangements discussed in this question are reimbursements, because they share many of the characteristics of reimbursements outlined in TR 92/15. The proposed arrangements envisage an exact compensation for expenses already incurred by the employee, rather than a definite predetermined amount to cover estimated expenses. Moreover, it is proposed that the employee recipient will be required to vouch for their expenditure by providing receipts to the employee. The employee recipient, in this case, does not have an effective discretion over whether or not to expend the allowance, because the expenses have already been incurred. However, note that if receipts are not provided, the proposed expenditure could be regarded as allowances: see paragraphs 20 and 21 of IT 2614.

The other elements of the definition of 'fringe benefit' are easily satisfied in this case.

Chapter 1 of the ATO publication Fringe Benefits Tax: A Guide for Employers (FBT Guide for Employers) states that a benefit is provided in respect of the employment of the employee, if the employer would not have provided the benefit but for the fact the recipient was an employee. Clearly, in this case, the recipient in question would not have received the benefit unless he or she was an employee.

The proposed arrangement will be an expense payment benefit under subparagraph 58B(1)(a)(i).

Expense payment benefit is defined in section 136 as a benefit referred to in section 20 of the FBTAA. Section 20 refers to situations where a provider makes a payment in discharge (in whole or part) of the recipient's obligation to pay an amount to a third person, or where the provider reimburses the recipient in respect of expenditure.

The proposed arrangement will be an expense payment benefit, and not a residual fringe benefit, because the employer will reimburse removal and storage expenses incurred by the employee, rather than providing the removal and storage services directly to the employee.

The expenses were incurred between the sale of the property in Town A on zz November, and moving into the new residence in City B in xx December 2012. Although the expense was incurred by the employee during the FBT year ending 31 March 2013, the employer has not made the payment before 1 April 2013. Section 20 of the FBTAA provides that expense payment benefits arise at the time when the employer reimburses the employee, rather than the time the employee incurs the expense. Therefore, provided that payment is made before 1 April 2014, the expense will be a benefit provided in respect of the employment of an employee in respect of the FBT year ending 31 March 2014.

2. Is the removal or storage required solely because the employee is required to live away from, return to, or change his or her usual place of residence, in order to perform employment duties?

This condition is satisfied.

ATO Interpretive Decision 2013/8 (ATOID 2013/8) provides guidance on the meaning of 'required' in the context of subparagraph 58B(1)(b)(iii):

The term 'required' is not defined in the FBTAA. Therefore, it must take its ordinary meaning in the context in which it is used. Relevantly , The Macquarie Dictionary… defines 'require' as: 'to have need of; need; to impose need or occasion for; make necessary or indispensable; to place under an obligation or necessity.'

Therefore, it is considered that the term 'required' as it is used in subparagraph 58B(1)(b)(iii) does not mean that the change of usual place of residence must be compulsory. Rather, the change may be one that is necessary in the circumstances in order for the employee to perform the duties of their employment.

The facts in this case are similar to the factual scenario discussed in ATOID 2013/8. In that case, the employee accepted a promotion. The employee was required to attend a new workplace to perform his or her employment duties. The employee was regarded as 'required' to change his or her place of residence for the purposes of subparagraph 58B(1)(b)(iii), even though the employer did not specifically require the employee to change their usual place of residence. The following factors supported this decision:

· The distance between the employee's usual place of residence and their new place of employment (over 3000 kms)

· The employee was not permitted to perform their new duties of employment from the former place of employment;

· The employer did not provide transport for the employee to commute between their usual place of residence and the new place of employment; and

· The employee is required to be on call at certain times and must sign on for duty within two hours of being contacted by their employer.

In this case, the employee was required to perform duties at his or her new place of work in the City B region. The employee changed his or her usual place of residence from Town A to City B in order to perform duties of new employment.

It is noted that the employee in this case was commencing new employment, and did not previously work for the employer. While ATOID 2013/8 concerns a situation where the employee was required to change workplaces with the same employer, paragraph 4 of IT 2614 specifies that FBT employee relocation expense provisions extend to situations were an employee moves location to take up a new job with a new employer, and the employer chooses to reimburse the cost of removal to the new location.

In this case, the employee can be regarded as 'required' to change his or her residence for employment purposes, even though the employer did not strictly require the employee to change his or her residence.

The distance between the employee's usual place of residence and the new place of employment (which is over x,000 kilometres) precluded the employee from commuting to work from his or her Town A residence.

On an objective view, the employee can be regarded as 'required' to change his or her usual place of residence in order to perform the duties of that employment for the purposes of subparagraph 58B(1)(b)(iii) of the FBTAA.

3. Was the removal or storage required to enable a family member to take up residence, or continue to reside, at the employee's new usual place of residence?

This condition is satisfied. The definition of 'family member,' contained in section 136 of the FBTAA, includes the employee, and any spouse or child of the employee. In this case, the removal and storage of household effects enabled the employee and his family to relocate to the new place of residence.

4. Was the removal or storage required within 12 months after the day on which the employee commenced duties at the new place of employment?

This condition is satisfied. The removal and storage expenses were incurred in November and December 2012, within 12 months after the employee's commencement in April 2012.

5. The benefit must not have been provided under a non-arm's length arrangement.

This condition is satisfied. The provision of the benefit was provided under ordinary commercial terms.

6. If the benefit occurs where the employee was required to change his or her principal place of residence, was documentary evidence of the recipients expenditure given to the employer before the declaration date?

Documentary evidence has not yet been provided. This condition will be satisfied, provided that the employer is provided with relevant documentary evidence of the recipient's expenditure, prior to the declaration date.

7. The removal or storage must not have been provided in connection with travel undertaken by the employee in the course of performing duties of employment.

This condition is satisfied. The removal or storage did not relate to travel undertaken by the employee in the course of performing duties of employment.

Conclusion

All the conditions required by subsection 58B(1) are satisfied. Therefore, the employee's expenditure (incurred in the packaging, transit and insurance of household effects) is an exempt benefit under section 58B of the FBTAA, for the FBT year ending 31 March 2014.

Question 2

Summary

Yes. This proposed arrangement will be an exempt benefit under section 58C of the FBTAA, for the FBT year ending 31 March 2014, because all the necessary conditions set out in subsection 58C(1) and subsection 58C(2) have been satisfied.

Detailed Reasoning

For similar reasons to Question 1 above, the proposed arrangements will be a fringe benefit for the purposes of section 136 of the FBTAA.

Before considering whether expenditure incurred in the sale of real property is 'incidental to the sale of an interest or right in property' for the purposes of paragraph 58C(2)(a)(i), it is first necessary to establish that subsection 58C(2) applies.

A benefit relating to the sale of property will only be regarded as exempt under subsection 58C(2), if the four conditions set out in subsection 58C(1) are satisfied.

These conditions can be summarised as follows:

1. The employee must hold a prescribed interest or proprietary right in a dwelling, as specified by paragraph 58C(1)(a).

2. The employee must sell, or propose to sell, the interest or right solely because the employee is required to change his or her usual place of residence in order to perform the duties of his or her employment.

3. The employer must have first notified the employee at a time (the "notice time") during the former home holding period that the employee is required to perform the duties of that employment at the employee's new place of employment.

4. At the notice time, the employee must have occupied, or proposed to occupy, the dwelling, or proposed to occupy the proposed dwelling, as his or her usual place of residence.

These conditions are discussed below.

1. Does the employee must hold a prescribed interest or proprietary right in a dwelling, as specified by paragraph 58C(1)(a)?

This condition is satisfied. The employee owned a house and land in fee simple, which is a prescribed interest for the purposes of sub-sub paragraph 58C(1)(a)(i)A.

2. Has the employee sold, or has the employee proposed to sell, the interest or right solely because the employee is required to change his or her usual place of residence in order to perform the duties of his or her employment?

This condition is satisfied. As discussed in the detailed reasoning for Question 1 above, ATOID 2013/8 states that 'required' in this context does not mean that the employer must have required the employee to sell his or her usual place of residence. The employee can be regarded as 'required' to sell the interest or right in order to perform his or her duties, because of the distance between the former place of residence and the new place of work.

3. Did the employer first notify the employee that he or she was required to perform the duties of that employment at the employee's new place of employment, during the time in which the employee held the former home?

4. At the notice time, did the employee occupy, or did the employee propose to occupy, the dwelling as his or her usual place of residence?

These two conditions are also satisfied. The employee received notice of the place of his or her new employment, in late March or early April 2012, shortly before commencing duties in April 2012. The employee owned and occupied the Town A property at this time.

Since the four conditions in subsection 58C(1) are satisfied, subsection 58C(2) applies.

Subsection 58C(2) provides that a benefit will be an exempt benefit for FBT purposes, where several conditions are satisfied, which can be summarised as follows:

1. Either an expense payment benefit or a residual benefit must have been provided, where the expenditure or benefit is incidental to the sale of that interest or right.

2. The employee or associate must have entered into a contract for the sale of the interest or right within 2 years after the day (the "new employment day") on which the employee commenced to perform the new duties of employment.

3. Documentary evidence of the recipient's expenditure must have been obtained, and provided to the employer before the declaration date.

4. The benefit must not have been provided under a non-arm's length arrangement.

These conditions are discussed below.

1. Was either an expense payment benefit, or a residual benefit, provided, where the expenditure or benefit is incidental to the sale of that interest or right?

This condition is satisfied.

The proposed arrangement will be an expense payment benefit (as defined in section 20 of the FBTAA), and not a residual fringe benefit, because the employer will reimburse the employee for removal and storage expenses incurred by the employee, rather than providing the removal and storage services directly to the employee.

The expenditure or benefits are incidental to the sale of the property. Section141A outlines types of costs which will be regarded as 'incidental to the sale of property' under the FBTAA.

Section 141A(1) relevantly provides that:

(b) in all cases - the recipient's expenditure is in respect of any of the following matters:

(i) stamp duty;

(ii) advertising;

(iii) legal services;

(iv) agent's services;

(v) discharge of a mortgage;

(vi) expenses of borrowing;

(vii) any similar matter;

being a matter of a capital nature that is incidental to the acquisition or sale of the interest or right; and

In this case, all relevant expenditure is regarded as 'incidental to the sale of property' under the FBTAA. Mortgage discharge fees (and other related bank charges) are caught by subparagraph 141A(2)(b)(v). Settlement agents fees and expenses, selling agents fees and marketing will be caught by subparagraph 141A(2)(b)(iv). All expenditure relating to the sale of a house is clearly capital in nature: see, eg, Sun Newspapers Ltd & Anor v. Federal Commissioner of Taxation (1938) 61 CLR 337.

Furthermore, none of the exclusions set out in paragraph 141A(1)(c) apply. The expenditure does not relate to interest, repayments of principal, loan service fees, insurance, rates, borrowing expenses or the discharge of a mortgage where the money borrowed was not applied wholly in respect of the land, stratum unit or proprietary right or in respect of a building on the land.

Therefore, the relevant expenditure is regarded as 'incidental to the sale of property' for the purposes of paragraph 58C(2)(a)(i).

2. Did the employee or associate enter into a contract for the sale of the interest or right within 2 years after the day (the "new employment day") on which the employee commenced to perform the new duties of employment?

This condition is satisfied. The employee or associate sold the Town A property in November 2012, within 2 years of commencing employment in April 2012.

3. Was documentary evidence of the recipient's expenditure obtained, and provided to the employer before the declaration date?

In this case, documentary evidence has not yet been provided. This condition will be satisfied, provided that the employer will be provided with relevant documentary evidence of the recipient's expenditure, prior to the declaration date.

4. The benefit must not have been provided under a non-arm's length arrangement.

This condition is satisfied. All relevant expenditure occurred on an arms-length basis, on commercial terms.

Conclusion

Since all the conditions in subsections 58C(1) and 58C(2) have been satisfied, the employee's expenditure incurred in the sale of real property (mortgage discharge fees and other related bank charges, settlement agents fees and expenses, selling agents fees and marketing etc) as a result of relocation in order to perform duties of new employment, will be an exempt benefit under subsection 58C(2) of the FBTAA, for the FBT year ending 31 March 2014.

Question 3

Summary

Yes. This proposed arrangement will be an exempt benefit under section 58C of the FBTAA, for the FBT year ending 31 March 2014, because all the necessary conditions set out in subsection 58C(1) and subsection 58C(3) have been satisfied.

Detailed Reasoning

For similar reasons to Question 1 above, the proposed arrangements will be a fringe benefit for the purposes of section 136 of the FBTAA.

Before considering whether expenditure incurred in the acquisition of real property is 'incidental to the sale of an interest or right in property' for the purposes of paragraph 58C(3)(e)(i), it is first necessary to establish that subsection 58C(3) applies.

A benefit relating to the acquisition of property will only be regarded as exempt under subsection 58C(3), if the four conditions set out in subsection 58C(1) are satisfied.

As discussed in the reasoning for Question 2 above, these conditions are satisfied. The employee owned the Town A property at the relevant times, and was required to change his or her place of residence as a result of new employment.

Subsection 58C(3) provides that certain benefits listed in paragraph 58C(3)(e), including expense payment benefits where the recipients expenditure is incidental to the acquisition of an interest or right in a dwelling relating to the acquisition of property will be exempt, if a number of conditions are met.

1. The employee, or an associate, must acquire a prescribed interest or proprietary right in relation to a dwelling, as defined by paragraph 58C(3)(a).

2. The employee or associate must acquire the interest or right solely because the employee is required to change his or her usual place of residence in order to perform duties at their new place of employment.

3. The employee or associate must have entered into a contract for the acquisition of the interest or right within 4 years after commencing the new employment.

4. Immediately after completing the acquisition, the employee must have either occupied the new dwelling, or proposed to occupy the new dwelling, as his or her usual place of residence.

5. The benefit provided must fit within one of the benefit types listed in paragraph 58C(3)(e).

6. Documentary evidence of the recipient's expenditure must have been obtained by the recipient, and provided to the employer.

7. The benefit must not have been provided under a non-arm's length arrangement.

These conditions will be discussed below.

1. Did the employee, or an associate, acquire a prescribed interest or proprietary right in relation to a dwelling, as defined by paragraph 58C(3)(a)?

This condition is satisfied. The employee purchased a property containing a dwelling in City B in December 2012, which constitutes a prescribed interest in land under sub-subparagraph 58C(3)(a)(i)A.

2. Did the employee or associate acquire the interest or right solely because the employee is required to change his or her usual place of residence in order to perform duties at their new place of employment.

This condition is satisfied. As discussed in the detailed reasoning for Question 1 above, ATOID 2013/8 states that 'required' in this context does not mean that the employer must have required the employee to sell his or her usual place of residence. The employee can be regarded as 'required' to sell the interest or right in order to perform his or her duties, because of the distance between the former place of residence and the new place of work.

3. Did the employee or associate enter into a contract for the acquisition of the interest or right within 4 years after commencing the new employment?

4. Immediately after completing the acquisition, did the employee either occupy, or propose to occupy, the new dwelling, as his or her usual place of residence?

These two conditions are satisfied. The employee purchased and moved into a new principal place of residence in City B on xx December 2012, which is within 4 years of the commencement date of yy April 2012.

5. Does the benefit provided fit within one of the benefit types listed in paragraph 58C(3)(e)?

In this instance, the relevant benefit type is 'an expense payment benefit where the recipients expenditure is incidental to the acquisition of that interest or right,' under subparagraph 58C(3)(e)(i).

The proposed arrangement will be an expense payment benefit (as defined in section 20 of the FBTAA), and not a residual fringe benefit, because the employer will reimburse the employee for removal and storage expenses incurred by the employee, rather than providing the removal and storage services directly to the employee.

Section141A outlines types of costs which will be regarded as 'incidental to the sale of property' under the FBTAA.

For similar reasons discussed above in Question 2, these expenses will be regarded as 'incidental to the sale or acquisition of property' for the purposes of paragraph 58C(2)(a)(i).

6. Was documentary evidence of the recipient's expenditure obtained by the recipient, and provided to the employer?

In this case, documentary evidence has not yet been provided. This condition will be satisfied, provided that the employer will be provided with relevant documentary evidence of the recipient's expenditure, prior to the declaration date.

7. The benefit must not have been provided under a non-arm's length arrangement.

This condition is satisfied. All relevant expenditure was incurred on ordinary commercial terms.

Conclusion

All the conditions set out in subsection 58C(3) have been satisfied. Therefore, the employee's expenditure incurred in the acquisition of real property (including stamp duty, registration fees, settlement agents fees and expenses, mortgage fees and other related bank fees) as a result of relocation in order to perform duties of new employment, is an exempt benefit for the purposes of subsection 58C(3), for the FBT year ending 31 March 2014.

Question 4

Summary

Yes. This proposed arrangement will be an exempt benefit under section 58C of the FBTAA, for the FBT year ending 31 March 2014, because all the necessary conditions set out in subsection 58C(1) and subsection 58C(3) have been satisfied.

Detailed Reasoning

For similar reasons to Question 1 above, the proposed arrangements will be a fringe benefit for the purposes of section 136 of the FBTAA.

As discussed in Question 3 above, a benefit relating to the acquisition of property will only be regarded as exempt under subsection 58C(3), if the four conditions set out in subsection 58C(1) are satisfied.

As discussed in the reasoning for Question 3 above, these conditions are satisfied, so subsection 58C(3) will apply.

Subsection 58C(3) provides that certain benefits listed in paragraph 58C(3)(e), including an expense payment benefit where the recipients' expenditure is in respect of the act of re-connecting gas or electricity to the other dwelling or proposed dwelling, will be exempt, if a number of conditions are met.

1. The employee, or an associate, must acquire a prescribed interest or proprietary right in relation to a dwelling, as defined by paragraph 58C(3)(a).

2. The employee or associate must acquire the interest or right solely because the employee is required to change his or her usual place of residence in order to perform duties at their new place of employment.

3. The employee or associate must have entered into a contract for the acquisition of the interest or right within 4 years after commencing the new employment.

4. Immediately after completing the acquisition, the employee must have either occupied the new dwelling, or proposed to occupy the new dwelling, as his or her usual place of residence.

5. The benefit provided must fit within one of the benefit types listed in paragraph 58C(3)(e).

6. Documentary evidence of the recipient's expenditure must have been obtained by the recipient, and provided to the employer.

7. The benefit must not have been provided under a non-arm's length arrangement.

Conditions 1-4, and 6-7 are satisfied, for the same reasons discussed in Question 3 above.

The only remaining issue that needs to be considered is whether the benefit fits within one of the benefit types listed in paragraph 58C(3)(e). This issue is discussed below.

5. Does the benefit fit within one of the benefit types listed in paragraph 58C(3)(e)?

The relevant benefit type is 'an expense payment where the recipient's expenditure is in respect of the act of reconnecting gas or electricity to the other dwelling or proposed dwelling,' as stated in sub-paragraph 58C(3)(e)(v).

In this case, the employee's new principal place of residence in City B required electricity and gas to be connected. The employee's expenditure incurred in re-connecting electricity and gas as a result of relocation is an expense payment under sub-paragraph 58C(3)(e)(v).

Conclusion

The employee's expenditure incurred in re-connecting electricity and gas as a result of relocation is an expense payment under sub-paragraph 58C(3)(e)(v), and therefore, is an exempt benefit, for the FBT year ending 31 March 2014.

Question 5

Summary

This proposed arrangement will be an exempt benefit under section 58C of the FBTAA, for the FBT year ending 31 March 2014, because all the necessary conditions set out in subsection 58C(1) and subsection 58C(3) have been satisfied.

Detailed Reasoning

For similar reasons to Question 1 above, the proposed arrangements will be a fringe benefit for the purposes of section 136 of the FBTAA.

As discussed in Question 3 above, a benefit relating to the acquisition of property will only be regarded as exempt under subsection 58C(3), if the four conditions set out in subsection 58C(1) are satisfied.

As discussed in the reasoning for Question 3 above, these conditions are satisfied, so subsection 58C(3) will apply.

Subsection 58C(3) provides that certain benefits listed in paragraph 58C(3)(e), including an expense payment benefit where the recipients' expenditure is in respect of the act of re-connecting gas or electricity to the other dwelling or proposed dwelling, will be exempt, if a number of conditions are met.

1. The employee, or an associate, must acquire a prescribed interest or proprietary right in relation to a dwelling, as defined by paragraph 58C(3)(a).

2. The employee or associate must acquire the interest or right solely because the employee is required to change his or her usual place of residence in order to perform duties at their new place of employment.

3. The employee or associate must have entered into a contract for the acquisition of the interest or right within 4 years after commencing the new employment.

4. Immediately after completing the acquisition, the employee must have either occupied the new dwelling, or proposed to occupy the new dwelling, as his or her usual place of residence.

5. The benefit provided must fit within one of the benefit types listed in paragraph 58C(3)(e).

6. Documentary evidence of the recipient's expenditure must have been obtained by the recipient, and provided to the employer.

7. The benefit must not have been provided under a non-arm's length arrangement.

Conditions 1-4, and 6-7 are satisfied, for the same reasons discussed in Question 3 above.

The only remaining issue that needs to be considered is whether the benefit fits within one of the benefit types listed in paragraph 58C(3)(e). This issue is discussed below.

5. Does the benefit fit within one of the benefit types listed in paragraph 58C(3)(e)?

The relevant benefit type is 'an expense payment where the recipient's expenditure is in respect of the act of connecting or re-connecting a telephone service to the other dwelling or proposed dwelling,' as stated in sub-paragraph 58C(3)(e)(iii).

If subparagraph 58C(3)(e)(iii) applies, then paragraph 58C(3)(f) requires that immediately before the change, a telephone service must be provided to the unit of accommodation that was the employee's usual place of residence before the change.

In this case, the employee's new principal place of residence in City B required telephone and internet services to be re-connected. The employee had telephone and internet connections installed at his or her previous residence.

The employee's expenditure incurred in re-connecting telephone services as a result of relocation is therefore an expense payment under sub-paragraph 58C(3)(e)(iii).

Conclusion

The employee's expenditure incurred in re-connecting telephone services as a result of relocation is an expense payment under sub-paragraph 58C(3)(e)(iii), and therefore, is an exempt benefit under section 58C of the FBTAA, for the FBT year ending 31 March 2014.

Question 6

Summary

Yes. This proposed arrangement will be an exempt benefit under section 58F of the FBTAA, for the FBT year ending 31 March 2014, because all the necessary conditions set out in paragraphs 58F(a-c) have been satisfied.

Detailed Reasoning

For similar reasons to Question 1 above, the proposed arrangements will be a fringe benefit for the purposes of section 136 of the FBTAA.

A benefit relating to relocation travel costs will be regarded as an exempt benefit under section 58F of the FBTAA, where several conditions have been satisfied.

1. A car benefit, an expense payment benefit, a property benefit or a residual benefit is provided in, or in respect of, a year of tax in respect of the employment of an employee of an employer.

2. If the benefit is an expense payment benefit, that benefit must not relate to the reimbursement of a Division 28 car expense incurred by the recipient, which is calculated according to the distance travelled by a car owned by, or leased to the recipient.

3. If the benefit is an expense payment benefit, documentary evidence of the recipient's expenditure must be obtained by the recipient and provided to the employer before the declaration date.

4. The benefit is in respect of relocation transport

These conditions are discussed below.

1. Is a car benefit, an expense payment benefit, a property benefit or a residual benefit provided in, or in respect of, a year of tax in respect of the employment of an employee of an employer?

This condition is satisfied. The expense is an expense payment benefit.

2. The expense payment benefit must not relate to the reimbursement of a Division 28 car expense incurred by the recipient, which is calculated according to the distance travelled by a car owned by, or leased to the recipient.

This condition is satisfied. The proposed expense payment benefit involves the reimbursement of all car expenses incurred in relation to several trips between Town A and City B. The proposed expense payment benefit does not relate to Division 28 car expenses incurred by the recipient, calculated according to distance travelled.

3. If the expense is an expense payment benefit, documentary evidence of the recipient's expenditure must be obtained by the recipient and provided to the employer before the declaration date.

Documentary evidence has not yet been provided. This condition will be satisfied, provided that the employer is provided with relevant documentary evidence of the recipient's expenditure, prior to the declaration date.

4. Is the benefit 'in respect of relocation transport?'

This condition is satisfied. The definition of 'relocation transport' is set out in section 143A of the FBTAA. An expense will be regarded as 'relocation transport' if the following conditions are satisfied.

1. Any of the benefits specified in paragraph 143A(a) is provided in, or in respect of, a year of tax to an employee, or to an associate of the employee, in respect of the employment of the employee.

2. The transport, meals or accommodation is for a family member

3. The transport is required solely because the employee is required to live away from, return to, or change his or her usual place of residence in order to perform duties of employment

4. The transport is provided to enable a family member to take up residence, either at or near the place where the employee performs duties of employment, at the employee's usual place of residence, or at the employee's new place of residence.

5. Transport for the employee must not have been provided while the employee is undertaking travel in the course of performing employment duties

6. The benefit must not have been provided under a non-arm's length arrangement.

These conditions are discussed below.

1. Are any of the benefits specified in paragraph 143A(a) provided in, or in respect of, a year of tax to an employee, or to an associate of the employee, in respect of the employment of the employee?

This condition is satisfied. The benefit provided is an expense payment benefit which relates to the provision of transport, which satisfies subparagraph 143A(a)(ii).

2. Is the transport, meals or accommodation for a family member?

This condition is satisfied. The employee's expenditure was incurred in relation to travel costs to relocate the employee and the employee's family from Town A to City B. This included car expenses to transport the employee from Town A to City B, and a return trip from City B, to Town A, and back to City B, to organise the sale of the Town A property, and to relocate family members.

The definition of 'family member' in section 136 of the FBTAA includes the employee, the spouse of the employee, and children of the employee. Therefore, all limbs of the trips between Town A and City B will be transport, meals or accommodation for a family member, even if the employee's family members did not accompany the employee on all or any of these trips.

3. Is the transport is required solely because the employee is required to live away from, return to, or change his or her usual place of residence in order to perform duties of employment?

This condition is satisfied. The transport expenditure was undertaken in order to relocate the employee and the employee's family from the previous residence in Town A to the new usual place of residence in City B.

Although ATOID 2013/8 relates specifically to 58B expenses, it nevertheless provides guidance on interpreting the phrase 'required to…change his or her usual place of residence in order to perform duties of employment.'

As discussed in the detailed reasoning for Question 1 above, the use of the word 'required' does not mean that the employer must have required the employee to sell his or her usual place of residence. The employee can be regarded as 'required' to sell former place of residence in order to perform his or her duties, because of the distance between the former place of residence and the new place of work.

4. Is the transport is provided to enable a family member to take up residence, either at or near the place where the employee performs duties of employment, at the employee's usual place of residence, or at the employee's new place of residence?

This condition is satisfied. The transport expenditure was undertaken in order to relocate the employee and the employee's family from the previous residence in Town A to the new usual place of residence in City B.

5. Transport for the employee must not have been provided while the employee is undertaking travel in the course of performing employment duties.

This condition is satisfied. The relevant transport expenditure was incurred in relocating the employee and the employee's family from their previous residence in Town A, to their new place of residence in City B. Therefore, this travel is private or domestic in nature, not travel in the course of performing employment duties.

6. The benefit must not have been provided under a non-arm's length arrangement.

This condition is satisfied. The relevant transport expenditure was incurred on ordinary commercial terms.

All conditions set out in section 143A have been satisfied. Therefore, the travel expenditure is regarded as 'relocation transport' for the purposes of section 58F of the FBTAA.

Conclusion

All four conditions set out in section 58F have been satisfied. Therefore, the employee's expenditure incurred in relocation travel costs (car expenses incurred in various trips between Town A and City B), are exempt benefits under section 58F of the FBTAA, for the FBT year ending 31 March 2014.

Question 7

Summary

Yes, in part. This proposed arrangement will be a fringe benefit eligible for the reduction of its taxable value under section 61C of the FBTAA, for the FBT year ending 31 March 2014. However, only 6 months expenditure will be eligible for the reduction, corresponding to the period from yy April 2012 through xx October 2012.

Detailed Reasoning

For similar reasons to Question 1 above, the proposed arrangements will be a fringe benefit for the purposes of section 136 of the FBTAA.

Section 61C allows for the taxable value of certain fringe benefits relating to temporary accommodation to be reduced under certain defined circumstances.

If the temporary accommodation benefit falls within the scope of subsection 61C(1), then either subsection 61C(2) or subsection 61C(3) may operate to reduce the taxable value. In this case, subsection 61C(3) is the relevant provision, because it relates to temporary accommodation obtained near the new usual place of residence.

The combined effect of subsection 61C(1), paragraph 61C(3)(a) and paragraph 61C(3)(b) is that paragraph 61C(3)(c) will operate to reduce the taxable value of the fringe benefit if several conditions are satisfied.

1. One of the fringe benefits listed in paragraph 61C(3)(a) must be provided in respect of the employment of the employee in the relevant year of tax.

2. The temporary accommodation must be required solely because the employee is required to change his or her usual place of residence in order to perform the duties of that employment

3. If the unit of accommodation is located at or near the employee's new place of employment, the employee (or associate), either before, on, or as soon as reasonably practical after commencing new employment, the employee must commence sustained reasonable efforts to acquire, or to acquire the right to occupy or use, a unit of accommodation intended by the employee or associate, as the case may be, to provide a long-term place of residence for the employee

4. The fringe benefit must be provided under a non-arm's length arrangement

5. Either of the following circumstances must apply

A) the employee (or associate) entered into a contract within 4 months of relocating in order to take up new employment, or

B) The employee gives to the employer, before the declaration date, a declaration in a form approved by the Commissioner, in respect of the application of this section in relation to the employee

These conditions are considered below.

1. One of the fringe benefits listed in paragraph 61C(3)(a) must be provided in respect of the employment of the employee in the relevant year of tax.

This condition is satisfied. The employee lived in temporary accommodation in City B from April to December 2012. Therefore, the employee had a lease or licence in respect of a unit accommodation occupied or used for the temporary accommodation of family members, according to sub-subparagraph 61C(1)(a)(i)(A). Any employer reimbursement of temporary accommodation expenses would therefore be an expense payment fringe benefit in respect of a lease or licences in respect of a unit of accommodation occupied or used for the temporary accommodation of family members for the purpose of sub-paragraph 61C(1)(a)(i).

Note that the definition of 'family member' in section 136 of the FBTAA includes the employee.

The reduction in taxable value for the reimbursement will arise in respect of the FBT year ending 31 March 2014, notwithstanding that employee incurred the relevant expenses in the 2013 FBT year.

2. The temporary accommodation must be required solely because the employee is required to change his or her usual place of residence in order to perform the duties of that employment

This condition is satisfied. As discussed in the detailed reasoning for Question 1 above, ATOID 2013/8 states that 'required' in this context does not mean that the employer must have required the employee to sell his or her usual place of residence. The employee can be regarded as 'required' to sell the interest or right in order to perform his or her duties, because of the distance between the former place of residence and the new place of work.

3. If the unit of accommodation is located at or near the employee's new place of employment, the employee (or associate), either before, on, or as soon as reasonably practical after commencing new employment, the employee must commence sustained reasonable efforts to acquire, or to acquire the right to occupy or use, a unit of accommodation intended by the employee (or associate), to provide a long-term place of residence for the employee

This condition is satisfied.

Whether an employee has commenced sustained reasonable efforts to acquire accommodation to provide a long-term place of residence is a question of fact, which requires a close examination of the actions and intent of the relevant employee.

In this case, the relevant facts are as follows.

The relevant employee commenced permanent employment with the employer on yy April 2012. This permanent employment was subject to a three-month probation period, which ended on xx July 2012. From yy April to xx July 2012, the employee conducted general research of the City B property market to examine available options.

Once the employee had successfully completed the probation period on xx July 2012, the Town A property was placed on the market. From this date, the employee began to research more thoroughly to narrow the field of potential long-term places of residence. However, the employee was unable to make offers until the Town A property was sold.

The employee's spouse was able to visit City B for a week commencing on approximately xx September 2012, which enabled the couple to commence joint inspection of properties and share ideas on the suitability of potential properties. From xx September 2012, the employee attended open homes every weekend until November 2012, when the employee was required to return to Town A to attend to the sale of the Town A property, and relocate family members.

While the nature of the employee's efforts to acquire a long-term place of residence was confined to general searching from yy April to xx September 2012, these efforts can be considered sustained and reasonable under the circumstances. This is because it was not reasonably practicable under the circumstances for the employee to commence extensive searching, or enter negotiations to purchase properties, until the employee was certain of achieving permanent employment, and able to inspect properties together with his or her spouse.

On these facts, it can be concluded that the relevant employee demonstrated sustained reasonable efforts to acquire a long-term place of residence, during the period commencing yy April and concluding upon the date on which the City B property was purchased in December 2012. These efforts can also be considered to have commenced on or as soon as reasonably practicable after the commencement of new employment, because the employee commenced general searching via the internet from yy April 2012.

4. The fringe benefit must be provided under a non-arm's length arrangement

This condition is satisfied. The relevant temporary accommodation expenses were incurred on ordinary commercial terms.

5. Either of the following circumstances must apply

a. the employee (or associate) entered into a contract within 4 months of relocating in order to take up new employment, or

b. The employee gives to the employer, before the declaration date, a declaration in a form approved by the Commissioner, in respect of the application of this section in relation to the employee

The first circumstance does not apply, because the employee did not enter a contract to occupy a long-term place of residence within 4 months after relocating.

However, this condition will be satisfied, provided that the employee provides a declaration in a form approved by the commissioner, in respect of the application of this section, before the declaration date. In this case, the relevant declaration date is xx May 2014.

You have confirmed that the employee will be required to provide such a declaration if the proposed arrangement proceeds.

Subject to the employee providing this declaration, all conditions in subsection 61C(1), paragraph 61C(3)(a) and paragraph 61C(3)(b) have been satisfied.

Therefore, paragraph 61C(3)(c) may operate to reduce the taxable value of the relevant fringe benefit.

The general effect of paragraph 61C(3)(c) can be summarised (with simplifications that are appropriate under the circumstances) is to allow for a reduction in the taxable value of fringe benefits which are attributable to the subsistence of a lease, licence or housing right for all or part of a period commencing 7 days before the relocation day and ending on the earlier or earliest of whichever of the following days is applicable:

1. If a contract was entered into by the employee (or associate) to acquire a long-term place of residence during the initial accommodation search period, the day on which the employee could reasonably be expected to commence to occupy that accommodation

'Initial accommodation search period" is defined in subsection 61C(5), as the period commencing and ending when the 'sustained reasonable efforts' required by paragraph (1)(d) commenced and ended. This period, applied to the employee's circumstances, commenced on yy April 2012 and concluded when the contract was entered into for the acquisition of the City B property. Therefore, this circumstance potentially applies to your circumstances, because a contract was entered into during the 'initial search period.'

Applied to your circumstances, the relevant day is xx December 2012, because this was the day on which the employee actually occupied the City B property. Under these circumstances, it would not be reasonable to expect the employee to enter the residence earlier than this date, because negotiations did not commence until November, and the employee had significant responsibilities in relocating family members from Town A to City B.

2. If the initial accommodation search period ended before any such contract was entered into, the day on which that period ended

This circumstance does not apply, because the initial accommodation search period did not end before the date on which the contract was entered into.

3. If the employee's former usual place of residence was sold within 6 months after the relocation day, and the 'sustained reasonable efforts' required by paragraph 61C(1)(d) continued to be made during the initial accommodation search period, a day occurring 12 months after the relocation day

This circumstance does not apply to your circumstances, because the employee's place of residence was sold in November, after 6 months had elapsed since relocation.

4. If condition 3 above does not apply (corresponding to sub-paragraph 61C(1)(d)(iii)), then the day occurring 6 months after the relocation day

The relevant day is xx October 2012, 6 months after relocation on yy April 2012.

The relevant day is therefore xx October 2012 because it is the earliest of the two days that apply to your circumstances (xx October and xx December).

Conclusion

Therefore, you are eligible for a reduction in the taxable value for the reimbursement of temporary accommodation expenses incurred by the employee, for the 6 month period commencing on yy April and concluding on xx October 2013.

The reduction in taxable value for the reimbursement will arise in respect of the FBT year ending 31 March 2014, notwithstanding that employee incurred the relevant expenses in the 2013 FBT year.

Question 8

Summary

Yes, but only for the period from yy April through xx July 2012. The reimbursement of an exempt food component will be treated as an exempt food component in respect of this period, because all the requirements of subsection 30(1) of the FBTAA have been satisfied.

The exempt food component will arise in respect of the FBT year ending 31 March 2014, notwithstanding that the employee was living away from home for part of the 2013 FBT year.

However, this arrangement will not be treated as an exempt food component for the remaining period from yy July 2012 through xx November 2012, because the relevant employee cannot be regarded as 'living away' from their usual (or normal) place of residence for this period.

Detailed Reasoning

In order for a reimbursement to be treated as an exempt food component under the FBTAA, it must first be established that the reimbursement will be treated as a Living Away from Home Allowance (LAFHA) fringe benefit for the purposes of the FBTAA.

Section 136 of the FBT states that a 'living-away-from-home allowance fringe benefit' is a benefit mentioned in defined in subsection 30(1) of the FBTAA.

Subsection 30(1) of the FBTAA was recently amended by the Tax Laws Amendment (2012 Measures No. 4) Act 2012, which took effect on 1 October 2012. Since the proposed arrangements will apply from yy April 2012 to xx November 2012, it is necessary to apply subsection 30(1) as it stood before this amendment for the period from yy April 2012 to 1 October 2012. It will also be necessary to apply subsection 30(1) as in force for the period from 1 October 2012 to xx November 2012.

1) The Period from yy April 2012 to 1 October 2012

Subsection 30(1) of the FBTAA, as in force up until 1 October 2012, requires that several conditions must be satisfied for a payment to be treated as a LAFHA.

1. The employer must pay an allowance to the employee

2. The payment of the whole or part of the allowance is a benefit provided by the employer to the employee at that time

3. Whole or a part of the allowance is in the nature of compensation for additional expenses incurred or other additional disadvantages, by reason that the duties of that employment require the employee to live away from his or her usual place of residence

These conditions are not satisfied for the entire period from yy April 2012 to 1 October 2012. However, these conditions will be satisfied for the three month probation period commencing yy April 2012 and concluding on xx July 2012. The application of these conditions to the facts is discussed below.

1. The employer must pay an allowance to the employee

This condition is satisfied. The proposed arrangement must involve the payment of an allowance to the employee.

The ATO interpretation of the meaning of 'allowance' and 'reimbursement,' set out in TR 92/15, was discussed in Question 1 above.

In the present case, the proposed arrangement involves the payment of a fixed sum of money calculated using the Commissioner's reasonable amounts outlined in Taxation Determination TD 2012/5 (TD 2012/5). This is a definite amount to cover an estimated food expense. There is no reason to suppose that the recipient employee will be required to incur the expense, will be required to vouch for expenditure, or to refund any unexpended amounts. Although the proposed arrangement is described as a 'reimbursement,' the payment of this money would be regarded as an allowance for income tax and fringe benefits tax purposes.

2. The payment of the whole or part of the allowance is a benefit provided by the employer to the employee at that time

This condition is satisfied.

Although the expense was incurred by the employee during the FBT year ending 31 March 2013, the employer had not made the payment before 1 April 2013. Section 30 of the FBTAA provides that LAFHA fringe benefits arise at the time when the allowance is paid to the employee by the employer, rather than the time the employee incurs the expenses. Therefore, provided that payment is made before 31 March 2014, the expense will be a benefit provided in respect of the employment of an employee in respect of the FBT year ending 31 March 2014.

3. Whole or a part of the allowance is in the nature of compensation for additional expenses incurred or other additional disadvantages, by reason that the duties of that employment require the employee to live away from his or her usual place of residence

This condition is not satisfied for the entire period from yy April 2012 to 1 October 2012. However, these conditions will be satisfied for the three month probation period commencing yy April 2012 and concluding on xx July 2012. The key consideration is whether or not the employee was required to 'live away from his or her usual place of residence' in order to perform employment duties.

'Usual place of residence' is not defined in the FBTAA. "Usual place of residence' therefore takes its meaning from general usage, as indicated by decided cases and tribunal decisions.

The ATO's interpretation of the meaning of 'usual place of residence,' in light of relevant cases and tribunal decisions, is discussed in Taxation Ruling No. MT 2030 (MT 2030). Although subsection 30(1) has been amended subsequent to the date the ruling was issued, the ruling is still current concerning the interpretation of 'usual place of residence.'

MT 2030 explains that a person's 'usual place of residence' will normally be close to the place where he or she is permanently employed. It is convenient to set out paragraphs 14, 19 and 20 of MT 2030:

14. As the decisions illustrate, 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 (emphasis added). This would be relevant even if the

employee is living in temporary quarters close to a temporary

job site.

19. An underlying theme of the cases is a general presumption that a person's usual place of residence will be close to the place where he or she is permanently employed. Correspondingly, an employee who changes his or her 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. That would be the case notwithstanding that the new place of residence was a temporary one pending the obtaining of suitable long term accommodation (emphasis added).

20. 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 (emphasis added).

For example, a construction worker having to travel to a

construction site to live and work would be in this category

unless he had abandoned the former place of residence upon

moving to the locality of the site. A case of the latter

situation would be where the employee decided to permanently

leave the former home, e.g., if a resident of Sydney, on

obtaining a job for two years on a construction site in a remote

part of Western Australia, decided to "sell up" in Sydney and

move permanently to Western Australia to live.

Therefore, MT 2030 identifies several relevant factors in establishing whether a given location is an employee's usual place of residence for the purposes of subsection 30(1).

· Does the employee have an intention or expectation to return to live at the former place of residence upon ceasing a position of limited duration? If so, this indicates that the former place of residence continues to be the employee's 'usual place of residence.'

· Has the employee moved as a result of a change in employment, or a change in the location of a permanent job? If so, this indicates that the new accommodation is the 'usual place of residence,' even if this accommodation is temporary.

In the present case, the question is whether or not the employee was 'living away' from his or her 'usual place of residence' from the period from yy April to xx November 2012. This question turns on whether the employee's 'usual place of residence' was the Town A property during this period.

The relevant employee commenced employment in City B on yy April 2012, on a permanent basis, subject to a 3 month probation period. After yy July 2012, permanent employment was confirmed, and the employee placed the City B property on the market. It is therefore necessary to consider whether the Town A property was the employee's 'usual place of residence' both before and after this date.

a) The period from yy April 2012 to xx July 2012

The fact that the employee accepted a permanent position in City B is inconsistent with the Town A property being regarded as his or her usual place of residence at any point after yy April 2012. However, the fact that the property was not placed on the market until July, considered together with the fact that new employment was subject to probation, strongly indicates that the employee intended to maintain the Town A property, and contemplated the possibility of returning there in some circumstances. In the present case, the employee has indicated that he or she would have returned had the new employment proved unsuitable, or if he or she failed the 3 month probation review.

While the employee clearly contemplated moving to City B if he or she passed the probation period, the decision to forgo placing the property on the market until completing the probation period indicates that the employee had not made a definitive commitment to abandoning the Town A property and relocating to City B on a permanent basis until yy July 2012. Therefore, the City B property can be regarded as continuing to be the employee's usual place of residence for the period from yy April 2012 to xx July 2012, notwithstanding that some factors indicate otherwise.

b) The period from yy July 2012 to 1 October 2012

The fact that the employee's permanent employment was confirmed on xx July 2012, after passing probation, indicates that the City B temporary accommodation became the employee's 'usual place of residence' for this period. Moreover, employee's decision to place the Town A property on the market on yy July 2012 indicates an intention to abandon the residence.

Therefore, the Town A property cannot be regarded as the employee's normal place of residence for the purposes of section 30(1) for this period, notwithstanding that some factors indicate otherwise. Since the Town A property was not the employee's normal place of residence for the period from yy July through 1 October 2012, this proposed arrangement will not be an exempt benefit under section 30(1) of the FBTAA.

Therefore, to the extent that the reimbursement is provided from xxApril 2012 up until xx July 2012, the arrangement will be eligible to be treated as a living-away-from-home allowance fringe benefit under the FBTAA.

The method for determining the taxable value of a living-away-from-home allowance fringe benefit, prior to 1 October 2012, is set out in section 31 of the FBTAA.

Section 31 relevantly states that the taxable value of the living-away-from-home allowance fringe benefit will consist of the amount of the allowance, less any exempt food component.

Therefore, in a case where the exempt food component comprises the entire living away from home allowance fringe benefit, the taxable value will be nil.

In this case, the proposed arrangement will involve the payment of $208 per week, based on the acceptable food component amounts outlined in TD 2012/5. It is therefore necessary to establish that the proposed payment will constitute an exempt food component for the purposes of section 31 of the FBTAA.

'Exempt food component' is defined in section 136 of the FBTAA.

A payment will be an exempt food component if the employee provides a declaration to the employer setting out particulars of the application of this provision, as required by clauses (i) through (iv) of the definition of 'exempt food component' in section 136 of the FBTAA. In the present case, declarations will be required if the arrangement proceeds. Therefore, this condition will be satisfied, provided that the employer is provided with the relevant declaration prior to the declaration date.

The relevant formula for calculating the amount of the Fringe Benefit is set out in sub-clause (iii)(A) of the definition of 'exempt food component' in section 136 of the FBTAA. This is because the food component was determined by allowing for the deducted home consumption expenditure had the employee resided at their usual place of residence for the relevant period. The deducted home consumption expenditure was equal to the relevant statutory food amount, of $42 for one adult, as set out in section 136 of the FBTAA.

Chapter 11 of the FBT Guide for Employers provides useful guidance in interpreting this definition, and in calculating the exempt food component.

This publication states that the whole amount of a LAFHA food component will be exempt from FBT where the following conditions are satisfied.

1. the food component of the allowance has been reduced by the estimated home food costs before being paid to the employee

2. the reduction is the same or more than the statutory food component.

On the facts, these two conditions have both been satisfied. The payment was calculated using the Commissioner's reasonable exempt food component amount of $250 per week for one adult, published in TD 2012/5. This amount was reduced by the statutory food amount of $42. This means that the food component of the allowance was reduced by the estimated home food costs before the estimated food costs were calculated. The payment of $208 per week will therefore be an exempt benefit under the FBTAA.

In this case, since the entire allowance is comprised of an exempt food component, the taxable value of the payment will be reduced to nil under section 31 of the FBTAA.

2) The Period from 1 October 2012 to xx November 2012.

Legislation as in force from 1 October 2012

As mentioned above, it is necessary to apply the legislation as in force from 1 October 2012 for the remaining period from 1 October 2012 to xx November 2012. This is because the amendments which came into effect on 1 October have several implications for LAFHAs and food component benefits. First, section 30(1) has been amended to cover situations where the employee is living away from his or her normal place of residence. Second, the definition of an exempt food component, and the procedure for calculating the value of an exempt food component benefit, is now set out in section 31H of the FBTAA.

Neither of these differences have any practical implications for the present case. The definition of 'normal place of residence' in section 136 of the FBTAA states that if the employee's usual place of residence is in Australia, the normal place of residence is the employee's usual place of residence.

Therefore, for the reasons discussed above, for the period from yy July 2012 to 1 October 2012, the relevant employee was not living away from his or her normal place of residence for the period from 1 October 2012 to xx November 2012. Therefore, it is unnecessary to consider the calculation of the exempt food component for this period, under section 31H of the FBTAA.

Conclusion

The payment of $208 per week will be an exempt food component under the FBTAA for the period from yy April through xx July 2012, in respect of the FBT year ending 31 March 2014.

However, this payment will not be an exempt food component for the remaining period from yy July 2012 to xx November 2012, because the employee was not 'living away' from their usual (or normal) place of residence for this period.