Edited version of your private ruling

Authorisation Number: 1012462120756

Ruling

Subject: Fringe benefits tax - living-away-from-home allowance - travelling allowance

Question:

Is the allowance paid to your employees a living-away-from-home allowance in accordance with subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No

This ruling applies for the following periods:

Fringe benefits tax year ending 31 March 2014.

The scheme commences on:

In the 2013-14 fringe benefits tax year.

Relevant facts and circumstances

As part of a specific contract you need to complete a period of project work in Overseas country.

In order to complete the work in Overseas country you will need to bring the relevant employees ('your employees') into Overseas country as well as other materials and equipment.

You do not presently have staff stationed within Overseas country.

While working in Overseas country your employees are not seconded to work for a different entity or to a different position.

For the period that they undertake duties in Overseas country, your human resources systems will not recognise the work location of your employees as having been changed.

You do not have a permanent base from which you operate in Overseas country, nor do you have an office with signage there. You do not have an office for these employees to be seconded to.

The employment terms and conditions for your employees whilst they are working in Overseas country will align with your policies for short term travellers.

While working in Overseas country your employees will remain members of your pension fund and you will continue to pay the staff in the overseas country and take pension payments from your employees pay.

Your employees will only work on tasks that relate to the specific project for which they have travelled to Overseas country to complete. They will not undertake any separate work while in Overseas country.

You expect that the total period during which you will have staff working on this project in Overseas country will be less than 30 weeks.

The staff working in Overseas country on this project will not all work in Overseas country at the same time.

You expect that most of your staff will work in Overseas country for a specified number of consecutive weeks at one time although some may be in Overseas country for a shorter time period.

Some of your employees will be in Overseas country for the specified number of consecutive weeks, followed by an equal period in the location where they usually work and then a further equal period working in Overseas country.

There is an expectation that no single employee will be in Overseas country for longer than 183 days in total.

You are not paying for families or partners of your employees to come with them to Overseas country.

While working in Overseas country, your employees will be staying at basic hotel accommodation.

Employees will have their own room but they will not have cooking and washing facilities in their individual rooms and you will not expect that employees will return to their same room if they leave and return to Overseas country for a second period of time.

Your employees will not lease or stay in normal self-contained residential accommodation.

You will not pay or arrange for the transport of any employees personal household effects or motor vehicles into Overseas country.

Your employees will be paid a daily allowance during their time in Overseas country to cover meals and other incidentals.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986, section 30

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

Fringe Benefits Tax Assessment Act 1986, subsection 136(1)

Income Tax Assessment Act 1997, section 8-1

Reasons for decision

Is the allowance paid to your employees a living-away-from-home allowance in accordance with subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Section 30 of the FBTAA sets out the circumstances in which a payment to an employee will be a living-away-from-home allowance benefit.

Subsection 30(1) states:

Where:

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

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

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

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

by reason that the 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.

In summarising the requirements of subsection 30(1), an allowance will be a living-away-from home-allowance if:

1. it is reasonable to conclude from all the surrounding circumstances that some or all of the allowance is in the nature of compensation to the employee for:

· additional non deductible expenses incurred by the employee during a period; or

· additional non deductible expenses and other additional disadvantages to which the employee is subject during a period; and

2. the additional expenses and other disadvantages arise because the duties of the employees employment require the employee to live away from their normal residence.

Is the allowance paid for additional non deductible expenses and other disadvantages?

You will pay your employees a daily allowance of a pre-determined specified amount for each day they are working in Overseas country to compensate the employees for the costs they incur for meals and other incidentals.

It is accepted that you will be paying the allowance for additional expenses and other disadvantages the employee will be subject to due to their changed working conditions - working in Overseas country away from their usual place of employment in the overseas country.

For an allowance to be a living-away-from-home allowance the additional expenses need to be non deductible expenses (a payment for additional disadvantages only cannot be a living-away-from-home allowance: Atwood Oceanics Overseas country Pty Ltd v FC of T 89 ATC 4808).

Subsection 136(1) of the FBTAA provides a definition of deductible expenses in this context to mean:

deductible expenses, in relation to an allowance paid to an employee, means expenses incurred by the employee in respect of which a deduction is allowable to the employee under section 8-1 of the Income Tax Assessment Act 1997 (ignoring Divisions 28, 32 and 900 of that Act).

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) states:

(1)  You can deduct from your assessable income any loss or outgoing to the extent that:

(a)  it is incurred in gaining or producing your assessable income ;

or

(b)  it is necessarily incurred in carrying on a *business for the purpose of gaining or producing your assessable income.

Note: Division 35 prevents losses from non-commercial business activities that may contribute to a tax loss being offset against other assessable income.

(2)  However, you cannot deduct a loss or outgoing under this section to the extent that:

(a)  it is a loss or outgoing of capital, or of a capital nature; or

(b)  it is a loss or outgoing of a private or domestic nature; or

(c)  it is incurred in relation to gaining or producing your * exempt income or your *non-assessable non-exempt income; or

(d)  a provision of this Act prevents you from deducting it.

In general terms, section 8-1 of the ITAA 1997 allows a deduction to be claimed by an employee for a loss or outgoing incurred in gaining or producing assessable income provided the loss or outgoing is not of a capital nature, a domestic nature or incurred in relation to gaining or producing exempt income or non-assessable non-exempt income.

Various court decisions have concluded that, generally, accommodation and food expenses incurred while away from home are essentially living expenses of a private or domestic nature and therefore not deductible (FC of T v Cooper 91 ATC 4396; (1991) 29 FCR 177 (Cooper); Federal Commissioner of Taxation v Toms 20 ATR 466; 89 ATC 4373 (Toms)). However, there are two exceptions to this general rule. These are:

· where the employee is travelling in the course of their employment; or

· where the factual situation is comparable to the situation considered by the Federal Court in Roads and Traffic Authority of NSW v Federal Commissioner of Taxation 26 ATR 76; 93 ATC 4508 (RTA).

Will your employees be travelling in the course of their employment?

Miscellaneous Taxation Ruling MT 2030 Fringe benefits tax: living-away-from-home allowance benefits (MT 2030) discusses the difference between an employee, travelling in the course of their employment as opposed to living-away-from-home. The general principles are outlined at paragraphs 35 and 36 as follows:

35. …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.

36: 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."

As discussed above you will pay to your employees an allowance for the cost of meals and other incidentals. These expenses are generally non-deductible expenses but can be deductible if the employee is travelling in the course of employment.

MT 2030 then provides guidelines to assist determining whether an employee is travelling in the course of performing the duties of their employment. The criteria are set out in paragraphs 37-43 and include:

· the nature of the job;

· the length of time the allowance is paid for, and

· whether the employee is accompanied by their spouse or family.

The first criterion is discussed in paragraphs 37 and 38 of MT 2030 which state:

37. Unlike living-away-from-home allowances, there is generally no change of employment location in relation to the payment of travelling allowances. While the expenses that they are intended to compensate for may be similar - meals and accommodation, etc., - the circumstances in which the allowances are paid are essentially different.

38. 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 an actual 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.

As part of the duties of their employment the employees are required to work in Overseas country to complete a certain project. The project must be completed in Overseas country. The employees will work in Overseas country for varying periods of time but up to a specified maximum period of time.

During the period that they undertake duties in Overseas country, your human resources systems will not recognise the employees' work location as having changed. The employees' employment terms and conditions whilst they are working in Overseas country will be handled under your policy for short term travellers.

While in Overseas country your employees will stay in hotel accommodation provided by you, without cooking or washing facilities in their individual rooms. They will not lease or stay in normal self-contained residential accommodation.

The employees will only work on tasks that relate to the specific project for which they have travelled to Overseas country to work on. They will not undertake any separate work while in Overseas country.

These factors indicate that for the period that the employees are working in Overseas country their job location has not changed.

The second criterion is the length of time the allowance is paid for. This criterion is discussed in paragraphs 39 to 41 of MT 2030 which state:

39. Travelling allowances are often paid for comparatively short periods, exceptions being allowances paid where the employment is inherently itinerant in nature or where travelling is a regular incident of the occupation, e.g., commercial travellers, travelling entertainers, etc. Academics studying on sabbatical leave have also been held to be travelling in the course of their employment rather than living away from home and thus could receive a travelling allowance over an extended period of time.

40. The nature of an allowance is not to be determined by reference solely to the period for which it is paid. As mentioned, a travelling allowance might be paid to a commercial traveller almost continuously throughout the year whereas another employee may receive a living-away-from-home allowance only for a month or so.

41. There will be circumstances, however, when an employee is away from his or her home base for a brief period in which it may be difficult to conclude whether the employee is living away from home or travelling. As a practical general rule, where the period away does not exceed 21 days the allowance will be treated as a travelling allowance rather than a living-away-from-home allowance. For longer periods, it will be necessary to determine the nature of the allowance with the guidance provided by this Ruling.

Your employees will be in Overseas country for different periods of time.

You do not expect that any one employee will be in Overseas country for more than the specified number of consecutive weeks and you expect that no single employee will remain in Overseas country for longer than 183 days in total.

Your employees will therefore be performing duties in Overseas country for up to a specified period at one time. Although this period is greater than the 21 day guideline provided in MT 2030, as stated in paragraph 40 of MT 2030, the nature of an allowance is not to be determined solely by reference to the period for which it was paid.

Specifically, paragraph 41 of MT 2030 directs consideration to the 21 day guideline when it is difficult to conclude whether the employee is living away from home or travelling and states that for periods longer than 21 days the nature of the allowance must be determined by the guidance provided in the whole of MT 2030. Further, at paragraph 39, MT 2030 provides an example of an academic studying on sabbatical leave as an employee who may be considered to be travelling over an extended period of time.

In your circumstances it is important to consider all of the guidelines of MT 2030 which indicate that your employees are travelling. It is also relevant in considering the length of time your employees are receiving the allowance for to consider the distance between the employees' normal place of residence and employment and the new place that they are working in for the period. Your employees are employed by you in an overseas country and are required to work for a period or multiple periods in Overseas country. The distance and cost involved in travelling between these two locations makes it impractical for your employees to make return trips to Overseas country for shorter periods of time.

The third criterion is whether the employee is accompanied by their spouse or family and is discussed in paragraphs 42 and 43 of MT 2030, which state:

42. 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.

43. 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 might be indicative of the nature of the employee's absence, the tests for determining the purpose of an allowance are as previously explained. To illustrate the point, an employee who lives during the working week in the country town where his permanent job is located but who travels perhaps several hundred kilometres to live during weekends with his wife and children in the family home located in another town would be, during the week, living away from home. So, too, would a married public servant based in a capital city who is seconded for six months to carry out a special task interstate in circumstances where his family stays behind in the family home. It is not where the family is that determines the nature of the allowance but where the employee is in relation to the usual place of residence and whether, on the facts, the employee can be said to be travelling on the job or living away from home.

You have advised that your employees will not be accompanied by any family members.

Conclusion

In applying the three criteria set out in MT 2030 to your arrangement we conclude that your employees will be travelling in the course of their employment and as such the expenses they incur for the cost of additional food are deductible expenses. Therefore, the allowance your employees will receive can not be a living-away-from-home allowance as the allowance is not in the nature of compensation for non-deductible expenses. As such, it is not necessary to consider whether the additional expenses and other disadvantages will arise because the duties of the employees' employment require the employee to live away from their normal residence.