Edited version of your private ruling

Authorisation Number: 1012480288042

Ruling

Subject: Living Away from Home Allowance Fringe Benefits Tax

Question 1

If a Living Away from Home allowance is paid is it eligible for the reduction in taxable value under Section 31 of the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes

This ruling applies for the following period:

1 April 2012 to 31 March 2014

The scheme commences on:

The scheme has commenced

Relevant facts and circumstances

· Employee A is employed on a X year fixed term contract. The contract has a provision that allows the employer to terminate the contract with 3 months notice to the employee.

· Employment contract is entered into before 8 May 2012 (prior to new LAFHA rules).

· Employee A temporarily relocated (rents premises) in the same town as the Company's head office as required by their contract.

· Employee A's intention is to return to their original residence at the end of the contract term (original residence is more than 200kms from the company's head office) and later decides to purchase a home (close to the Company's head office).

· Employee A - rents out original residence on a month to month lease arrangement and is paid a fortnightly allowance for accommodation and food (as per the Commissioners reasonable food and drink rate).

· Employee B - rents out original residence on a 12 month lease (this expires prior to the end of their current 3 year contract, and is paid a fortnightly allowance for accommodation component and food (as per the commissioner's reasonable food and drink).

· Neither employee has been offered an extension on their current contracts nor has there been any discussion about renewing the contracts at the end of the period.

· Living away from home declaration has been provided.

· The transitional LAFHA rules would apply as the contract was entered into prior to 8 May 2012 and unless there was material change to their employment contract the transitional rules would apply until 30 June 2014.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986, Section 20

Fringe Benefits Tax Assessment Act 1986, Section 21

Fringe Benefits Tax Assessment Act 1986, Section 30

Fringe Benefits Tax Assessment Act 1986, Section 31

Fringe Benefits Tax Assessment Act 1986, Section 31C

Fringe Benefits Tax Assessment Act 1986, Section 31C(a)

Fringe Benefits Tax Assessment Act 1986, Section 31D

Fringe Benefits Tax Assessment Act 1986, Subsection 31D(1)

Fringe Benefits Tax Assessment Act 1986, Subsection 31F

Income Tax Assessment Act 1936 Section 6(1)A

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

Tax Laws Amendment (2012 Measures No. 4) Act 2012 Sch 1 Subsection 27(2)

Reasons for decision

Summary

The transitional rules will apply in respect of the provision of LAFHA fringe benefits. Therefore, the concessional treatment can apply under section 21 of the FBTAA 1 April 2012 to 31 March 2013 and 1 April 2013 to 31 March 2014 financial years

Detailed reasoning

Subsection 30(1) FBTAA sets out the circumstances in which a living-away-from-home allowance benefit will be taken to exist for fringe benefits tax purposes.

Section 30 Living away from home allowance benefits

30(1)    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.

30(2) The relevant situation, the taxable value of a LAFHA fringe benefit is determined under:

Section 31 Taxable value - Employee maintains home in Australia

Section 31A Taxable value - Fly-in-fly out and drive-in-drive out of Employees

Section 31B Taxable value any other case

In the circumstances outlined in the private ruling application the taxable value of the LAFHA fringe benefit will be determined under section 31 of the FBTAA 1986

Section 31 FBTAA states:

Section 31 Taxable value - employee maintains a home in Australia 

31(1) This section applies to a living-away-from-home allowance fringe benefit covered by subsection 30(1) in relation to a year of tax to the extent that the employee satisfies all of the following for the fringe benefit and the period to which it relates

(a) Section 31C (about maintaining an Australian home);

(b) Section 31D (about the first 12 months);

(c) Section 31F (about declarations).

31(2) Subject to this Part, the taxable value of the fringe benefit in relation to the year of tax is the amount of the fringe benefit reduced by:

· any exempt accommodation component; and

· any exempt food component.  

In order for an employer to apply the concessional taxable value rules under section 31 FBTAA, Paragraph 31(1)(a) FBTAA requires amongst other things, that the employee satisfies section 31C (about maintaining an Australian home). Specifically, subparagraphs 31C(a)(i) and (ii).

Section 31C FBTAA is satisfied if:

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

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

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

The laws referred to above include recent reforms that have tightened the concessional tax treatment of fringe benefits tax (FBT) for living-away-from-home allowances and benefits.

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

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

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

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

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

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

(b)     during the entire period:

(i) starting at the Budget time; and

(ii) ending on 30 September 2012;

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

The transitional period is the period:

(a)     starting on 1 October 2012; and

(b)     ending at the earliest of:

(i) 30 June 2014; and

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

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

Paragraphs 1.64 and 1.65 of the EM state:

The amendments have effect from 01 October 2012 even for employment arrangements in place prior to budget time unless the transitional rules state that that a specified amendment measure can be disregarded during the transitional period.

The meaning of the term 'maintaining a home in Australia' is as defined in section 31C FBTAA.

The relevant facts in this ruling indicate that:

Employment arrangements under which the LAFH benefits are being provided were in place prior to 7:30pm (AEST) on 8 May 2012 (Budget time), and the employers maintain a home in Australia.

Further, to enable the Commissioner to provide you with a private ruling an assumption has been made that prior to 30 June 2014 there will be no material change to the employment. Since the employees are Australian residents as defined in section 995-1 ITAA 1997 then during the transitional period the employer may disregard paragraph 31C(a) FBTAA about maintaining a home in Australia.

As both employees maintain a residence in Australia that they are required to live away from (emphasis added), the taxable value of the LAFHA fringe benefits can be calculated under section 31 FBTAA. Hence, the employer will be able to reduce the taxable value of these LAFHA fringe benefits by any exempt food and accommodation component under section 31 FBTAA