Edited version of your private ruling

Authorisation Number: 1012526348730

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Ruling

Subject: FBT - Living-away-from-home allowance and the 12 month period rule

Question 1

Will your employee satisfy the start of a separate 12-month period required by the living-away-from-home allowance (LAFHA) for her employment in a new location under section 31D of the Fringe Benefits Tax Assessment Act (FBTAA) 1986?

Answer

No

This ruling applies for the following periods:

1 April 2013 - 31 March 2014

The scheme commences on:

A date in 2013

Relevant facts and circumstances

E, an employee of X Pty Ltd, usually resides and maintains a home in suburb B.

E was relocated to suburb D for an signment in 2013.

Living-away-from-home allowance (LAFHA) was paid to E for this arrangement, including an amount for accommodation and an amount for food per week for the duration in D.

E returned home when the contract finalised and ceased the accommodation lease in D.

A new and separate arrangement has been offered to E, whereby E will be working in a new location C. The agreement was agreed after 8 May 2012. E will continue to maintain her/his home in B during the period working in suburb C.

New accommodation was sought in C within 5 kilometres of her/his new work location for the duration of the new project.

E travels home every 3 weeks for the weekend.

You are planning to offer E a LAFHA for the time whilst E is in C by providing E an accommodation allowance to the value of the rental property and the ATO reasonable food component allowance for one adult less the $42 statutory food amount.

E holds a senior position in this project and is required to work long hours per day.

The distance from D to C is y kilometres and rush hours commute travel time is estimated to be in excess of z hours each way.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 31D

Reasons for decision

Your employee will not satisfy the start of a separate 12-month period required by the LAFHA under section 31D of the FBTAA 1986.

Detailed reasoning

For FBT purposes, a LAFHA is an allowance an employer pays an employee to compensate for additional expenses incurred and any disadvantages suffered because an employee is required to live away from their usual place of residence in order to perform their employment-related duties.

From 1 October 2012, 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 or benefit paid to your employee.

Under section 31 of the FBTAA, if your employee satisfies the following requirements for the fringe benefit and the period to which it relates:

· maintains a home in Australia at which they usually reside and it is available for their use at all times,

· receives a LAFHA fringe benefit which relates to the first 12-month period at a particular work location, and

· gives you the appropriate declaration about living away from home,

the taxable value of the fringe benefit in relation to the year of tax is the amount of the LAFHA paid, minus:

· any exempt accommodation component, and

· any exempt food component.

In regard to working out whether the LAFHA you propose to pay to your employee forms part of the first 12 month period or a separate 12 month period, paragraph 31D(2)(b) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) provides:

Subsection 31D(2)…

(b) start a separate 12-month period if:

(i) the employer later requires the employee to live at another location for the purposes of that employment; and

(ii) it would be unreasonable to expect the employee to commute to that other location from an earlier location for which the employer provided a benefit of the same kind to the employee;

To take advantage of this concession of starting a separate 12-month period, the employer must be able to show that it would be unreasonable to expect the employee to commute to the new location from the earlier location.

To decide if it is unreasonable to commute between D and C, the same principle applies to whether an employee's job requires them to live away from their normal residence. That is, if it is unreasonable to commute between an employee's work site and where the employee's normal residence is located. It is a question of fact and will depend on each employee's circumstances.

The principles of determining whether an employee is living away from their usual place of residence have been established over the years by case law decisions.

In the Minproc Engineers Limited v DFC of T 98 ATC 2170 case, RD Fayle (Senior Member) stated:

In the Federal Commissioner of Taxation v Charlton case, the taxpayer's election to live in Melbourne and not in Bendigo meant that the rental expended on the flat in order to enable him to secure accommodation in which to recuperate from the rigours of travel and the nature of his work was an expenditure dictated not by his work but by private considerations.

The earlier case of Lunney v Federal Commissioner of Taxation; the majority of the High Court decided that fares paid by taxpayers to travel each day to and from their homes to the places of employment or business were not deductible expenses under s 51(1) of the Income Tax and Social Services Contribution Assessment Act 1936.

Although Lunney was concerned with travelling expenses, the principles are consistent with those established in relation to accommodation expenses…

When I consider Mr Brown's situation in light of those principles, I come to the conclusion that a reasonable person would conclude that he was not required to rent premises and to live in Lilydale during the week but chose to.

…Certainly, Mr Brown was required to have greater client contact and so to work longer hours but the hours were not so extended and the commuting distance to Murrindindi not so great that it could be thought that the work itself required it so that he could perform the duties of his employment. Like Dr Charlton, a reasonable person would conclude that Mr Brown chose to reside in accommodation that was closer to his place of work during the week but that he was not required to do so in order to perform the duties of his employment with The Compass Group.

The consequence of my conclusion is that the sum of $15,336.00 does not constitute a benefit provided by The Compass Group to Mr Brown within the meaning of s 30(1) of the FBTA Act…

In applying this test, it is not relevant to consider whether you need to continue to lease the premise in D. Instead we would consider if a reasonable person would conclude that your employee has the choice to reside in accommodation in C which is closer to her place of work in order to recuperate from the rigours of travel and the nature of her work, or continue to reside in D.

In this sense, the unreasonable test in subparagraph 31D(2)(b)(ii) of the FBTAA is not a practical test to include consideration of the workload; the number of work hours and other factors but a notional one.

The dictionary meaning of commute is

to travel regularly between home (usually distant) and work, generally using a season ticket.

The distance between D and C (new location) is y kilometres. There is a good road network and public transport.

Is the distance of y kilometres considered to be a daily commuting distance? The lower the kilometres it is, the more reasonable it will be. As you have estimated, the time it will take to commute between D and C, a distance of y kilometres will be in excess of z hours each way.

A daily commute of y kilometres is not arduous as it is a common practice for employees in a modern society to travel further afield in order to fulfil their employment duties.

With reference to the decision of the Minproc Engineers case and the circumstances of your case, we consider that it is not unreasonable to expect your employee to commute between D and C. It would be a choice of your employee to live closer to her place of work in order to recuperate from the rigours of travel and the nature of her work.

Therefore, you do not satisfy subparagraph 31D(2)(b)(ii) of the FBTAA which if satisfied would have meant that a separate 12-month period started when your employee commences work in C. That is there will not be a new 12 month period when your employee moves to work in C.

As a result, the 12-month period will be accumulated under both locations. The balance of the 12-month period is available for the period to which it relates (which will be 12 months minus the duration of the period in D) to satisfy the requirement of the first 12 months for the fringe benefits under section 31 of the FBTAA.

Furthermore, the duration of the time gap between the two assignments is not relevant. What is relevant are whether or not the assignments are with the same employer.