Edited version of your private ruling

Authorisation Number: 1012516779981

Ruling

Subject: PBR - FBT - Living-away-from-home-allowance

Question 1

Is the payment of a per diem allowance to employees travelling overseas to conduct inspections of an ongoing project a taxable living away from home allowance fringe benefit?

Answer

No

Question 2

Is the provision of accommodation to employees travelling overseas to conduct inspections of an ongoing project a taxable fringe benefit?

Answer

Yes

Question 3

If the answer to question 2 is yes, can the taxable value of the fringe benefits arising from the provision of the accommodation be reduced under section 52 of the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes

This ruling applies for the following period:

Year ended 31 March 2014

The scheme commences on:

The scheme has commenced.

Relevant facts and circumstances

1. The employer plans to send a number of employees to an overseas destination for no more than 90 days to conduct inspections of an ongoing project.

2. While overseas the employees will attend meetings and conduct inspections before bringing their findings back to Australia.

3. During their time overseas the employees will:

a. stay in hotel accommodation paid for by the employer. It is expected that the hotel accommodation will not have cooking facilities;

b. walk most days to the project site;

c. travel unaccompanied;

d. be paid in Australian Dollars in accordance with their regular payroll details;

e. not be entitled to any secondment package;

f. receive a daily allowance within the reasonable limits set by Taxation Determination TD 2013/16, or be paid a lesser amount but still be reimbursed for their actual expenditure on meals;

g. be responsible for all other costs, including meals, laundry and incidentals;

Relevant legislative provisions

Section 30 of the Fringe Benefits Tax Assessment Act 1986

section 8-1 of the Income Tax Assessment Act 1997

Section 20 of the Fringe Benefits Tax Assessment Act 1986

Section 24 of the Fringe Benefits Tax Assessment Act 1986

Section 25 of the Fringe Benefits Tax Assessment Act 1986

Subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986

Section 45 of the Fringe Benefits Tax Assessment Act 1986

Division 12 of the Fringe Benefits Tax Assessment Act 1986

Section 47 of the Fringe Benefits Tax Assessment Act 1986

Section 52 of the Fringe Benefits Tax Assessment Act 1986

Reasons for decision

Is the payment of a per diem allowance to employees travelling overseas to conduct inspections of an ongoing a taxable living away from home allowance fringe benefit?

The classification of a daily allowance determines its tax treatment. If the allowance is found to be a living-away-from-home allowance then it is potentially subject to fringe benefits tax under section 30 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA). If the allowance is found to be a travel allowance then it is assessable to the employee and a deduction for expenses incurred while the employee is travelling may be deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997).

Taxation Ruling MT 2030 describes the distinction between a travelling allowance and a living-away-from-home allowance at paragraphs 35 to 43. Broadly, it states that a travel allowance is paid where the employee does not change job locations but simply travels to carry out the requirements of the job. In contrast, a living-away-from-home allowance is paid where there is a change of job location and an actual change of residence to a place at or near that location.

Travelling allowances are often paid for comparatively short periods of time. As a general practical 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. However, each case must be assessed on its own merits, and a travel allowance may be applicable for longer periods, for example, MT 2030 at paragraph 39 states "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".

Another factor discussed in MT 2030 at paragraph 42 is that an "employee travelling in the course of employment ordinarily would not be accompanied by his or her spouse and family".

The Commissioner has decided that, based on the facts supplied by the applicant, the employees will be travelling in the course of their employment. Therefore, the daily allowance will not constitute a taxable living-away-from-home allowance fringe benefit.

Is the provision of accommodation to employees travelling overseas to conduct inspections of an ongoing project a taxable fringe benefit?

The provision of accommodation to an employee may be either a housing fringe benefit or a residual fringe benefit.

Housing fringe benefit

Section 25 of the FBTAA considers the granting of a housing right to be a housing benefit. The granting of a housing right occurs when an employee or an associate is granted a right to occupy, as a usual place of residence, a unit of accommodation provided by an employer or other provider.

Subsection 136(1) of the FBTAA defines a place of residence in relation to a person as:

(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

As previously determined, the employees are considered to be travelling in the course of the employment. As such the usual place of residence of the employees will continue to be that place which was their usual place of residence before they commenced their travel.

Therefore the accommodation being provided to the employees travelling overseas will not constitute a housing fringe benefit under section 25 of the FBTAA.

Residual fringe benefit

Section 45 of the FBTAA states that a benefit is a residual benefit if the benefit is not a benefit under any of Subdivisions 2 to 11 (inclusive) of Subdivision A of the FBTAA.

The benefit that arises in respect of the relevant accommodation provided to the each of the employee is provided so that the employees have a place of accommodation in close proximity to the project site.

As the provision of the accommodation to the employees does not meet the requirements of a housing fringe benefit under section 25 of the FBTAA it will be a residual fringe benefit under section 45 of the FBTAA.

Subsection 136(1) of the FBTAA defines a residual fringe benefit as being a fringe benefit that is a residual benefit. Subsection 136(1) also defines a fringe benefit as not including a benefit that is an exempt benefit in relation to the year of tax.

Section 47 of the FBTAA provides a number of benefits that would be exempt residual benefits. Relevant to the provision of accommodation is subsection 47(5) of the FBTAA which provides that:

(5) Where:

(a) a residual benefit consisting of the subsistence, during a year of tax, of a lease or licence in respect of a unit of accommodation is provided to an employee of an employer in respect of his or her employment; and

(b) the unit of accommodation is for the accommodation of eligible family members and is provided solely because the duties of that employment require the employee to live away from his or her normal residence; and

(ba) the employee satisfies:

(i) sections 31C (about maintaining an Australian home) and 31D (about the first 12 months); or

(ii) section 31E (about fly-in fly-out and drive-in drive-out requirements); and

(c) the accommodation is not provided while the employee is undertaking travel in the course of performing the duties of that employment; and

(d) any of the following conditions is satisfied:

(i) subsection (7) applies in relation to the provision of transport for the employee in connection with travel in the period in the year of tax when the lease or licence subsisted, being travel between the employee's usual place of residence and the employee's usual place of employment;

(ii) if the employee satisfies sections 31C and 31D--the employee gives to the employer, before the declaration date, a declaration, in a form approved by the Commissioner, purporting to set out the matters in subparagraphs 31F(1)(a)(i) to (iii);

(iii) if the employee satisfies section 31E--the employee gives to the employer, before the declaration date, a declaration, in a form approved by the Commissioner, purporting to set out the matters in subparagraphs 31F(1)(b)(i) to (iii);

the benefit is an exempt benefit in relation to the year of tax.

To be an exempt benefit under subsection 47(5) requires amongst other things that the accommodation be provided solely by reason that the employee is required to live away from his or her normal residence in order to perform their employment duties. This requirement is not satisfied when an employee is travelling in the course of performing their job.

Therefore, the provision of accommodation will not be an exempt residual benefit under subsection 47(5) of the FBTAA. As a result, it will form a taxable residual fringe benefit.

If the answer to question 2 is yes, can the taxable value of the fringe benefits arising from the provision of the accommodation be reduced under section 52 of the Fringe Benefits Tax Assessment Act 1986?

Under section 52 of the FBTAA the taxable value of a residual fringe benefit may be reduced in accordance with the 'otherwise deductible' rule.

Generally speaking, the 'otherwise deductible' rule allows for the taxable value of a residual fringe benefit to be reduced by the amount that would have otherwise been deductible to the taxpayer for personal income tax purposes had he or she incurred the expenditure directly.

A deduction is allowable for the costs incurred by an employee in undertaking work related travel where the employee incurs the expense in connection to gaining or producing assessable income and where the expense is not private or domestic in nature (per section 8-1 of the ITAA 1997). Such costs include accommodation expenses incurred while travelling for business.

As previously determined, the employees who will be provided with accommodation are considered to be travelling in the course of the employment. It therefore follows that any accommodation expenses that the employees may have incurred in relation to the travel in the course of business would be deductible to the employee had they incurred the expense directly. Therefore the expense would have been otherwise deductible in line with section 52 of the FBTAA.

Paragraph 52(1)(d) of the FBTAA establishes record keeping requirements for the use of the 'otherwise deductible' rule in relation to an 'extended travel residual benefit'. An extended travel residual benefit is defined in subsection 136(1) of the FBTAA as:

"extended travel expense payment benefit" means an expense payment fringe benefit where:

(a) the recipient's expenditure is in respect of travel outside Australia and involves the recipient being away from the recipient's usual place of residence for a continuous period including more than 5 nights; or

(b) the following conditions are satisfied:

(i) the recipients expenditure is in respect of travel by the recipient within Australia that involves the recipient being away from the recipient's usual place of residence for a continuous period including more than 5 nights;

(ii) the travel was not undertaken exclusively in gaining or producing salary or wages of the recipient in respect of the employment to which the fringe benefit relates;

but does not include a car expense payment benefit.

It is considered that the travel undertaken by the employees fits into paragraph (a) of the above definition as they will be:

· outside of Australia;

· for more than 5 nights; and,

· away from their usual place of residence.

Therefore the provision of accommodation to the employees travelling overseas is an extended travel expense payment benefit for the purposes of paragraph 52(1)(d) of the FBTAA, and as such the employees are required to keep, and provide to their employer before the declaration date, a travel diary in relation to the travel undertaken overseas.

Section 52 of the FBTAA also establishes that the reduction in the taxable value of the residual benefit is to be calculated as the taxable value of the residual benefit minus the notional deduction.

As there are several employees travelling overseas and the circumstances may vary between them it is responsibility of the employer to determine the available reduction in the taxable value of the residual fringe benefit that results from the provision of accommodation.