Edited version of your private ruling

Authorisation Number: 1012507933479

Ruling

Subject: Living-away-from-home allowance

Question 1

For the purpose of the definition of living-away-from-home allowance in section 30 of the Fringe Benefits Tax Assessment Act 1997 (FBTAA), would it be concluded that the whole or a part of the allowance is in the nature of compensation to that employee for additional expenses being deductible expenses incurred by the employee during a period?

Answer

No

Is the allowance paid to the employees who work on a rotational basis classified as a living-away-from-home allowance as defined in subsection 30(1) of the FBTAA?

Answer

Yes

This ruling applies for the following periods:

1 April 2013 - 31 March 2014

1 April 2014 - 31 March 2015

1 April 2015 - 31 March 2016

1 April 2016 - 31 March 2017

The scheme commences on:

1 April 2013

Relevant facts and circumstances

· The company (the employer) provides an allowance to meet food and incidental expenses to its employees who work on a rotational basis at a work site which is located in a town in Australia that is not an eligible urban area.

· The employees operate on a fly-in fly-out (FIFO) rotation of 15 days on/13 days off and 28 days on/28 days off.

· Employment duties are performed at the work site which is located 10km from the town centre and the accommodation.

· The accommodation is located in a town centre and the company provides accommodation to its employees while they are on their work rotation.

· The employees are not provided with a choice as to the location of the accommodation.

· There is limited storage and little ability for employees to leave their personal effects in the accommodation.

· The allowance is paid because the cost of purchasing meals is significantly higher than it would be in the employee's home location due to the location of the work site.

· The employee's maintain their usual place of residence in other parts of Australia and overseas and not at the town where the work site is located.

· The employer arranges and pays for all flights to and from the work site location and the employee's homes within Australia and overseas.

· Transport is provided from the accommodation to the work site.

· The employer's business is a 24/7 operation and its employees are rostered to work 12 hours shifts.

· The employees are employed on a permanent full-time basis.

· The employees cannot remain in their accommodation on 'off days' due to accommodation restrictions.

· Family members do not accompany employees on their work rotations.

· The nature of the work performed by the employees is such that they are unable to be conducted at their usual place of residence.

· Due to the distance of the work site from the employee's usual place of residence they are only able to return home at the end of their work rotation.

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

Section 30 of the FBTAA sets out the circumstances in which an allowance will be a living-away-from-home allowance (LAFHA). Subsection 30(1) states:

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 pat of the allowance is in the nature of compensation to the employee for:

i. Additional expense (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 the 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 part, as the case may be, of the allowance constitutes a benefit provided by the employer to the employee at that time.

Therefore, to determine whether an allowance is a LAFHA, it is essential to first determine whether the allowance is in the nature of compensation for additional expenses and if the allowance would be a deductible expense to the employee.

1. Is the allowance in the nature of compensation for additional expenses incurred by the employee?

The allowance is being paid as compensation for the additional food and incidental expenses incurred by the employees as a result of having to reside in a town away from their usual place of residence. The cost of purchasing meals is significantly higher than it would be in the employee's usual place of residence due to the location of the work site and the expenses would not have been incurred by the employee if they had been living in their usual place of residence.

It can be concluded, that the allowance is compensation for additional expenses incurred by the employee.

1. Are the additional expenses deductible?

Subsection 136(1) of the FBTAA defines 'deductible expenses' to mean:

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

In general terms, section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction to be claimed by the 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 decision 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 ARC 4396; (1991) 29 FCR 177 (Cooper's case); Federal Commissioner of Taxation v Toms 20 ATR 466; 89 ATC 4373 (Toms case)). However, there are two exceptions to the general rule, where:

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

· The 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 (Roads and Traffic Authority)

Miscellaneous Taxation Ruling MT 2030 Fringe benefits tax: living away from home allowance benefits provides guidance on travel allowances paid in the course of employment and LAFHAs. Paragraph 38 states:

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.

Paragraph 42 and 43 further 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 by 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.

In considering the circumstances surrounding the employee's FIFO rotations, it is considered that the employees are not travelling in the course of performing their job. The employees maintain their usual place of residence in another location to where they work and temporary live away from their usual place of residence because of the nature of their work. They could not be considered to be travelling on the job and therefore, the allowance is not deductible for this reason.

Further guidance for determining whether the employee could have claimed an income tax deduction is provided in Taxation Determination TD 93/230 Income tax and fringe benefits tax: is a camping allowance assessable under section 30 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) or under Division 6 of the Income Tax Assessment Act 1936(ITAA)? and Taxation Determination TD 96/7 Fringe benefits tax: is fringe benefits tax (FBT) payable on meals and accommodation provided to employees who work at remote construction sites, where the accommodation is not the usual place of residence of the employee?

Both of these Taxation Determinations apply the decision in Roads and Traffic Authority, which concerned:

· the payment of a camping allowance paid to compensate for the disadvantageous conditions of living in camp and for additional food costs; and

· the application of the otherwise deductible rule in relation to the accommodation provided at various work sites.

In Roads and Traffic Authority, Hill J described the circumstances in which the camping allowances were paid at 4516:

…Relevant awards governing the conditions of work for employees required the applicant to provide camping facilities where the work site was more than 70 kilometres forms an employee's place of residence. Where a camp site was established, workers allocated to that site stayed at the camp during the week, except in the case of illness or leave. Workers working from these camp sites worked on road or bridge construction or major rehabilitation works, generally in teams. The duration of work at a particular site varied from a few says to several months with a maximum of 12 months. Employees at camp sites were accommodated either in huts or caravans. Generally these huts and caravans were situated on the side of the road, although they were occasions where accommodation was provided in caravan parks.

In considering whether the camping allowance was paid for deductible expenses, Hill J at 4521 said:

Where a taxpayer is required by his employer, and for the purposes of his employer, to reside, for periods at a time, away from home and at the work site, and that employee incurs expenditure for the cost of sustenance, or indeed other necessary expenditure which, if the taxpayer had been living at home, would clearly be private expenditure, the circumstance in which the expenditure is incurred, that is to say, the occasion of the outgoing operates to stamp that outgoing as having a business or employment related character.

Hill J then referred to the decision in Toms case before stating at 4522:

The facts of the present case are quite different. First, each of the persons deemed hypothetically to have incurred the expenditure are employees. They are not carrying on their own business. Second, they are required, as an incident of their employment, by their employer and for the purposes of the employer to live close by their work site for relatively short periods of time. No question arises of their choosing to live in these places. Each of the persons in question has a permanent house in which he lives when not in camp. None of the employees spend inordinate periods of time in the camps so that the camp becomes their home. Their house is retained and the employees in question travel home at weekends. They do not remain in the camps. The costs in question here are an incident of the employment. The costs in Toms were not.

Hill J then applied this consideration in considering the application of the otherwise deductible rule to the provision of camp accommodation and summarised at 4523

…On the evidence, employees are sent to work away from their home generally for short periods of time and are told that they may be required to move from place to place. They are not told that their employment in a particular place is indefinite. In the circumstances, there seems little scope for an inference that living at a camp or caravan, as the case may be, is a choice made by the employee. Rather, it is an incident of the employment of that employee and if the cost were incurred by him would be a deductible outgoing under s. 51(1) of the ITA Act.

In summary, the relevant factors taken into account by Hill J in Roads and Traffic Authority in determining whether the camping allowance was deductible included:

· the employee was required as part of their employment to reside close to the work site;

· the employee had a permanent residence away from the work site;

· the employee was only living away from home for a relatively short period of time; and

· the employee did not have a choice as to the location of the accommodation provided.

In applying the above factors to this case, we do not consider the situation to be comparable to the situation in Roads and Traffic Authority. This is supported by the recent Federal Court case Hancox v Commissioner of Taxation [2013] FCA 735 (Hancox) which was distinguished from Roads and Traffic Authority. It is the situation in Hancox that we consider the situation in this case to be similar to.

Hancox, involved an electrician whose permanent place of residence was in South Australia but was employed on a permanent full-time basis in Port Hedland, Western Australia on a FIFO basis. The employer flew the applicant in and out of Port Hedland every four weeks and provided the applicant with an allowance. Besanko J in Hancox provided two points of difference between Roads and Traffic Authority and Hancox at paragraph 50 - 52:

First and importantly, in that case, the employees were required to live in the camp. In this case, the applicant chose to live in South Australia and to travel (and stay) in Port Hedland for the purpose of his employment. Secondly, the additional expenses in that case were relatively modest additional costs of food "beyond the costs of living in [the employee's] own homes and perhaps other expenses caused to them by camping'. In this case, the additional expenses' are the cost of accommodation and food and sustenance.

…as far as food and sustenance is concerned, although the deductibility of expenditure on food can pose difficult questions, I do not think it does in this case. The income producing activities of the applicant were those associated with his work as an electrician. To adopt the approach of Lockhart J in Commissioner of Taxation v Cooper, the applicant was employed to perform the functions of a leading hand maintenance electrician at Downer EDI's Port Hedland site, not to consume food and drink. The decision in The Roads and Traffic Authority of New South Wales v Commissioner of Taxation is distinguishable. The food expenditure in that case was the additional cost of food by reason of living in the camp and the employees had no choice but to live away from home. In this case, the applicant could have had his usual place of residence in Port Hedland.

Similar to Hancox, the facts in this case can be distinguished to those found in Roads and Traffic Authority. The employees do not live in campsites, nor do they incur additional costs for food or other expenses due to living at campsites. Further, the accommodation provided in the Roads and Traffic Authority was of a temporary nature located close to the work site and changed every few days to a maximum of 12 months according to when the work site changed. The employees in that case had no choice but to live in the provided accommodation. ATO ID 2001/120 Fringe benefits tax 'otherwise deductible' rule concerns employees working at remote mine-sites who were provided with fringe benefits. ATO ID 2001/120 specifies the factors that concluded that the employees did not make a choice to live at or near the mine-sites:

The question of whether an employee has chosen to live at the site is one of fact and degree. In the present case, having regard to the relevant facts including:

· remoteness of the sites;

· living conditions at these sites;

· a general requirement for employees to leave the sites whilst not on duty;

· an inability to have family or friends visit the site;

· working conditions involving 12 hour shifts for 7 days a week;

· fixed period contracts of employment; and

· the limited life of most mining sites.

it could not be said that the employees had chosen the accommodation provided by the employer at or near the mine site to be their home, such that their usual place of residence had ceased to be their home.

Besanko J concluded in Hancox at paragraph 53, that the occasion of the expenditure was the applicant's choice to live in South Australia rather than Port Hedland. The employees in this case, could choose to live in the town where the work site is located and make it their usual place of residence. Unlike living at a campsite or temporary accommodation near a mine site as was evident in ATO ID 2001/120 and Roads and Traffic Authority where there is no choice but to live there, the employees in this case have a choice to live in town. This is supported by the fact that the employer provided accommodation is also located in town. Further, the work site where the employees work at is not temporary and the employees are employed on a permanent full-time basis and not on fixed contracts.

It is acknowledged, that it is a requirement that the employees leave the accommodation when their work rotation is finished and that family and friends cannot stay with them. However, there is nothing to prevent the employees from staying on in town or having their family visit them in town. In ATO ID 2001/120 and Roads and Traffic Authority, employees were unable to do this, as their accommodation was at a camp site (or mine site) and not in a town.

We do not consider the daily travel allowance paid by HAPL to its employees to be deductible to the employee for the purpose of the definition in section 30 of the FBTAA.

Question 2

Section 30 of the FBTAA sets out the circumstance in which an allowance will be a LAFHA. Subsection 30(1) states:

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

As discussed above in Question 1, it is considered that the allowance provided to the employees is in the nature of compensation for additional expenses incurred. However, the additional expenses are not deductible expenses to the employee.

To determine whether the allowance is a LAFHA, the allowance must be made by reason that the duties of that employment required the employees to live away for his or her residence.

Is the employee living away from his or her normal place of residence?

The term 'normal residence' in the definition of a LAFHA was introduced to replace the term 'usual residence'. This was the enable a LAFHA fringe benefit to arise regardless of the location of the employee's usual place of residence. While an employee's usual place of residence may be in Australia or outside of Australia, it is their normal residence that will be relevant for determining whether there is a LAFHA fringe benefit.

The FBTAA defines 'normal residence' in subsection 136(1), to mean:

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.

Subsection 136(1) further defines 'place of residence' to mean:

a) a place at which the person resides; or

b) a place at which the person has sleeping accommodation ;

whether on a permanent or temporary basis and whether or not on a shared basis.

Guidelines for determining an employee's usual place of residence are provided by Miscellaneous Tax Ruling MT 2030. Paragraph 15-18 of MT 2030 refer to various Taxation Board of Review relating to the former 51A of the Income Tax Assessment Act 1936. In referring to these decisions paragraph 14 of MT 2030 states:

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

From the information provided, the employee's normal place of residence is not in the location that the work site is located. It is considered that the employees are living away from their normal place of residence as they would be living in their normal place of residence but for their employment.

Do the duties of that employment require the employee to live away from his or her normal residence?

Due to the change in the LAFHA definition, the employment duties must be the reason for the change of normal residence rather than the employer requiring the employee to live away from home.

ATO Interpretive Decision ATO ID 2013/8 Fringe Benefits Tax: Employee required to change usual place of residence in order to perform duties of employment, concerns a situation in which employment duties require an employee to change residence and live away from home in order for those duties to be performed effectively. Although ATO ID 2013/8 relates to the test in subparagraph 58B(1)(b)(iii) which is expressed differently for the test in subsection 30(1), it highlights some of the factors which would, nevertheless, be relevant in establishing whether employment duties require an employee to live away from their normal residence pursuant to subsection 30(1). The following factors are relevant when there is a considerable distance between the employee's home and work:

· the distance between the employees usual place of residence and their new place of employment

· whether the employee is permitted to perform their new duties of employment from their normal residence

· whether the employer provides transport for the employee to commute between home and work

· whether the employee is required to work on-call or sign on for duty within a short period of time after being contacted by their employer

The work site is located in a town in Australia that is not an eligible urban area. Applying the above factors, the distance between the employee's homes and the work site makes it impossible for them to return home during the weekend or on individual rostered days off during their work rotation. The employer provides transport between their usual place of residence and the town where the work site is located and between their accommodation in that town and the work site. The company operates 24 hours a day and the employees work 12 hour shifts on a rotating basis. It would not be possible for the employees to conduct their duties from home due to the nature of their work.

Based on the above circumstances it is considered that the duties of the employees require them to live away from their normal residence.

Consequently the payment of the allowance is considered to be a LAFHA fringe benefit and will be subject to the provisions in Division 7A of the FBTAA.