Edited version of private advice

Authorisation Number: 1012654012714

Ruling

Subject: Fringe benefits tax: otherwise deductible rule: board benefits

Question

Will the otherwise deductible rule in section 37 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) apply to reduce the taxable value of the board fringe benefits provided to employees who work at remote locations on a roster basis to a nil value?

Answer

Yes

This ruling applies for the following period(s)

Year ending 31 March 2015

Year ending 31 March 2016

Year ending 31 March 2017

Relevant facts and circumstances

You provide a range of services.

Many of the projects are situated in remote areas of Australia at a substantial distance from cities and townships.

Given the distance to the nearest cities and townships, the employees are provided with accommodation and three meals a day at camps located near the worksite.

The camps are owned and operated by a third party (including the Project owner). Usually, you will contract for a certain number of single person quarters and meals to be provided to your employees. Alternatively, the accommodation and meals may be provided to the employees by the project owner.

The employees that receive meals in camps are predominantly on fly-in fly-out arrangements.

The accommodation and meals are provided under the terms and conditions of various industrial awards and employment agreements relevant to the client's projects.

Other relevant employment conditions include:

• the employees work shifts of between 10 and 12 hours per day on their work days;

• the employees do not make a contribution towards the cost of their accommodation and meals;

• the employees can work a number of rosters including rotations of 2 weeks on 1 week off or 4 weeks on 1 week off;

• the employees are required to leave camp after their roster finishes;

• the employees maintain a place of residence elsewhere (that is not the camp);

• the majority of accommodation provided is single persons quarters, but on occasions the accommodation may be in dormitory rooms;

• family and associates are not permitted to stay with the employees in camp;

• the accommodation consists of demountable ensuited modules with a common dining area and shared laundry facilities;

• the morning and evening meals are provided in the common dining area of the camps;

• employees are able to take rations/crib for the daytime meal and "smoko" breaks; and

• no alcohol is provided with the meals.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 35

Fringe Benefits Tax Assessment Act 1986 section 37

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Will the otherwise deductible rule in section 37 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) apply to reduce the taxable value of the board fringe benefits provided to employees who work at remote locations on a roster basis to a nil value?

In general terms, a board fringe benefit will arise when a meal is provided to an employee who is entitled to have accommodation provided if the following conditions are satisfied:

• there is an entitlement under an industrial award to be provided with at least two meals a day, or under an employment arrangement at least two meals a day are ordinarily provided;

• the meal is supplied by the employer;

• the meal is cooked or prepared on the employer's premises, or on a worksite or place adjacent to a worksite; and

• the meal is supplied on the employer's premises.

When a board fringe benefit is provided, the taxable value of the fringe benefit can be reduced under section 37 of the FBTAA if the employee would be entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) if he or she had paid for the meal.

The decision of Hill J in Roads and Traffic Authority of NSW v. FC of T (1993) 43 FCR 223 (RTA) considered the circumstances in which various allowances paid to road construction and repair crews, who were required to camp away from home, could be considered to be paid to compensate for outgoings, which if incurred by the employee would have been deductible expenses. In the process of determining that the hypothetical expenditure on meals by the employees would have been deductible expenses according to the definition in subsection 136(1) of the FBTAA, Hill J set down a general rule by which deductibility of such expenditure is to be determined (at 240):

Where a taxpayer is required by his employer, and for the purposes of his employer, to reside, for periods of 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.

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.

As a result of the decision in RTA, the Commissioner issued Taxation Determination TD 93/230 Income tax and fringe benefits tax: is a camping allowance assessable under section 30 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) or under Division 6 of the Income Tax Assessment Act 1997 (ITAA97)? Paragraph 5 of this Taxation Determination summarises the factors which paragraph 4 of Taxation Determination TD 96/7 states are to be taken into account in deciding 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.

The relevant factors include whether the employee:

• is required as an incident of their employment to live close by their 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.

The application of these guidelines was further considered in ATO Interpretative Decision ATO ID 2001/120 Fringe Benefits Tax Fringe benefits tax 'otherwise deductible' rule in relation to employees working at a remote work sites. The employees concerned worked rosters often comprising 12 hour shifts on 13 successive days, followed by 1 day off for 7 or 14 weeks at the site, followed by a week off.

In considering whether the employees had chosen the accommodation provided by the employer at or near the mine site to be their home, the ATO ID took into account the following factors:

• the remoteness of the sites;

• living conditions at the 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 12 hour shifts for 7 days a week;

• fixed period contracts of employment; and

• the limited life of most mining sites.

On the basis of these factors, it was concluded that it could not be said that the employees had chosen the accommodation provided by the employer at or near the mine site to be their home. Consequently, it was accepted that the 'otherwise deductible' rule applied to reduce the taxable value of the board fringe benefits to nil.

The issue of choice and the decision in RTA was further considered by the Federal Court in Hancox v FC of T [2013] FCA 735 (Hancox). In distinguishing the facts considered in RTA from the facts of the situation being considered, Besanko J at 52 said:

The decision in The Roads and Traffic Authority of New South Wales v Commissioner of Taxation is distinguishable. The food expenditure in that case was the additional cost of food by reason of living in the camp and the employees had no choice but to live away from home. In this case, the applicant could have had his usual place of residence in Port Hedland.

In the situation being considered the employees are working on projects situated a considerable distance from the nearest town. They therefore have no choice, but to reside in the camps which are at the worksite.

Each of the employees has a residence to which they return at the end of their roster as they are required to leave camp at the end of the roster. Therefore, given the short periods of time for which they are in camp, the camp cannot be considered to be the employee's home.

Accordingly, in applying the decision in RTA, Taxation Determinations TD 93/230 and TD 96/7 and ATO ID 2001/120 it is possible to conclude on the facts of the situation being considered that an income tax deduction would have been allowable to the recipients of the board fringe benefits if the recipients had incurred unreimbursed expenditure in respect of the board meals.

Therefore, the otherwise deductible rule in section 37 of the FBTAA will apply to reduce the taxable value of the board fringe benefits provided to the employees who work at remote locations on a roster basis to a nil value.