Edited version of your written advice

Authorisation Number: 1012775420678

Ruling

Subject: Fringe Benefits Tax

Question 1

Is the allowance paid by the employer to an employee a living-away-from-home allowance in accordance with subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986?

Answer

Yes

Question 2

Are the allowances paid by the employer to several of its employees a living-away-from-home allowance in accordance with subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986?

Answer

No

This ruling applies for the following period

Fringe benefits tax years ended 31 March, 31 March 2015 and 31 March 2016

The scheme commences

January 2014

Relevant facts and circumstances

As part of the contract, 4 overseas employees of the employer will be required to travel to Australia to work.

Employee 1

Employee 1:

• normally works overseas

• has been seconded to an Australian based position

• has entered Australia on a 2 year visa

• was anticipated to be in Australia for a period of approximately 2 years

• has not been accompanied to Australia by family

• stayed in short term accommodation for a short period of time until before moving into more permanent accommodation

• the employer paid employee 1 a daily allowance to cover additional food and accommodation for part of the period in Australia

• is entitled to reunion trips to overseas home base while on secondment in Australia

Several other employees

Several other employees will be in Australia for a period of approximately 10 weeks.

Details of these employees are as follows:

• they are and will remain employees of the employer for the duration of their stay in Australia

• they will be unaccompanied and not entitled to a reunion trip during their time in Australia

• the employer will also provide them with a daily allowance to cover additional meal and sundry expenses that they are expected to incur while in Australia living at the hotel.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986, section 30

Fringe Benefits Tax Assessment Act 1986, subsection 30(1)

Fringe Benefits Tax Assessment Act 1986, subsection 136(1)

Income Tax Assessment Act 1997, section 8-1

Reasons for decision

Living-away from-home allowance

Section 30 of the FBTAA sets out the circumstances in which a payment to an employee will be a living-away-from-home allowance (LAFHA) benefit.

Subsection 30(1) of the FBTAA states:

Where:

(a)  at a particular time, in respect of the employment of an employee of an employer, the employer pays an allowance to the employee; and

(b)  it would be concluded that the whole or a part of the allowance is in the nature of compensation to the employee for:

(i) additional expenses (not being deductible expenses) incurred by the employee during a period; or

(ii) additional expenses (not being deductible expenses) incurred by the employee, and other additional disadvantages to which the employee is subject, during a period;

by reason that the duties of that employment require the employee to live away from his or her normal residence;

the payment of the whole, or of the part, as the case may be, of the allowance constitutes a benefit provided by the employer to the employee at that time.

In applying subsection 30(1) of the FBTAA an allowance will be a LAFHA if:

1. the allowance is paid in compensation for additional expenses incurred by an employee during a period by reason that the duties of employment require the employee to live away from his or her normal residence, and

2. the additional expenses are non-deductible expenses.

The additional expenses will be non-deductible expenses if they do not come within the definition of deductible expenses in subsection 136(1) of the FBTAA.

Subsection 136(1) of the FBTAA provides the definition of deductible expenses as follows:

deductible expenses, in relation to an allowance paid to an employee, means expenses 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 (ignoring Divisions 28, 32 and 900 of that Act).

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) states:

(1)  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.

Note:  Division 35 prevents losses from non-commercial business activities that may contribute to a tax loss being offset against other assessable income.

(2)  However, 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; or

(c)  it is incurred in relation to gaining or producing your *exempt income or your *non-assessable non-exempt income; or

(d)  a provision of this Act prevents you from deducting it.

In general terms, section 8-1 of the ITAA 1997 allows a deduction to be claimed by an employee for a loss or outgoing incurred in gaining or producing assessable income provided the loss or outgoing is not of a capital nature, a domestic nature or incurred in relation to gaining or producing exempt income or non-assessable non-exempt income.

Additional expenses for the purposes of subsection 30(1) of the FBTAA of include expenses for additional food and accommodation expenses.

Various court decisions have concluded that, generally, food and accommodation expenses incurred while away from home are essentially living expenses of a private or domestic nature and are therefore not deductible. However, exceptions to this general rule have been considered in several court cases and subsequent ATO public rulings.

In the Federal Court decision, Roads and Traffic Authority of NSW v Federal Commissioner of Taxation 26 ATR 76; 93 ATC 4508 (RTA), Hill J. considered a camping allowance paid to approximately 2,000 employees who were required to camp if the work site was more than 70 kilometres from their residence. The employees were accommodated in huts or caravans. The allowance compensated for the disadvantageous conditions of living in a camp and the additional costs of food beyond the cost of living in their own homes and other related expenses.

In RTA, a random sample of 19 employees was selected and taken as representative of the total employees in receipt of the camping allowance. The periods of time these 19 employees were required to camp away from their residence ranged from 12 days to 249 days.

Taxation Determination TD 93/120 at paragraph 5 summarised the factors taken into account by Hill J. in RTA in determining that the expenses would have been deductible had they been incurred by the employees. These factors included that:

a. the employees were required by the employer, as an incident of their employment, to live close by their work;

b. the employees were only living away from home for relatively short periods of time;

c. the employees did not choose to live at the places where the camp sites were located; and

d. the employees had a permanent home elsewhere.

Taxation Ruling TR 98/9 also considered the exception to the general rule that food and accommodation expenditure is non-deductible in the context of expenditure incurred by an employee while away from home on income-producing activities.

TR 98/9 at paragraph 89 provides that food and accommodation expenditure will be deductible on the occasion that the expenditure is incurred while the taxpayer is away from home on income-producing activities. However, at paragraph 91 of TR 98/9 it is stated that where a taxpayer has established a new home, such expenditure is private or domestic and therefore non-deductible.

Paragraph 93 of TR 98/9 states that the key factors to be taken into account in determining whether a new home has been established (and therefore whether food and accommodation expenditure incurred by an employee will be deductible) include:

a. the total duration of the travel;

b. whether the taxpayer stays in one place or moves frequently from place to place;

c. the nature of the accommodation, e.g., hotel, motel, long term accommodation;

d. whether the taxpayer is accompanied by his or her family;

e. whether the taxpayer is maintaining a home at the previous location while away. The fact that the taxpayer did not maintain a home while away for an extended period was the decisive factor in characterising expenditure on accommodation and meals as private 'living expenses' in a series of Board of Review decisions; and

f. the frequency and duration of return trips to the previous location.

Question 1

Is the allowance paid by the employee to an employee a living-away-from-home allowance in accordance with subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986?

Under the arrangement, the employee was seconded by the employer from overseas to an Australian based position.

The employer paid the employee an allowance to cover additional food and accommodation expenses while he was in Australia.

In applying subsection 30(1) of the FBTAA to the allowance paid to the employee, the allowance will be a LAFHA if the following requirements are met:

1. the allowance is paid in compensation for additional expenses that arise by reason that the duties of the employee's employment require the employee to live away from the normal residence, and

2. the additional expenses are non-deductible expenses.

These requirements are considered below.

1. Is the allowance is paid in compensation for additional expenses that arise by reason that the duties of the employee's employment require the employee to live away from the normal residence?

The employee normally works overseas and was seconded by the employer to Australia for an expected period of approximately 2 years.

It is accepted that the employee's normal residence is in overseas and the duties of the employee's employment have required the employee to live away from the normal residence

Further, the allowance paid to the employee by the employer was paid to cover additional food and accommodation expenses for part of the period the employee is in Australia.

Therefore, it is accepted that the allowance is paid in compensation for additional expenses that arise by reason that the duties of the employee's employment require the employee to live away from the normal residence and the first requirement is met.

2. Are the additional expenses non-deductible expenses?

The employer paid the employer a daily allowance in compensation for additional expenses the employee incurred while on secondment in Australia. The allowance was paid to cover additional food and accommodation expenses while in Australia.

As discussed above, paragraph 5 of TD 93/120 and paragraph 93 of TR 98/9 provide a list of factors to be considered in determining whether food and accommodation expenses are deductible when incurred by an employee where the employee is away from home on income-related activities.

In relation to one of the factors listed above in TD 93/120, that is, that the employees in RTA were only away from home for relatively short periods of time, it is noted that it is anticipated that the employee is expected to be away from the overseas home for a period of at least 2 years. Such a period of time can be distinguished from the employees in RTA who are were required to camp away from their residence for periods ranging from 12 days to 249 days.

In relation to the factors listed above in paragraph 93 of TR 98/9 the following is noted in regards to the employee's circumstances:

a. expected to be away for at least 2 years;

b. is expected to stay in one place during his time in Australia;

c. is expected to stay in rental accommodation for the majority of time in Australia;

d. has not accompanied to Australia by family;

e. maintains a home overseas while in Australia; and

f. is entitled to reunion trips to overseas home base while in Australia.

Taking into account the employee's circumstances and weighing up the factors to be considered as listed in TD 93/120 and TR 98/9, the Commissioner determines that the additional expenses for food and accommodation that arise by reason that the duties of the employee's employment require the employee to live away from the normal residence are not deductible.

Therefore, the second requirement is met.

Conclusion

Both of the requirements for the allowance paid to employee 1 to be a LAFHA are met.

Therefore, the allowance paid by the employer to the employee is a LAFHA in accordance with subsection 30(1) of the FBTAA.

Question 2

Is the allowance paid by the employee to several employees a living-away-from-home allowance in accordance with subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986?

Under the arrangement, the employer requires several employees to move to Australia from overseas for approximately 10 weeks.

The employer will pay the employees a daily allowance to cover additional meals and sundries while they stay in Australia.

In applying subsection 30(1) of the FBTAA to the allowances paid to the employees, the allowances will be a LAFHA if both of the following requirements are met:

1. the allowances are paid in compensation for additional expenses that arise by reason that the duties of the employees' employment require them to live away from their normal residence, and

2. the additional expenses are non-deductible expenses.

These requirements are considered below.

1. Are the allowances paid in compensation for additional expenses that arise by reason that the duties of the employees' employment require them to live away from their normal residence?

The employees normally work overseas and are to be seconded by the employer to Australia on an expected period of approximately 10 weeks. The employees will be unaccompanied. While in Australia the employees will stay in hotel accommodation.

It is accepted that the employees' normal residence is overseas and the duties of their employment will require them to live away from their normal residences.

Further, the allowances paid to the employees by the employer will be paid to cover additional meals and sundries for the period they are in Australia.

Therefore, it is accepted that the allowances are paid in compensation for additional expenses that arise by reason that the duties of the employees' employment require them to live away from their normal residences and the first requirement has been met.

2. Are the additional expenses non-deductible expenses?

The employer will pay the employees a daily allowance for a period of approximately 10 weeks in compensation for additional expenses they are expected to incur during their stay in Australia. The additional expenses are in relation to additional meal and sundries.

As discussed above, paragraph 5 of TD 93/120 and paragraph 93 of TR 98/9 provide a list of factors to be considered in determining whether food and accommodation expenses are deductible when incurred by an employee where the employee is away from home on income-related activities.

In relation to the 4 factors listed above in TD 93/120, the Commissioner considers that the circumstances of the employees in relation to their visit to Australia are consistent with all of those factors for the following reasons:

a. the employees are required by the employer, as an incident of their employment, to live close by their work;

b. the employees are only expected to be away from their overseas homes for a period of approximately 10 weeks which is consistent with the periods of time the employees in RTA were required to camp away from their normal residences (being periods ranging from 12 days to 249 days);

c. the employees have no choice but to stay in Australia to live to take up their employment in Australia; and

d. the employees have a permanent home elsewhere.

In relation to the factors listed above in paragraph 93 of TR 98/9 the following is noted in regards to the employees' circumstances:

a. they are expected to be away from for approximately 10 weeks;

b. they are expected to stay in one place during their time in Australia;

c. they will stay in hotel accommodation and will not get long term accommodation while in Australia;

d. their families have not accompanied them to Australia;

e. they will maintain their overseas homes while in Australia; and

f. they are not entitled to reunion trips to their overseas home bases while in Australia.

Taking into account the employees' circumstances and weighing up the factors to be considered as listed in TD 93/120 and TR 98/9, the Commissioner determines that the additional expenses for food and sundries that arise by reason that the duties of their employment will require them to live away from their normal residence are deductible.

Therefore, the second requirement is not met.

Conclusion

Both of the requirements for the allowance paid to the employees to be a LAFHA are not met.

Therefore, the allowances paid by the employer to the employees are not a LAFHA in accordance with subsection 30(1) of the FBTAA.