Edited version of your private ruling

Authorisation Number: 1012460578936

Ruling

Subject: Living away from home allowance

Question 1

Is the employee considered to be 'living away from home' for the purposes of subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986 when the employee embarks on an overseas trip to conduct project activities for a specified period?

Answer

Yes.

Question 2

Is the employee considered to be 'travelling' in the course of carrying out the duties of employment when the employee embarks on an overseas trip to conduct project activities for a specified period so that the allowance which is paid to the employee for the trip will be subject to Pay As You Go (PAYG) withholding tax for the purposes of section 12-35 of the Taxation Administration Act 1953?

Answer

No.

This ruling applies for the following periods:

1 April 2013 to 31 March 2014

1 April 2014 to 31 March 2015

The scheme commences on:

The scheme is yet to commence.

Relevant facts and circumstances

The employer is an Australian entity.

The employee of the Australian entity will soon be embarking on an overseas trip for a year to carry out activities relating to a project, as part of the employee's employment duties. The employee will be accompanied by the family on this trip.

During the employee's stay overseas, the employee will be carrying out activities as required by the project. Whilst overseas, the employee will be maintaining a home in Australia.

The employee will be paid an allowance to cover for meals and incidentals and reimbursed of actual accommodation expenses incurred for the duration of the overseas stay.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986,

subsection 30(1)

subsection 136(1)

Taxation Administration Act 1953 Schedule 1

Section 12-1

Section 12-35

Reasons for decision

Under subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986 ('FBTAA') an allowance paid to an employee will be a living-away-from-home allowance ('LAFHA') benefit:

Where:

(a) at a particular time, in respect of the employment of an employee of an employer, the employer pays an allowance to the employee; and

(b) it would be concluded that the whole or a part of the allowance is in the nature of compensation to the employee for:

(i) additional expenses (not being deductible expenses) incurred by the employee during a period; or

(ii) additional expenses (not being deductible expenses) incurred by the employee, and other additional disadvantages to which the employee is subject, during a period;

by reason that the duties of that employment require the employee to live away from his or her normal residence;

the payment of the whole, or of the part, as the case may be, of the allowance constitutes a benefit provided by the employer to the employee at that time.

The expression 'normal residence' is defined in subsection 136(1) of the FBTAA:

…in relation to an employee, means:

(a) if the employee's usual place of residence is in Australia - the employee's usual place of residence; or

(b) otherwise - either:

(i) the employee's usual place of residence; or

(ii) the place in Australia where the employee usually resides when in Australia.

The 'place of residence' in relation to a person is defined in subsection 136(1) to mean:

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

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

To determine whether an employee is living away from his or her usual place of residence generally involves a choice between two places of residence.

Miscellaneous Taxation Ruling MT 2030 Fringe benefits tax: living-away-from-home allowance benefits ('MT 2030') addresses the issues of what is meant by the term usual place of residence and the distinction between travelling and living away from home allowances

Guidelines for determining an employee's usual place of residence are provided in paragraphs 15 to 18 of MT 2030. These paragraphs refer to various decisions of Taxation Boards of Review relating to the former 51A of the Income Tax Assessment Act 1936 (ITAA 1936). In referring to these decisions paragraph 14 of MT 2030 states:

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. This would be relevant even if the employee is living in temporary quarters close to a temporary job site.

Paragraph 20 provides the following general rule:

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. 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.

In paragraph 22 of MT 2030 the Commissioner considers that Australian resident employees stationed in a foreign country on appointments of finite duration will generally be living away from their usual place of residence.

In this case, the employee is residing in Australia before undertaking the project activities overseas. The employee will move to an overseas location in order to carry out the project activities in relation to the employment.

The employee will retain the family home in Australia while the employee is carrying out the employment duties at a location overseas and will return to Australia at the end of the specified period of the project activities overseas.

Accordingly, in applying the principles in MT 2030, it is considered that during the relevant period that the employee carries out employment duties overseas there will be two places of residence, one the home in Australia and one the residence located overseas from which the employee is living away for the duration of the project. The home in Australia prior to the commencement of the employee's employment duties overseas will be the employee's usual place of residence.

Paragraphs 35 and 36 of MT 2030 refer to the distinction between travelling allowances and LAFHA which state:

.....it is important that living-away-from-home allowances are distinguished from travelling allowances paid to employees. Living-away-from-home allowances are taxable fringe benefits…, whereas travelling allowances form part of the employee's assessable income against which appropriate deductions may be allowed for the cost of meals, accommodation and incidental expenses incurred while the employee is travelling in the course of carrying out the duties of employment.

When an employee is travelling on business on behalf of an employer, expenses of travel are incidental to the proper carrying out of the employment function and do not have the character of being private or domestic expenses. As it was stated in Case No. B 84, 2 TBRD 390, " ... where the employment actually involves the duty of travelling and therefore staying away from home, the extra expenses of living at hotels, etc., together with costs of conveyance, etc., are deductible as, to that extent, they cease to be of a private or domestic nature."

Paragraphs 37 to 43 of MT 2030 outline factors which may indicate an employee is living away from his or her usual place of residence or travelling in the course of performing their duties of their employment including:

The nature of the job

Paragraph 38 of MT 2030 states the following:

A living-away-from-home allowance is paid where the employee has moved and taken up temporary residence away from his or her usual place of residence so as to be able to carry out employment duties for a time at the new (but temporary) workplace. A travelling allowance, on the other hand, is paid because the employee is travelling in the course of performing his or her job. In the former case, there is a change of job location and actually change of residence to a place at or near that location. In the latter, the employee does not change job locations but simply travels in order to carry out the requirements of the job.

The length of time spent away from home

Paragraphs 39 and 40 of MT2030 refer to the length of time that the employee is away from home:

Travelling allowances are often paid for comparatively short periods, exceptions being allowances where the employment is inherently itinerant in nature or where travelling is regular incident of the occupation…

…The nature of the allowance is not to be determined by reference solely to the period for which it is paid…

Whether the employee is accompanied by dependants

Paragraphs 42 and 43 refer to family members accompanying the employee:

An employee travelling in the course of employment ordinarily would not be accompanied by his or her spouse and family. On the other hand, it is more common for the spouse and children of an employee who has temporarily changed job locations and is living away from the usual place of residence to have his or her family living at the new location.

That is not to say that an unaccompanied employee should always be treated as travelling and an accompanied one regarded as living away from home. While those factors may be indicative of the nature of the employee's absence, the tests for determining the purpose of the allowance are as previously explained…

In the present case, during the relevant period the employee will have two places of residence for the purposes of the FBTAA, one the home in Australia and one the residence overseas where the employee will be staying in order to conduct the project activities at that overseas location.

The employee is required to temporarily work for the employer at another location. It is clear that the project which the employee has accepted to participate necessitates that the employee take up residence overseas to undertake project activities at the overseas location.

The employee will be paid an allowance to cover the cost of meals and incidentals and reimbursed of actual accommodation expenses incurred in relation to the project activities overseas.

In applying the factors above in the present case, the employee is required to take up temporary residence away from the employee's usual place of residence in order to carry out duties at a new, but temporary, workplace. There will be a change of job location and a temporary change residence in relation to the payment of the allowance. The duration that the employee will spend away from the home in Australian cannot be considered a relatively short period of time. The employee will be accompanied by family while the employee is conducting the project activities overseas.

Accordingly, the employee is more likely to be considered living away from the employee's usual place of residence to perform employment duties and not travelling in the course of employment.

In conclusion, for the purposes of applying subsection 30(1) of the FBTAA, the Commissioner considers that the employee of the Australian entity is living away from the employee's normal residence which is a requirement in order to perform the duties of employment as an employee of the Australian entity.

Accordingly, it is considered that the amounts paid to the employee qualify as a LAFHA benefit under subsection 30(1) of the FBTAA.

Question 2

Division 12 of Schedule 1 of the Taxation Administration Act 1953 (TAA) sets out the payments from which an amount must be withheld.

Section 12-35 of the TAA states:

An entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity).

However, section 12-1 sets out the general exceptions where withholding is not required. Subsection 12-1(2) provides that:

In working out how much to withhold under 12-35, 12-40, 12-45, 12-47, 12-115, 12-120, 12-315, or 12-317 from a payment, disregard so much of the payment as is a living-away-from-home allowance benefit as defined by section 136 of the Fringe Benefits Tax Assessment Act 1986.

Section 136 of the FBTAA defines a living-away-from-home allowance benefit referred to in section 30 of the FBTAA.

As outlined in Question 1 above, for the purposes of subsection 30(1) of the FBTAA, the Commissioner considers that the employee is living away from the employee's normal residence for the specified period when the employee will be conducting project activities overseas, rather than travelling in the course of the employee's employment during the relevant period.

As the proposed allowance to cover costs of meals and incidentals expenses is not paid because the employee is travelling in the course of employment, it will not be a travel allowance. The employee would not be able to claim an income tax deduction for those expenses in respect of the allowance in the relevant period.

In the circumstances it is considered that the payment of the proposed allowance to the employee by the employer constitute a LAFHA benefit in accordance with subsection 30(1) of the FBTAA.

Accordingly, section 12-35 does not apply as LAFHA is not an allowance subject to income tax in the hands of the employee. Subsection 12-1(2) of Schedule 1 of the TAA specifically excludes LAFHA from payments from which amounts must be withheld.