Edited version of your private ruling

Authorisation Number: 1012569509871

Ruling

Subject: Provision of flights and LAFHA to employees

Question 1

In accordance with the employees' contracts, should the employee's designated reporting point, being the regional/commercial airport closest to the employee's home, be considered to be the employee's usual place of employment?

Answer

No

Question 2

If the answer to question one is 'yes', are the flights provided to the employee between that location and Country A, a residual fringe benefit, the taxable value of which is reduced to nil under section 52 if the Fringe Benefits Tax Assessment Act 1986 (FBT Act)?

Answer

Did not rule -answer to question 1 is no

Question 3

Are the per diems paid by the employer excluded from the definition of living away from home allowance in section 30 of the FBT Act because the allowance is compensation for deductible expenses?

Answer

No

Question 4

If the answer to question three is 'yes', can the per diems paid be considered travelling allowances in accordance with PAYG Bulletin No 1 such that PAGY withholding is not required provided the allowances do not exceed the limits specified by the Australian Taxation Office (currently as per TD 2012/17)?

Answer

Did not rule -answer to question 3 is no

Question 5

If the answer to question three is 'no', can the reasonable cost group amount for Country A for the year ending 31 March 2014 as set out in Tax Determination TD 2013/4 be applied, reduced by a suitable indexation factor, to determine the reasonable amount of such an allowance for the year ending 31 March 2013?

Answer

Yes

Question 6

Are daily food allowances and rotational flights reportable in accordance with section 5E of the FBT Act?

Answer

Yes

This ruling applies for the following periods:

Year ending 31 March 2013

The scheme commences on:

1 April 2012

Relevant facts and circumstances

A sister company of Company A, is constructing a vessel at a Country A shipyard.

The construction is expected to be completed by March 2014, where the vessel should then commence operating.

Australian operations crews have been engaged to familiarise themselves with the operational details, development of operating procedures, training & competency and assist with the development of the system in line with Australian standards.

It is impractical for employees that are not from Country A to travel from their home to the site on a daily basis. Accordingly, the non-local employees work on a 28 days on, 28 days off rotation and are flown from Country A to their point of hire at the end of each rotation. These employees are referred to within this ruling as 'rotators'.

Company A provides flights to and from Country A.

Company A currently provides a per diem food allowance to meet food and incidental expenses incurred by rotators in Country A.

Rotators are provided with accommodation in a leased apartment block in Country A.

The vessel is currently going through a major conversion and accommodation is not suitable for habitation.

Once construction of the vessel is sufficiently progressed, the rotators will be accommodated on the vessel, and will then continue to work on the vessel as crew once it has put to sea.

During the operation phase, the crew will be employed under a 3 week on and 3 weeks off; then 3 week on and 6 week off rotation.

There is no time limit for when the employees will cease to be rotators and their contract of employment stipulates that their work is rotational.

A rotator's rotation start date is the 1st day after the initial fly in fly out rotation flight.

The employee contracts indicate that the designated reporting point is the regional/commercial airport closest to the employee's home.

The flights are booked and arranged by Company A.

Rotators will generally have a usual place or residence elsewhere in Australia. Rotators' family will not accompany them on their rotations.

The Commissioner has assessed Country A as being an overseas non-remote location overseas for the purposes of section 47(7) of the FBT Act.

Each position contains a job description which has been provided as part of this ruling request. Each of the job description locations are based on board the vessel, all position descriptions require travel, stating flights supplied from nearest major airport to final working destination. Percentage of time spent travelling ranges from 3% to 5%.

The description for each position also highlights regular travel in fixed wing aircraft and helicopters, and remote locations, regular work cycle; as well as occasional travel to the head office to support the field operations.

Company A's template contract of employment has been supplied as part of this ruling request.

Clause 9a states:

The Employee will be designated a reporting point by the Employer which will be the regional/commercial airport closest to the Employee's home. It will be the Employee's responsibility to find the Employee's own way to and from the designated reporting point at the commencement and completion of the Employee's roster cycle. The Employer will reimburse the Employee for taxi fares or the Employer will pay the Employee a 'mileage claim' in accordance with the kilometre rate as prescribed by the ATO, at the employer's discretion.

Clause 9b states:

The Employer will provide travel, reasonable meals and any accommodation from the time of departure from the reporting point to the Employee's arrival on the Facility and the Employee's return to the reporting point.

Clause 13c states:

In addition to the above salary, the Employee will be paid a per-diem of $75.00 per day for each day the Employee is living overseas.

The per diems are paid to compensate for additional food and incidental costs whilst in Country A, and is not paid under an award.

The first per diem paid to the rotators was in July 2012 and has continued to be paid to date. It is intended the per diem will continue to be paid until the vessel leaves Country A - this is expected to be in the first part of 2014.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 5E

Fringe Benefits Tax Assessment Act 1986 section 30

Fringe Benefits Tax Assessment Act 1986 section 37

Fringe Benefits Tax Assessment Act 1986 section 52

Fringe Benefits Tax Assessment Act 1986 section 136

Income Tax Assessment Act 1997 subsection 8-1

Reasons for decision

Issue 1

Question 1

Summary

The employee's usual place of employment is the vessel and not the regional/commercial airport closest to the employee's home.

Detailed reasoning

Your employees are engaged to perform duties at a work location, at such a distance from the employee's usual place of residence, that the employee cannot reasonably return to that place each night.

Section 136 of the FBTAA 1986 defines a primary place of employment:

in relation to an employee in relation to a day, means business premises, or associated premises, of the employer of the employee, or of an associate of the employer, where:

(a) if the employee performed duties of his or her employment on that day - on that day; or

(b) in any other case - on the most recent day before that day on which the employee performed duties of his or her employment;

those premises are or were:

(c) the sole or primary place of employment of the employee; or

(d) otherwise the sole or primary place from which or at which the employee performs duties of his or her employment.

The place of employment is the floating production storage and offloading vessel itself, and its locations including Country A, international waters and Australian waters, and is not the regional/commercial airport closest to the employee's home.

Although the employment contract states that the airport is the designated reporting point, it is not the actual place of employment, i.e. it is not the primary place, or a place, in which employment duties are performed in line with each respective employee's job description.

The closest airport to the employee's home (usual place of residence) is simply a point on the way from home to work in Country A. No work is or logically can (due to their duty statements) be performed at the airport, such that it can be considered that the employee is travelling between to places of work. Hence the principle in Lunney v FC of T, and Hayley FC of T (1957-58) 100 CLR, that home to work is private in nature applies in this case, and the travel from the airport t to Country A is not deductible.

It is noted the reasons you consider the travel to be deductible, are the reasons given by Hill J. in Roads and Traffic Authority of NSW v FC of T (1993) 93 ATC 4508 (RTA case) for allowing a deduction for food and accommodation. It should be noted that the decision in the RTA case did not extend to travel, and further Hill J. acknowledged that the RTA employees were living away from home and not travelling. Had it been determined that RTA employees were travelling, the camping allowance would have been likened to a travel allowance and the allowance would have been deductible on that basis.

In RTA Hill J. set down a general rule by which deductibility of certain expenditure is to be determined:

…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.

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.

Paragraph 4 of TD 1996/7 restates these features as follows:

1. 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 Determination. 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...

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 10 hour shifts and rostered days on

· 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 in Country A to be their home.

In the RTA, the occasion of the outgoing, due to the factors mentioned above, supported the conclusion that the essential character of these expenses was employment related. On this basis, the ODR in section 37 (FBTAA) and section 52 respectively will apply and the taxable value of these fringe benefits is reduced to nil.

Whilst we accept the principles in the RTA case may apply in relation to meals and accommodation, we note that in respect of the transport, the travel expenses were incurred to enable the employees to travel to and from the employees' usual place of employment.

The essential character of the travel expenses was private and not deductible under subsection 8-1 of the ITAA 1997. In other words, by applying the principles in Lunney the travel in the RTA would not be considered to be travel on work.

The conclusion that the travel expenses would not be otherwise deductible to the RTA employees is supported by the following statements:

In Road and Traffic Authority the deductibility of the accommodation and food expense was addressed in respect of whether a camping allowance was a living-away-from-home allowance (LAFHA). This was done because a LAFHA must be in respect of non-deductible expenses. Although the also employees received an allowance based on public transport costs the issue of the deductibility of those fares was not addressed.

The facts in ATO ID 2001/120 are similar to those in this case but ATO ID 2001/120 did not deal with the deductibility of transport either. It only looked at the decision in Road and Traffic Authority as it was applied to the camping allowance.

This means that the conclusion reached in respect of the camping allowance in Road and Traffic Authority which was applied in TD 1993/230, ATO ID 2001/120 and also TD 1996/7 cannot be drawn when looking at whether the ODR applies to employee's travel expenditure. However the principles behind the decision can be applied.

The principles behind the decision in the RTA case can be applied to travel expenditure (or indeed other modest necessary expenditure) to determine whether the particular circumstance in which the expenditure is incurred, the occasion of the outgoing operates to stamp that outgoing as having a business or employment related character.

The decision in the RTA case involved the lack of choice in determining whether an expense that would normally be private could be deductible. The RTA employees have no choice in the food that is provided to them or in the accommodation they reside in when at camp.

However, whilst we accept that it may be possible to apply the RTA principles to travel expenditure. The principles in the RTA case do not automatically apply to all travel expenditure such that when the relevant factors described in the RTA case exist, we can then automatically conclude that all expenses including home to work travel expenses will be stamped as having the requisite employment related character to be deductible under section 8-1 of the ITAA 1997. The RTA case did not replace the long established principles in Lunney that provide guidance on the deductibility of travel expenditure.

We consider that the travel expenditure to which the RTA principles may apply must be confined to necessary and modest travel expenditure incurred during the period that the employee is residing away from home and at the work site (emphasis added). For example, in the event that an employee living at the Wheatstone camp is required to travel from the camp to another location in the vicinity of Wheatstone to be able to perform their duties of employment, it would be reasonable to accept that similar to the meals and accommodation, any necessary and modest expenditure incurred on such travel would be otherwise deductible to the employee. The employees have no choice in the transport available to them when at camp.

Travel expenses in this case are clearly distinguishable from travel expenditure when in Country A as referred to in the above example. Here, the travel expenses are not considered to be necessary expenditure incurred whilst residing for periods at a time, away from home and at a camp or work site. Accordingly, its deductibility or otherwise falls to be assessed under the long established High Court principles laid down in Lunney taking into account the identified travel exceptions as discussed above.

In the case of Lunney v FC of T; and Hayley v FC of T (1957-1958) 100 C.L.R. 478 it was argued that transport from home to work was necessary to produce income. It was acknowledged in this case that circumstances could arise in which travel between home and work could meet the criteria of being incurred in the course of gaining or producing income. The High Court held that the cost of travel between home and work arose because the employee works in one place and lives in another. Therefore unless one of the recognised exceptions to Lunney and Haley apply, travel to and from work is private and non-deductible. Paragraph 8 of Taxation Ruling IT 2543 summarises that might allow a deduction for travel between home and work:

8. Accordingly, it is confirmed that where an employee is in receipt of an assessable transport allowance, deductions claimed against that allowance for expenditure incurred in travelling between home and work are generally not allowable under subsection 51(1) of the Act. Exceptions to this general view are set out in Taxation Ruling Nos. IT 112, IT 113, IT 2122, IT 2199, IT 2273 and MT 2027. Where allowances are paid in circumstances referred to in these Taxation Rulings, deductions are allowable, subject to the application of the substantiation rules in Subdivision F of Division 3 of Part III of the Act. Briefly summarised, the exceptions are:

where the taxpayer's home constitutes a place of employment and travel is between two places of employment or business such as the medical practitioner in Garrett v F.C. of T. 82 ATC 4060, 12 ATR 684 who carried on a business of primary production at home and a medical practice in the city (see Taxation Ruling No. IT 2199 for details);

where the taxpayer's employment can be construed as having commenced before or at the time of leaving home such as the computer consultant in F.C. of T. v Collings 76 ATC 4254, 6 ATR 476 who was required to attend to the computer difficulties of her employer's customers from her home either over the telephone or through a computer terminal (see Taxation Ruling No. IT 113 for details);

where the taxpayer has to transport by vehicle bulky equipment necessary for employment such as the professional musician in F.C. of T. v Vogt 75 ATC 4073, 5 ATR 274 who transported his instruments and associated equipment from his home to his places of employment (see Taxation Ruling No. IT 112 for details);

 where the taxpayer's employment is inherently of an itinerant nature such as the teacher in F.C. OF T. v Wiener 78 ATC 4006, 8 ATR 335 who, while engaged in a pilot scheme, was required to teach at many different schools each week; and the itinerant shearers in Case S29 85 ATC 276 (see Taxation Ruling Nos. IT 112, IT 2122 and IT 2273 for details); and

where the taxpayer is required to break his or her normal journey to perform employment duties (other than incidental duties such as collecting newspapers, mail, etc.) on the way from home to the usual place of employment, or from the place of employment to home (see paragraphs 28 to 36 of Taxation Ruling No. MT 2027 for details).

It is the first of these exceptions that you have requested a ruling as to whether it can apply in this case. That is can the airport be considered one place of employment and Country A another.

In Garrett v FC of T 82 ATC 4060, the taxpayer was allowed a deduction for travel between home (which is one place of employment) and a second place of employment, as expenditure incurred is part of the operations by which the taxpayer earns income and is essential to the performance of the taxpayer's operations. Unlike the Garrett case, your employees have only one place of employment, which is the vessel either docked in Country A or at sea.

Therefore, as stated earlier, the airport cannot be considered a place of employment. The consequence of this being the travel from the airport to Country A would not be deductible.

Question 2

Did not rule -answer to question 1 is no

Question 3

Summary

The employees are living away from home, their situation is not equivalent to that in the RTA case, and the employees are not travelling on work, therefore the meal expenses are not deductible. Hence the per diems paid in connection to the arrangement are not excluded from the definition of living away from home allowance in section 30 of the FBT Act.

Detailed reasoning

Section 30 of the FBTAA refers to the provision of living away from home allowances (LAFHA). A LAFHA is a payment to compensate an employee for additional, non-deductible expenses, or to compensate for disadvantages suffered, because an employee is required to live way from their usual place of residence in order to perform their employment duties.

There are different tax treatments for both Living Away from Home Allowance (LAFHA) and travelling allowances. LAFHA's are a fringe benefit as per section 30 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA), whereas travelling allowances are part of the employee's assessable income and are not fringe benefits.

A LAFHA may be paid to an employee for additional expenses incurred and disadvantages suffered because the employee's duties of employment require them to live away from their normal residence.

Instead of paying cash LAFHA to an employee, an employer may reimburse expenses and provide food and/or accommodation at the new location. The food allowance (per diem) paid to employee to cover food and incidentals whist working in Country A, may be deductible if the employees are travelling on work or their situation is equivalent to that in the RTA case.

Is the employee travelling or residing away from home?

Miscellaneous Tax Ruling MT 2030 Fringe Benefits Tax: Living Away From Home Allowance Benefits and chapter 11 at 11.12 of the ATO publication 'Fringe Benefits Tax: A guide for Employers sets out the differences between a living away from home allowance and a travelling allowance.

LAFHA is generally paid where an employee has taken up temporary residence away from their usual place of residence in order to carry out duties at a new but temporary workplace. There is a change of job location in relation to paying the allowance. Where an employee is living away from home, it is more common for that employee to be accompanied by their spouse and family. Where the period exceeds 21 days, the allowance is likely treated as LAFHA.

Travelling allowances on the other hand are paid because an employee is travelling in the course of performing their jobs. There is no change of job location in relation to paying the allowance. Where an employee is travelling, they are generally not accompanied by their spouse and family. Further it is a general rule that where an employee is away for more than 21 days at a time they are not taken to be travelling.

In your situation, the employee will be away from their usual place of residence, on a fly-in-fly-out arrangement, 28 days on board, and 28 days at home. Therefore they are away for more than 21 days at a time. Further it has been established in response to question 1 that the employees only have one place of employment, which is the ship in Country A. The closest airport is not a place of employment, such that the employees are travelling on work.

As the employees are not travelling one needs to consider, the general rule for the deductibility of whether their situation is similar to that of the employees in the RTA case.

The deductibility of food expenses is discussed in FC of T v Cooper 91 ATC 4396 in which a footballer was not allowed deductions for additional food as it was not sufficiently connected with the taxpayer's income producing activities. In your case, the cost of additional food is also not sufficiently connected with your employee's income producing activities.

The situation in this case is also not consistent with the principles of the Roads and Traffic Authority of NSW v FC of T (1993) 93 ATC 4508 (RTA case). The RTA case was based on the principle of travel.

Factors taken into account by Hill J. in order to determine whether the expenses would have been deductible included that:

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

· the employees were only living way from home for relatively short periods of time;

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

· the employee had a permanent home elsewhere.

The points above were all satisfied in the RTA case, however in your case, the second and third points are not satisfied. The employees are living away from home for 28 days on and off, on a rotational basis. The continuity is consistent with paragraph 29 in MT 2030 (stated above). Furthermore, the employees choose to work in this position, in which the living away from home situation is apparent before the employees are engaged in employment (as opposed to the employees of the RTA case).

The remote nature of the accommodation in the RTA case made it difficult for the employees to purchase necessary food. Essentially, they had no choice with regards to food and accommodation, and incurred additional expenses. The employees received a camping allowance, under an award. Furthermore, accommodation was not in one set place.

In your case, while your employees will be residing in Country A, they will be residing in an urban area in a fixed location. Even though the employer is housing them in a leased apartment because the location of the accommodation is not in any sense in a remote area. Therefore it is considered that they do have a choice.

Therefore, for the reasons outlined above, the expenses incurred on meals and incidentals are non deductible under section 8-1 of the ITAA 1997.

Question 4

Did not rule -answer to question 3 is no

Question 5

Summary

A reasonable food component of a LAFHA may be determined by reducing the cost group amount for Country A reduced by a suitable indexation factor.

Detailed reasoning

Tax Determination TD 2013/4 Fringe benefits tax: reasonable amounts under section 31G of the FBTAA 1986 for food and drink expenses incurred by employees receiving a living-away-from-home allowance fringe benefit, for the fringe benefits tax year commencing on 1 April 2013 shows the weekly reasonable amount for food and drink, for LAFHA paid to employees living away from home in Country A. The cost group stated for Country A as per table 2 of the determination is 5; which equates to $419 per week for one adult, as per table 3.

Prior to 1 April 2013, there was no such Tax Determination outlining the commissioner's reasonable amount. The previous law did not require employees living away from home to substantiate expenses before living away from home tax concessions apply, as long as they have provided an appropriate living away from home declaration.

The food component of the allowance must be calculated before the living away from home allowance is paid to your employee. The food component of the allowance can be calculated as compensation for any of the following:

· total food costs

· increased food costs where the estimated home food costs equals or exceeds the statutory food amount

· increased food costs where the estimated home food costs are less than the statutory amount.

There are no strict guidelines as to how the food component is calculated, provided the amount is reasonable. Factors you could take into account when determining the food component include:

· the composition of the employee's family - that is, the number of adults (12 years old or more) and the number of children (under 12 years old) at the start of the FBT year

· the costs of food in the alternate location

· the usual food expenditure in the home location

You are requesting a ruling on how to determine a reasonable amount for the allowance. You stated the allowance is to compensate for additional food costs in Country A. You asked if an allowance for the year ending 31 March 2013 can be determined by reference to the reasonable cost group amount for Country A for the year ending 31 March 2014 as set out in Tax Determination 2013/4, reduced by a suitable indexation factor, to determine the reasonable amount of such an allowance.

As stated above, the costs of food in the alternate location is a factor which can be taken into account when determining the food component of an allowance.

TD 2013/4 is what the Commissioner considers reasonable for 2013-2014, and a reasonable person would conclude that reducing this amount by an appropriate indexation factor is appropriate. As the employees are working in Country A the appropriate indexation factor would be the Country A's Consumer Price Index.

Question 6

Summary

Food allowances and rotational flights are reportable fringe benefits if total of all the fringe benefits received by an employee exceeds $2,000 in an FBT year.

Detailed reasoning

The value of all fringe benefits other than excluded fringe benefits are reportable fringe benefits. You (the employer) have to record the value of fringe benefits provided to each of your employees. If the value of certain fringe benefits provided exceeds $2,000 in a fringe benefits tax (FBT) year (1 April to 31 March), you will be required to record the grossed-up taxable value of those benefits on your employee's payment summary for the corresponding income year (1 July to 30 June). You may also have to report the notional value of certain exempt benefits.

Section 5E of the FBTAA 1986 sets out these requirements and the general rule is:

(2) The individual fringe benefits amount is the sum of the employee's share of the taxable value of each fringe benefit that relates to the year of tax and is provided in respect of the employment other than an excluded fringe benefit.

Food allowances and rotational flights are not excluded benefits, and as such, if they have a taxable value, then they may be reportable (depending on the value).

You need to assess this on a case by case basis - as each employee's circumstances may be different.