Edited version of your private ruling

Authorisation Number: 1012578244978

Ruling

Subject: Living away from home allowance or travelling allowance

Question 1

Are the accommodation, meal and incidental allowances paid to employees who travel to perform their duties for less than 22 days, subject to income tax in the hands of the employee and therefore not subject to fringe benefits tax?

Answer

Yes

Question 2

Are the accommodation, meal and incidental allowances paid to employees who travel away from home for less than 22 days, which is less than the Commissioner's yearly published reasonable amounts limits, subject to the substantiation exception in Subdivision 900-B of the Income Tax assessment Act 1997?

Answer

Yes.

Question 3

Are the accommodation, meal and incidental allowances paid to employees who perform their duties for more than 21 days away from their normal residence subject to fringe benefits tax under section 30 of the Fringe Benefits Tax Assessment Act 1986 as living-away-from-home allowance?

Answer

Yes.

This ruling applies for the following periods:

1 April 2013 to 31 March 2017.

The scheme commences on:

1 April 2013.

Relevant facts and circumstances

· The employer carries out sample testing.

· The employment contract and other conditions are set out in the Enterprise Bargaining Agreement. If some condition or the purpose of the condition is not in the EBA, the Award needs to be followed.

1. The employer employs technical staff.

· When a technical employee is hired, they are placed into one of the employer's Australia wide office. This becomes their normal employment workplace.

· Technical staff either owns their own homes or rent close to their designated business premises. An employee has a usual place of residence which they are living away from.

· An employee may be required to work in a different location, site or office, including a particular project site.

· If the employee is relocated within the same city or town (as their normal employment workplace), the employee will not be compensated for the move.

· Most of the work carried out is project based. An employee will usually be assigned a project which is in the same vicinity as their work premises.

· In certain situations, an employee may move temporally to a specific project site that is far from the town or city in which they are permanently based.

· The employee, travels to a project site where they can reside for one day to eight weeks.

· The reasons for moving an employee to another site is to utilise their specific technical skills, to perform duties at the site which requires more personnel, or there is an urgent demand at the site for specialist employees, etc.

· An employee moved to another project site receives the following allowances:

1. daily travel allowance to compensate them for additional costs incurred beyond the cost of living in their home and travelling to their normal work place, and,

2. accommodation: employees are provided a daily accommodation allowance, depending on the type of accommodation provided and the number of employees residing in these premises.

3. Alternatively, an employee is provided with hotel accommodation where no suitable accommodation is available and a hotel allowance is provided.

· An employee can reside at the hired residence or hotel between one to eight weeks (1 to 56 days).

· The travel allowance and accommodation allowance is provided to employees to compensate them for additional costs incurred beyond the cost of living in their own homes. The allowance is expended for work purposes.

· In some cases, the employee returns to their normal residence during the weekends.

· In other cases, an employee may reside at the hired accommodation or hotel from one to eight weeks.

· Families do not accompany the employees when they work at the project site.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Subsection 30(1)

Fringe Benefits Tax Assessment Act 1986 Section 31

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Income Tax Assessment Act 1936 Section 23L

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Subsection 15-2(1)

Income Tax Assessment Act 1997 Subdivision 900-B

Income Tax Assessment Act 1997 Section 900-50

Issue 1

To enable a response it is necessary to;

· explain the difference between travelling and living away from home;

· determine if the employees are travelling or living away from home; and

· if living away from home, is their situation similar to the employees in Roads and Traffic Authority of NSW v FC of T 93 ATC 4508 (the RTA case).

as you have asked the Commissioner to rule on whether the allowances provided to their employees will be assessable in the hands of the employee or will the allowances be a the living-away-from-home allowance (LAFHA) fringe benefit. That is, the allowance is a travelling allowance or a living away from home allowance.

Subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) deals with living away from home allowance (LAFHA) benefits under an employee/employer relationship where the payment is in respect of the employee's employment.

A living-away-from-home allowance (subsection 30(1) of the Fringe Benefits Tax Assessment 1986 (FBTAA) exists where it is reasonable to conclude from all the surrounding circumstances that the allowance is in the nature of compensation to the employee for additional expenses incurred, (or additional expenses incurred and other disadvantages suffered), because the employee is required to live away from his or her usual place of residence in order to perform the duties of employment.

Additional expenses do not include expenses for which the employee would be entitled to an income tax deduction ('deductible expense' is defined in subsection 136(1) of the FBTAA, as an expense incurred by the employee in respect of which a deduction is allowable to the employee under section 8-1 of the ITAA 1997).

An employee is regarded as living away from their usual place of residence if they are required by their employer to perform employment-related duties temporarily in a different locality. An employee would have continued to live at his usual place of abode if he did not have to change residence in order to work temporarily for his employer at another locality. The presumption is an employee will usually reside close to his employer's business premises and if he is living-away-from-home, then he will return to the former place.

The term 'normal residence' is defined in subsection 136(1) of the FBTAA. For a person residing in Australia, his normal residence is where he usually resides, which is his usual place of abode/residence.

Normal residence refers to where the employee usually resides for income tax and fringe benefit tax purposes.

Miscellaneous Taxation Ruling MT 2030: Fringe benefits tax: living-away-from-home-allowance benefits (MT 2030) sets out the Commissioner's treatment of a LAFHA. MT 2030 and paragraph 11.12 of the Tax Office publication, 'Fringe benefits tax a guide for employers' explain the distinction between a LAFHA and a travelling allowance.

It is important to determine what type of allowance is being paid as the tax treatment for a travelling allowance and LAFHA are different in the hands of the employee.

A bona-fide travelling allowance (which includes accommodation, meals and incidentals) is paid because an employee is travelling in the course of their duties, does not involve a change of job location, is paid for a short periods, and where the employee has a family they normally do not accompany them.

A bona-fide travelling allowance is included in the employee's income tax return as assessable income (under subsection 15-2(1) of the Income Tax Assessment Act 1997 (ITAA 1997)).

The employee can then claim an income tax deduction against the taxable allowance, for the employment related expenses incurred (expended) under the positive limbs of section 8-1 ITAA1997 (the negative limbs do not apply). Furthermore, the employee must be able to substantiate the expense incurred and retain the relevant receipts and documentation.

A LAFHA on the other hand is paid where an employee has taken up temporary residence away from their usual place of residence (normal residence) to perform their employment duties, is considered to have changed their job location, the employees family will usually accompany them and the allowance is paid for longer periods.

A LAFHA will not be included in the employee's assessable income because it is a fringe benefit as stated in section 23L of the ITAA 1936. The definition of a fringe benefit in subsection 136(1) of the FBTAA excludes salary and wages.

The employer is required to pay fringe benefits tax on the taxable values of the relevant fringe benefits.

As the employer pays FBT, the employee cannot claim an income tax deduction for additional employment related expenses as the LAFHA is payment for non-deductible expenses, which generally includes accommodation and food.

In both situations, the employer can claim a business related company tax deduction.

However, if it cannot be determined that the allowance is a LAFHA or a travelling allowance, the tax office accepts if the period away is less than 21 days, the payment will be a travelling allowance.

Employee(s) are sent by their employer to work temporarily at another site, away from their usual place of employment and their normal residence. The site can be anywhere in Australia, but generally in places where testing are required. This can be in remote areas as defined, but the employer has not provided any specific locations.

The duration away from their usual place of employment and normal residence can be for a period of one day to eight weeks duration.

As explained above MT 2030 states where the period is more than 21 days away from the employee's usual place of abode, the allowance will usually be regarded as LAFHA. The exception to the 21 day rule is where the nature of the person's employment is such that they are travelling continuously, such as a travelling salesman or travelling entertainer.

The employer states that the allowance (even if paid for longer than 21 days) will be a travelling allowance. The onus of claiming an income tax deductible expense, then falls on the employee as the taxable allowance will be assessable in the hands of the employee.

The employer states that the payment will not be a LAFHA as defined in subsection 30(1) of the FBTAA because of the conditions of employment and the circumstances surrounding the payment.

The employer stated that Tax Determinations TD 93/230 and TD 96/7 consider further the differences between a LAFHA and a travel allowance, quoting paragraph 5 of TD 93/230 as providing factors that indicate an allowance should be treated as a travelling allowance.

It is pointed out that TD 93/230 and TD 96/7 were written as a consequence of the decision by Hill J. in the RTA case. In that case Hill J. recognised the situation was a living away from home situation. However, he concluded the part of the allowance that related to accommodation and meals cannot be part of a LAFHA because the occasion of the expense makes them deductible under section 51(1) of the ITAA 1936, and a LAFHA is for non-deductible expenses. At no stage did Hill J. indicate the RTA employees were travelling in the course of performing their duties. Basically the decision by Hill J. can be taken as an exception to the general rule that food and accommodation expenses are private in nature and non-deductible.

The decision in the RTA case can apply if the employee's circumstances are similar to that of the RTA employees. That is, where the factors stated in TD 96/7 are satisfied.

The factors stated in TD96/7 are whether the employee:

· is required to live close by work

· has a normal residence away from the work site

· lives away from home for a relatively short time and

· has any choice as to the accommodation provided.

As stated earlier, where a taxpayer is away for work purposes for 21 days or less and are paid an allowance, it is accepted the allowance can be treated as a travel allowance. Therefore the issue is can you treat the allowance paid to employees who live away from their home for more than 21 days in the same manner as the camping allowance in the RTA case or as a bona-fide travelling allowance.

The above requires an examination of the factors in TD 96/7, which come from the RTA case, and the factors distinguishing travelling from living away from home.

In regards to the factors in paragraph 4 of TD 96/7 it is noted that it is stated that 21 days will be accepted as a relative short period of time. Hence it is unlikely that a period exceeding 21 days will be considered a relatively short period of time, unless ones work pattern was similar to a travelling salesman or travelling entertainer.

The first two factors would seem to carry less wait as they can be satisfied whether they are travelling or living away from home. The final factor with regards choice of location of the accommodation provided is harder to satisfy. As per the RTA case it will only be satisfied if the employer provided accommodation that is the only available accommodation close to the work site. In the RTA case employees were accommodated in huts or in caravans.

It is considered on the assumption that the accommodation provided is in an urban area (which is likely due to the accommodation provided being a rented home), that for employees away from their usual residence for more than 21 days, the third and fourth factors are not satisfied. With regards the fourth factor, where there is other accommodation available for rent in the vicinity of the employer provided rental accommodation it is considered that the employee has a choice. Hence, the conditions for the accommodation and meal expenses to be deductible under section 8-1 of the Income Tax Assessment Act 1997, as per the decision in the RTA case, are not satisfied, and the decision in the RTA case can not be applied to these employees.

As stated earlier, a bona-fide travelling allowance (which includes accommodation, meals and incidentals) is paid because an employee is travelling in the course of their duties, does not involve a change of job location, is paid for a short periods, and where the employee has a family they normally do not accompany them.

Employees living away for more than 21 days are not travelling in the course of performing their duties, as their employment pattern is not similar to a travelling salesman, as they are working at the one site while away and not many different sites. As they are working at the one site and not away for a short period (more than 21 days not considered a short period, as per paragraph 4 of TD 96/7) it is considered that they have changed their work location for the duration of their time away.

As three of the four indicators of travel are not present in the case of these employees who are living away for more than 21 days, these employees are taken to be living away from home.

Question 1

Summary

The Commissioner will accept that the employees who are away from their usual place of residence (normal residence) for 21 days or less are travelling on work related purposes and the allowance paid to them is a travelling allowance. Such an allowance is subject to income tax in the hands of the employees.

Detailed reasoning

As explained above MT 2030 and paragraph 11.12 of the Tax Office publication 'Fringe Benefits Tax: a guide for employers' explains the distinction between a LAFHA and a travelling allowance.

Looking at the distinction between the two types of allowances the Commissioner has determined that as a general rule where an employee is away from home for a period of 21 days or less the allowance received is a travelling allowance.

Allowances to cover travel expenses are prima facie assessable income under either section 6-5 or section 15-2 of the ITAA 1997, except where they are fringe benefits in which case they are non-assessable income: section 23L of ITAA 1936.

Reimbursed travelling expenses are subject to FBT as expense payment fringe benefits and are not assessable income of the taxpayer: section 23L of FBTAA. Ruling IT 2543 outlines the Commissioner's policy on the assessability of allowances and the impact of fringe benefits tax.

The travel expenses in this case are accounted for by way of an allowance and not a reimbursement. Hence the travel expense paid by way of an allowance is included in the employee's income tax return as assessable income (under subsection 15-2(1) of the Income Tax Assessment Act 1997 (ITAA 1997)). That is the allowance is subject to income tax in the hands of the employee.

Question 2

Summary

The exception to the substantiation requirement under section 900-50 of the ITAA 1997 applies to a bona-fide travelling and accommodation allowances, which the Commissioner considers reasonable. In this case the allowances paid are below the reasonable travel allowance amounts published by the Commissioner (see Taxation Determination TD 2013/16). Hence, they are considered reasonable and the employer does not have to deduct PAYGW nor include these allowances in the employee's payment summary (NAT 15246). The employee does not include the allowance in their tax return and cannot claim an income tax deduction, unless they spent more than the allowance and want to claim a deduction. In that case the substantiation exemption under section 900-50 of the ITAA 1997 does not apply, and the allowance will need to be included as assessable income and documentary evidence will be required to claim a deduction for the expenses.

Detailed reasoning

As explained in question one above and as stated correctly by the employer, if a bona fide travelling (testing allowance includes meals and travel) and accommodation allowances are paid to an employee, which is below the reasonable food and drink and accommodation expense amounts published by the Commissioner in a yearly tax determination, then the exception to the substantiation requirements apply.

Generally an income tax deduction cannot be claimed unless the employee retains documentary evidence (receipts, bank statements, dairy notes, etc) that shows the work-related expenses were expended.

Taxation Ruling TR 2004/6 Income tax: substantiation exception for reasonable travel and overtime meal allowance expenses discusses the conditions when the substantiation provisions for work related expenses do not apply to a travel allowance.

Under Subdivision 900-B of the ITAA 1997, a deduction is not allowable for a work expense, including a meal allowance expense or travel allowance expense, unless the expense qualifies as a deduction under a provision of the Act and written evidence of the expense has been obtained and retained by the employee taxpayer.

Section 900-50 of the ITAA 97 provides that the substantiation requirement to obtain written evidence does not apply to claims by employee taxpayers for expenses covered by:

· a domestic travel allowance or overseas travel allowance, whether or not the allowance is paid under an industrial instrument,

· if the amount of the claim for losses or outgoings incurred does not exceed the reasonable amounts.

However, it should be noted that an expense must be actually incurred before a claim can be made. A taxpayer cannot automatically claim a deduction just because they receive an allowance. If an expense is incurred partly for work purposes and partly for private purposes, only the work-related portion is deductible.

In this case an allowance is paid by the employer. The allowance is below or equal to the reasonable amounts published by the Commissioner. The allowance is expended for work purposes. The allowance is therefore not required to be included on the employee's payment summary and no PAYGW is required to be deducted from the said allowance.

Question 3

Summary

For employees away for more than 21 days, they are living away from home, as they are not travelling in the course of performing their employment duties and they have changed their job location. Therefore, the allowance is subject to section 30 of the FBTAA.

Detailed reasoning

An allowance is subject to section 30 of the FBTAA and a living away from home allowance fringe benefit, where it is paid to compensate an employee for additional expenses or additional expenses and disadvantages to which the employee is subject, during a period that their employment requires them to live away from their normal residence.

The employer will calculate the taxable value of a LAFHA in accordance with section 31 of the FBTAA.

It has previously been determined that employees who are away for more than 21 days are not travelling. It has also been determined that the allowance paid to them is not equivalent to the camping allowance paid to the employees in the RTA case. Therefore, they are living away from home.

In this case the allowance is paid to cover additional expenses, such as accommodation, meals and incidentals, the employee will incur because they are living away from home in order to perform their duties. Hence, as the allowance fits the criteria of a living away from home allowance. Hence, the allowance is subject to fringe benefits under section 30 of the FBTAA.