Edited version of your private ruling

Authorisation Number: 1012510815642

Ruling

Subject: board fringe benefits and the otherwise deductible rule

Question 1

Will the otherwise deductible rule in section 37 of the FBTAA 1986 apply to reduce to nil the taxable value of board meals provided to employees who work at remote locations on a roster basis?

Answer

Yes.

This ruling applies for the following periods:

Year ended 31 March 2009

Year ended 31 March 2010

Year ended 31 March 2011

Year ended 31 March 2012

Year ended 31 March 2013

The scheme commences on:

1 April 2008

Relevant facts and circumstances

The employer undertakes work at worksites outside of 'eligible urban areas' as defined in section 140 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Many of the locations are at a substantial distance from cities and townships and employees are provided with accommodation and three meals per day at nearby camps.

The camps are open only to employees working on projects.

It is expected that the employees will travel to the camp locations using their own vehicles. Once on site employee vehicles remain parked at the camps for the period of rotation, and employer vehicles are provided for work purposes.

A description of the camp location, camp facilities and conditions of employment were provided

Relevant legislative provisions

FBTAA section 35

FBTAA section 36

FBTAA section 37

FBTAA section 40

FBTAA section 44

FBTAA subsection 136(1)

FBTAA section 140

FBTAA section 151

ITAA 1997 section 8-1

Reasons for decision

Board Fringe benefit

A board fringe benefit arises under section 35 of the FBTAA where a board meal is provided to an employee and a board meal is defined in subsection 136(1) of the FBTAA, being:

board meal means a meal provided, in respect of the employment of an employee of an employer, to a person (in this definition referred to as the recipient), being the employee or an associate of the employee, where:

(a) the meal is provided on a meal entitlement day;

(b) the meal is provided by the employer or, if the employer is a company, by the employer or by a company that is related to the employer;

(c) either of the following subparagraphs applies:

(i) the meal is cooked or otherwise prepared on eligible premises of the employer and is provided to the recipient on eligible premises of the employer (not being a dining facility that, at any time, is open to the public);

(ii) the following conditions are satisfied:

(A) the duties of employment of the employee consist principally of duties to be performed in, or in connection with, an eligible dining facility of the employer or a facility for the provision of accommodation, recreation or travel of which the eligible dining facility forms part;

(B) the meal is cooked or otherwise prepared in the cooking facility of the eligible dining facility;

(C) the meal is provided to the recipient in the eligible dining facility;

(d) the facility in which the meal is cooked or otherwise prepared is not for use wholly or principally for the cooking or other preparation of meals solely for the employee or associates of the employee or for the employee and associates of the employee; and

(e) the meal is not provided at a party, reception or other social function.

A meal entitlement day is also defined in subsection 136(1) of the FBTAA as:

meal entitlement day , in relation to a meal provided in a year of tax, in respect of the employment of an employee, to a person (in this definition referred to as the recipient) being the employee or an associate of the employee, means a day in respect of which:

(a) in respect of the employment of the employee, the recipient was entitled to be provided (whether without charge or otherwise) with residential accommodation; and

(b) either of the following subparagraphs applies:

(i) the recipient was entitled, pursuant to the provisions of an industrial instrument in respect of the employment of the employee, to be provided (whether without charge or otherwise) with not fewer than 2 meals on that day;

(ii) the following conditions are satisfied:

(A) under an arrangement that was in force during the whole or a part of the year of tax (which whole or part is in this subparagraph referred to as the arrangement period) in respect of the employment of the employee, the recipient was entitled to be provided (whether without charge or otherwise) with not fewer than 2 meals on that day;

(B) during the arrangement period, the recipient was also entitled under the arrangement to be provided (whether without charge or otherwise) with not fewer than 2 meals on each day during the arrangement period that was a working day in relation to the employee;

(C) pursuant to the arrangement, the recipient was ordinarily provided (whether without charge or otherwise) with not fewer than 2 meals on the days referred to in sub-subparagraph (B).

In addition section 151 of the FBTAA states:

Where the employer of an employee contracts with another person (in this section referred to as the ``purchaser'') for the employee to perform services for the purchaser, the following provisions have effect for the purposes of the application of section 54 and the definition of ``board meal'' in subsection 136(1) in relation to the provision of a meal, or food or drink, to the employee in respect of, by reason of, by virtue of, or for or in relation directly or indirectly to, the performance of those services:

(a) premises of the purchaser shall be taken to be eligible premises of the employer;

(b) a meal, or food or drink, provided by the purchaser to the employee shall be taken to have been provided by the employer.

All of this can be summarised by chapter 13 of the publication Fringe benefit tax - a guide for employers (NAT 1054) states in part:

Providing a meal to an employee is a board fringe benefit if the employee is entitled to have accommodation provided and all of the following conditions are satisfied:

· there is an entitlement under an industrial award to be provided with at least two meals a day, or under an employment arrangement at least two meals a day are ordinarily provided

· the meal is supplied by you (the employer) - if you are a company, the meal may be supplied by a related company in a wholly owned group

· the meal is cooked or prepared on your (or a related company's) premises or on a worksite or place adjacent to a worksite

· the meal is supplied on your premises (or the worksite) or on the premises of a related company. . .

From the information provided it could be concluded that board fringe benefits have arisen.

Otherwise deductible rule

Under the FBTAA the taxable value of certain fringe benefit can be reduced by what is know as the otherwise deductible rule (ODR). Under the ODR the taxable value is reduced by the, extent to which the fringe benefit would have been deductible to the employee under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997), if the employee had incurred the expenditure on the benefit themselves.

In respect of board meals the relevant ODR provision is section 37 of the FBTAA and in respect of food being provided in remote locations the Commissioner's view on the subject is based on the decision in Roads and Traffic Authority of NSW v FC of T 93 ATC 4508; 26 ATR 76 (Road and Traffic Authority).

Firstly, Road and Traffic Authority was discussed 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 paragraphs 5 to 7 state:

The factors taken into account by Hill J. in determining whether section 51 would have applied to the expenses in that case included:

a. the employee was required by the employer, as an incident of their employment, to live close by their work;

b. the employee was only living away from home for relatively short periods of time;

c. the employee did not choose to live at places where the camp sites were located; and

d. the employee had a permanent home elsewhere.

The question of what is a relatively short period of time was addressed in Taxation Ruling MT 2030 (which deals with the difference between a living-away-from-home-allowance and a travelling allowance). Paragraph 41 sets out a practical general rule to be applied in circumstances where the employee is away from his or her home base for a brief period and it is difficult to conclude whether the employee is living away from home or travelling. In these circumstances, where the allowance is for a period of up to 21 days, the allowance will be treated as a travelling allowance (the expenses against which are generally deductible under section 51) and not a living-away-from-home allowance. For periods in excess of 21 days, it would be necessary to consider the guidelines in MT 2030 in full.

The general rule mentioned in paragraph 6 can be applied equally in determining what is a relatively short period of time for the tests in paragraph 5. In the Roads and Traffic Authority of NSW case where the camping allowances were only paid for periods of 5 days at a time (the employees went home to their families on the weekends), Hill J. found that the expenses incurred would have been deductible under section 51 of the ITAA. Such a decision is consistent with MT 2030.

This was further expanded upon in 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? Paragraphs 3 and 4 state:

Where meals are provided, and it is concluded that the employee is travelling in the course of their employment, the taxable value of the benefit will be reduced to nil under the 'otherwise deductible' rule. The criteria for determining whether an employee is travelling in the course of performing their job are set out in paragraphs 35-43 of Taxation Ruling MT 2030. These criteria include:

· the nature of the duties performed;

· whether the employee is accompanied by dependants; and

· the length of time spent away from home.

As a practical general rule, where the question of whether or not the employee is travelling cannot easily be determined and the period away does not exceed 21 days, the employee may be accepted as travelling.

4. Guidance as to whether the 'otherwise deductible' rule will apply to reduce to nil the taxable value of meals provided to employees who are not travelling for work purposes is found in paragraph 5 of Taxation Ruling TD 93/230. Relevant factors to take into account include whether the employee:

· is required to live close by work;

· has a permanent residence away from the work site;

· lives away from home for a relatively short period of time; and

· has any choice as to the location of the accommodation provided.

Again, the 21 day period mentioned in paragraph 3 above will be accepted as a relatively short period of time for the purpose of these tests.

Finally, ATO Interpretative Decision ATO ID 2001/120 Fringe Benefits Tax: Fringe benefits tax 'otherwise deductible' rule, specifically looks at the application of the ODR for a number of fringe benefits (including board fringe benefits) provided by the employer to certain employees working at remote work sites.

The reasons for decision number 2 of ATO ID 2001/120 (which deals with meals) states:

The meals provided to the employees are board fringe benefits that have a taxable value of $2.00 each under paragraph 36(a) (FBTAA). The 'otherwise deductible' rule in section 37 (FBTAA) may apply to reduce the taxable value of the board fringe benefit to nil depending on the particular facts of the case.

Accordingly, it is necessary to establish that the relevant employees would have been entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) (former subsection 51(1) of the Income Tax Assessment Act 1936 (ITAA 1936)) had they incurred and paid unreimbursed expenditure on the meals.

The decision of Hill J in Roads and Traffic Authority of NSW v. FC of T (1993) 43 FCR 223 considered the circumstances in which various allowances paid to road construction and repair crews, who were required to camp away from home, could be considered to be paid to compensate for outgoings, which if incurred by the employee would have been deductible expenses. In the process of determining that the hypothetical expenditure on meals by the employees would have been deductible expenses according to the definition in subsection 136(1) (FBTAA), that is they would have been deductible in terms of subsection 51(1) (ITAA 1936), Hill J set down a general rule by which deductibility of such expenditure is to be determined (at 240):

'Where a taxpayer is required by his employer, and for the purposes of his employer, to reside, for periods of 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.'

His Honour (at 240) noted the following features of the RTA employees' working conditions that supported claims for deductibility of expenditure on sustenance and other necessary items:

...they are required, as an incident of their employment, by their employer and for the purposes of their 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.'

However, Hill J did observe that where an employee has no private home and is employed indefinitely to work at a particular site, then that employee might be said to have chosen to live at the site so that the cost of the employee's accommodation there would be private.

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.

Accordingly, it is possible to conclude on the facts of the case that an income tax deduction would have been allowable to the recipient of the board fringe benefit if the recipient had incurred unreimbursed expenditure in respect of the acquisition of the benefit. On this basis, the ODR in section 37 (FBTAA) will apply and the taxable value of the board fringe benefits is reduced to nil.

However the Federal Court recently looked at the issue of 'choice' in looking at an employee working on Port Headland on a fly-in fly-out basis in Hancox v FC of T [2013] FCA 735 2013 ATC 20-401 (Hancox).

Hancox made reference to Road and Traffic Authority and also the decision in Federal Commissioner of Taxation v. Toms (1989) 20 ATR 466; (1989) 89 ATC 4373 (Toms) where the Federal Court held that expenses relating to accommodation near the work place while maintaining a family residence in another location were not an allowable deduction as they were considered to be private expenses. In Toms a deduction was denied because the taxpayer chose to reside at a place so far from where it was necessary to reside in order to gain income. The expenses were dictated not by the work but by private considerations.

Private considerations were also a factor in denying rental expenses in Federal Commissioner of Taxation v. Charlton (1984) 71 FLR 107; (1984) 15 ATR 711; (1984) 84 ATC 4415.

Hancox concluded that outgoings for accommodation, food and sustenance were not incurred in the course of gaining or producing assessable income. This was because the taxpayer chose to live so far away from his place of employment that he incurred accommodation and travelling expenses. As a result the expenditure on accommodation, food and sustenance was not because of his activities as an electrician but because of his choice not to live in Port Hedland.

Therefore in looking at 'choice', Hancox suggests that it is not whether the taxpayer has chosen to live somewhere but whether they could choose to live there will determine whether a deduction can be claimed under section 8-1 of the ITAA 1997.

In this case the employees are provided accommodation in camp sites away from any cities or town whilst in Hancox the employee was in a town. This means that ATO ID 2001/120 could still applicable when dealing with accommodation provided at remote work sites.

Looking at the facts of this case and the reasons contained in ATO ID 2001/120 it could not be concluded that the employees would be able to choose to live at the camp site. As a result there is no choice available to the employee and both accommodation and food expenses would have been deductible to the employee in accordance with the decision in Road and Traffic Authority.

Therefore section 37 of the FBTAA would apply to reduce the taxable value of the board fringe benefits to nil.