Edited version of your private ruling

Authorisation Number: 1012581944065

Ruling

Subject: Provision of accommodation, reimbursements for meals and allowances

Question 1(a)

Is the provision of the accommodation a fringe benefit?

Answer

Yes

Question 1(b)

If the provision of accommodation is a fringe benefit, does the otherwise deductible rule in section 52 of the FBTAA 1986 reduce the taxable value of the fringe benefit to nil?

Answer

No

Question 2(a)

Where the cost of meals and other expenses incidental to travel are reimbursed by AAA or BBB, is the reimbursement of these costs a fringe benefit?

Answer

Yes

Question 2(b)

If the reimbursement of the cost of meals and other expenses incidental to travel are a fringe benefit, does the otherwise deductible rule in section 24 of the FBTAA 1986 reduce the taxable value of the benefit to nil?

Answer

No

Question 3(a)

Where a per diem is paid to an employee, is the per diem subject to section 30 of the FBTAA 1986?

Answer

Yes

Question 3(b)

If the per diem provided by AAA is not subject to section 30 of the FBTAA 1986 and the per diem is equivalent to, or less than, the reasonable amounts for travel allowance expenses under Taxation Determination TD 2013/16, does AAA need to report the per diem on the employee's PAYG payment Summary?

Answer

Not Applicable

Question 4(a)

Is the provision of travel to and from Country B at the beginning and the end of the project a fringe benefit?

Answer

No

Question 4(b)

If the provision of travel to and from Country B at the beginning and the end of the project is a fringe benefit, does the otherwise deductible rule in section 52 of the FBTAA reduce the taxable value of the benefit to nil?

Answer

No

This ruling applies for the following periods:

Year ended 31 March 20XX

Year ending 31 March 20YY

Year ending 31 March 20ZZ

The scheme commences on:

The scheme has commenced

Relevant facts and circumstances

Company A (AAA) and Company B (BBB) are wholly owned subsidiaries of Company C Group (CCC).

CCC has recently established a global office based in Country B.

In order to establish the global office in Country B, the following transformation process is required before the Global company can go live and the process is broken down in to the following stages (together with an estimated timeframe and brief description of each stage):

· Solution design

o Design of the function within the Global office.

o Determining the number of staff required to service the function.

· Transition (between 11 and 14 weeks)

o Hiring employees for the global office in Country B.

o Transition of knowledge from BBB to the global office.

o Training of new staff in carrying out their rules for the respective business lines in the global office.

o Testing the service centre before going live.

o Smoothing out any operational issues before going live.

· Service Delivery (6 weeks)

o Testing the new service centre live.

o Smoothing out any operational issues.

· Global office operations

o The global office starts operating from this point.

The transformation process in respect of the Australian operations commenced in mm/yyyy and is expected to conclude sometime in 20YY.

As part of the transformation process, AAA has been required to send their employees from Australia to the Country B to recruit and train the new staff in their respective roles and to ensure that the service delivery process goes smoothly before the global office can commence operations.

The length of time the employees have spent in Country B varies from employee to employee and depends on their role, and on the stage of the transformation process. Based on AAA policy, trips lasting up to 90 days are considered to be business trips, whereas those on trips exceeding 90 days are provided with formal secondment letters.

Based on current records, AAA employees on business trips have been in Country B for periods between 21 days and 90 days for each trip.

While the employees are in Country B, AAA have provided the following benefits to their employees:

· A hotel room or serviced apartment for the employee for the duration of time the employee is in Country B which is paid for by AAA or BBB, or by the global office and recharged to AAA or BBB;

· Where employees have a corporate credit card, the payment of ad hoc costs such as meal expenses, airport departure tax and/or other local travel expenses on the credit card have been reimbursed by AAA or BBB;

· Where employees do not have a corporate credit card, a net per diem of $X per week have been paid to those employees by AAA to cover day-to-day living expenses while the employees are in Country B;

· Where the employees do not have corporate mobile phones, an additional net per diem of $Y per week is provided and is designed to assist with the costs of calling Australia (due to the high costs of phone calls when "roaming", or the requirement to pay for telephones at the hotel) ; and

· Flights for the employee's travel from Australia to Country B and return which is paid for directly by AAA or BBB or, where the cost is paid by the global office, it is recharged back to AAA or BBB.

With respect to the accommodation, the preferred hotel for AAA for short stays is the X Hotel in the global city which is located within proximity to the AAA office in Country B. Under the employer's policy, AAA will only cover the costs of the accommodation and meals. Any additional costs incurred at the accommodation such as room service, telephone charges, mini-bar and in-room movies will be at the employee's own cost.

While it is standard policy for anyone travelling to Country B for less than 3 months to stay at the hotel above, if an employee prefers to stay in a short stay (serviced) apartment, the global office may arrange such accommodation at its discretion.

The guide for AAA Employees: Business Trips to Country B - under 3 months ('the AAA Guide for Employees') states that while it is possible for the employee's partners to travel with them to Country B, all additional costs for the accommodation and travel relating to the employees' family will be the employee's responsibility. It is understood that the majority of the employees are not accompanied by their families when travelling to the Country B.

AAA, BBB or the global office pays for the cost of flights for the employees to and from the Country B. However, where these costs are paid for by the global office, they are recharged back to AAA or BBB, as the costs are ultimately charged to the respective business lines of the CCC.

The employees will continue to be residents of Australia for income tax purposes. The employees continue to maintain a usual pace of residence in Australia during the business trips in Country B, and will return to their usual place of residence upon completion of the business trips. The accommodation in Country B will be provided by a third party under an arm's length agreement between AAA, BBB or global office and the third party.

Assumptions

Incidental expenses are not for work related items.

Employees will provide their employers with the appropriate living away from home declarations.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 20

Fringe Benefits Tax Assessment Act 1986 section 23

Fringe Benefits Tax Assessment Act 1986 section 24

Fringe Benefits Tax Assessment Act 1986 section 30

Fringe Benefits Tax Assessment Act 1986 section 31

Fringe Benefits Tax Assessment Act 1986 section 45

Fringe Benefits Tax Assessment Act 1986 section 52

Fringe Benefits Tax Assessment Act 1986 section 58F

Fringe Benefits Tax Assessment Act 1986 section 63

Fringe Benefits Tax Assessment Act 1986 section 143A

Fringe Benefits Tax Assessment Act 1986 subsection 17(5)

Fringe Benefits Tax Assessment Act 1986 subsection 30(1)

Fringe Benefits Tax Assessment Act 1986 subsection 47(5)

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 23L

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

Reasons for decision

To enable a response to be provided to the questions to be ruled upon it is necessary to:

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

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

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

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

A LAFHA (subsection 30(1)) of the 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 Income Tax Assessment Act 1997 (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 or her usual place of abode if he or she did not have to change residence in order to work temporarily for his or her employer at another locality. The presumption is an employee will usually reside close to his or her employer's premises and if he or she is living way from home, then he or she 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 or her normal place of residence is where he or she usually resides, which is his or her usual place of abode/residence.

Normal residence refers to where the employee usually resides for income tax and fringe benefits 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 if 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 performing their duties, does not involve a change of job location, is paid for shorter 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 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 ITAA 1997 (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.

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 that if the period away is less than 21 days, the payment will be a travelling allowance.

In this case, the employee(s) are sent by their employer to work temporarily in the Country B, away from their usual place of employment and their normal residence.

The duration way from their usual place of employment and normal residence can be for a period of 21 days to 90 days 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.

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 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, and they are not working at multiple work sites while away. As they are not working at multiple work sites and not away for short periods (more than 21 days is 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 at least three of the four indicators of travel are not present in the case of BBB employees, these employees are taken to be living away from home and not travelling.

Question 1(a)

Summary

The provision of the accommodation by BBB or its associates to the employees whilst in Country B is a benefit but not a residual fringe benefit as the benefit is exempt under subsection 17(5) of the FBTAA.

Detailed reasoning

Subsection 136(1) of the FBTAA defines both a benefit and a fringe benefit.

A benefit includes any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under:

(a) an arrangement for or in relation to:

(i) the performance of work (including work of a professional nature), whether with or without the provision of property;

(ii) the provision of, or of the use of facilities for, entertainment, recreation or instruction; or

(iii) the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction;

(b) a contract of insurance; or

(c) an arrangement for or in relation to the lending of money.

A fringe benefit is defined, in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit:

(a) provided at any time during the year of tax; or

(b) provided in respect of the year of tax;

being a benefit provided to the employee or to an associate of the employee by:

(c) the employer; or

(d) an associate of the employer

The definition of fringe benefit can be summarised (with appropriate simplifications) as a benefit provided, in respect of a year of tax, by an employer to an employee in respect of the employment of that employee.

The accommodation to be produced to the employee whilst working in the Country B is a benefit in terms of the definition of benefit in subsection 136(1) of the FBTAA 1986.

The accommodation benefit will be a residual benefit as per section 45 of the FBTAA 1986, as it is not a benefit by virtue of a provision of subdivision A of Division 2 to 11(inclusive) of the FBTAA 1986.

A benefit will be a fringe benefit if it satisfies the definition of fringe benefit in subsection 136(1) of the FBTAA 1986, unless an exemption applies.

Therefore where an exemption applies to a benefit there is no need to determine if the benefit is a fringe benefit. In this case, the benefit would be an exempt benefit if the conditions outlined in subsection 47(5) of the FBTAA 1986 are satisfied.

Section 47(5) of the FBTAA states that the benefit is an exempt benefit in relation to the year of tax if the following conditions are met.

(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).

Based on the information provided in your ruling request, a unit of accommodation is being provided to employees in Country B, in respect of their employment; they remain Australian residents and maintain a home in Australia; elements (a) and (b) are satisfied. It was established earlier that the employees are under a living away from home arrangement and therefore not considered to be travelling and therefore element (c) is satisfied.

Element (d) may also be satisfied on the condition that your employees meet section 31C and 31 D of the FBTAA 1986.

The employee satisfies this section if:

(a) The place in Australia where the employee usually resides when in Australia:

(i) Is a unit of accommodation in which the employee or the employee's spouse has an ownership interest (within the meaning of the Income Tax Assessment Act 1997); and

(ii) Continues to be available for the employee's immediate use and enjoyment during the period that the duties of that employment require the employee to live away from it; and

(b) it is reasonable to expect that the employee will resume living at that place when that period ends.

You state in your application that employees will be maintaining their usual place of residence in Australia, and they intend to resume living when they return from Country B.

The employee satisfies this section if the fringe benefit relates only to all or part of the first 12 months that the duties of that employment require the employee to live away from the place in Australia where he or she usually resides when in Australia.

You state in your application that employees will be away from home for between 21 and 90 days, and as such, 31D of the FBTAA is satisfied. The element (d)ii is therefore satisfied, on the condition employees provides you, the employer, with the appropriate living away from home declaration, before the declaration date.

As the provision of accommodation gives rise to an exempt benefit it is not a fringe benefit.

Question 1(b)

Summary

The otherwise deductible rule in section 52 of the FBTAA 1986 does not apply as the accommodation benefit is an exempt benefit under subsection 47(5) of the FBTAA 1986.

Detailed reasoning

As the benefit is an exempt benefit under subsection 47(5) of the FBTAA 1986 the otherwise deductible rule in section 52 can have no operation.

Question 2(a)

Summary

The reimbursement of meal and incidental costs incurred by employees is a living away from home fringe benefit.

Detailed reasoning

The reimbursement of an expense is different to paying an allowance. It is payment after the expense has been incurred, as opposed to the payment in advance to cover expected expenses. Therefore if the living away from home benefit is a fringe benefit, it will be a living away from home fringe benefit and not a living away from home allowance fringe benefit.

It has been established that the employees are living away from home and not travelling. Therefore the reimbursement of the expenses for food and incidentals are a benefit as per the definition of benefit in subsection 136(1) of the FBTAA 1986. The reimbursement of the expenses also fits the definition of a fringe benefit in subsection 136(1) of the FBTAA 1986 because it is paid by the employees' employer in respect of employment and there is no exemption for the benefit.

Section 20 of the FBTAA 1986 defines an expense payment as:

Where a person (in this section referred to as the provider):

(a) makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the recipient) to pay an amount to a third person in respect of expenditure incurred by the recipient; or

(b) reimburses another person (in this section also referred to as the recipient), in whole or in part, in respect of an amount of expenditure incurred by the recipient;

the making of the payment referred to in paragraph (a), or the reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit by the provider to the recipient.

The reimbursement of the meals will constitute a living way from home food fringe benefit as defined in subsection 136(1) of the FBTAA 1986.

Question 2(b)

Summary

The otherwise deductible rule in section 24 of the FBTAA 1986 does not apply as employees are living away from home; and cost of meals and other incidentals are non-deductible under section 8-1 of the ITAA 1997.

Detailed reasoning

For the otherwise deductible rule under section 24 of the FBTAA 1986 to apply, the expenses reimbursed need to be deductible under section 8-1 of the ITAA 1997 had they not been reimbursed.

Subsection 8-1(1) of the ITAA 1997 states:

You can deduct from your assessable income any loss or outgoing to the extent that:

(a) it is incurred in gaining or producing your assessable income; or

(b) it is necessarily incurred in carrying on a ^*business for the purpose of gaining or producing your assessable income.

However, subsection 8-1(2) states:

You cannot deduct a loss or outgoing under this section to the extent that:

(a) it is a loss or outgoing of capital, or of a capital nature; or

(b) it is a loss or outgoing of a private or domestic nature

As it has been established that the employees are not travelling, the expenses in question are of a private or domestic nature and not deductible. ATO ID 2002/451, ATO ID 2002/829 and ATO ID 2002/495 explain that meal and accommodation expenses are, as a general rule, private or domestic in nature and non-deductible. Therefore, the otherwise deductible rule under section 24 of the FBTAA does not apply.

Note: There is a reduction under section 63 of the FBTAA 1986 for the food component of the living away from home fringe benefit. This reduction is calculated similarly to the reduction for the food component from LAFHA fringe benefit.

Question 3(a)

Summary

Where a per diem is paid to an employee, as the employee is not travelling, the per diem will be an allowance subject to section 30 of the FBTAA 1986.

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. It has been established above that in this situation, the circumstances show that the employee is not travelling but living away from home.

Therefore, the per diem would be a living away from home allowance fringe benefit and subject to section 30 of the FBTAA 1986.

Question 3(b)

Summary

Not Applicable

Detailed reasoning

As the per diem is subject to section 30 of the FBTAA 1986, no response to this question is required.

Question 4(a)

Summary

The provision of travel to and from Country B at the beginning and the end of the project is an exempt benefit under section 58F of the FBTAA 1986 and not a fringe benefit.

Detailed reasoning

The travel to and from Country B at the beginning and end of the project will constitute a benefit as defined in subsection 136(1) of the FBTAA 1986.

It has been established that in your employee's situation, they will be living away from home for work purposes; and as such they will be temporarily relocating to Country B, and transport in connection to this scheme will constitute a residual fringe benefit under section 45 of the FBTAA 1986.

Section 143A of the FBTAA 1986 states that where the transport is required solely because:

(i) the employee is required to live away from his or her usual place of residence in order to perform the duties of that employment;

(ii) the employee, having lived away from his or her usual place of residence in order to perform the duties of that employment, is required to return to his or her usual place of residence:

(A) in order to perform those duties; or

(B) because the employee has ceased to perform those duties; or

(iii) the employee is required to change his or her usual place of residence in order to perform the duties of that employment;

the benefit shall be taken to be in respect of relocation transport.

The employees' situation satisfies the criteria in section 143A of the FBTAA 1986. Hence, the transport benefit is in respect of relocation transport.

Relocation transport provided to employees in living away from home situations will be an exempt benefit under section 58F of the FBTAA and thus, not a fringe benefit.

Question 4(b)

Summary

Not applicable

Detailed reasoning

As the travel benefit is an exempt benefit and not a fringe benefit, no response to this question is required.