Edited version of your written advice

Authorisation Number: 1012778817155

Ruling

Subject: Travel allowance or Living-Away-From-Home allowance

Question 1

Is the allowance paid to the employees a Living-Away-From-Home allowance (LAFHA)?

Answer

No

Question 2

Is the allowance paid to the employees a travel allowance?

Answer

Yes

This ruling applies for the following periods

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

Year ended 30 June 2017

Relevant facts

The taxpayer is in the business of providing repair and maintenance services to client assets.

Employees are allocated to a project site to undertake the repairs and maintenance.

Employees who are required to work more than 10 hours per day at a location that is more than 50 kilometres from their home are paid an allowance to cover the cost of their accommodation.

Whilst working on site, these employees:

• report to and are provided with direction and management from the Company who were and still are responsible for the salary and employment benefits of the relevant individuals; and

• generally work for up to three weeks depending on whether the project relates to ongoing maintenance or unplanned outages, or between six and ten weeks. For the longer periods, the work arrangements are such that the employee may have several rest days whilst at site (e.g. 6 days on/1 day off or 13 days on/1 day off);

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 30(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Income Tax Assessment Act 1997 Section 900-30(3)

Reasons for decision

Under the terms of the employment agreement employees working more than 50 kilometres from their home receive an allowance to cover the cost of their accommodation at the worksite. To receive this allowance, employees are required to provide a proof of their home location.

Living-away from-home allowance

Section 30 of the Fringe Benefits Tax Assessment Act 1986 (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.

1. Is the allowance paid to the employees a Living-Away-From-Home allowance (LAFHA)?

Under the arrangement, employees required to work at a location more than 50 kilometres from their home receive an allowance to cover the cost of the accommodation.

In applying subsection 30(1) of the FBTAA to this allowance, 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 him or her to live away from his 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 employment require the employee to live away from his or her normal residence?

The allowance is paid to employees required to work more than 10 hours on a day whose usual place of residence is more than 50 kilometres from a designated workplace. The employee is expected to use accommodation, such as motels, hotels, caravan parks, in the vicinity of a project site.

It is accepted that in obtaining this accommodation the employees will incur expenses that would not have been incurred if the employee had not been required to stay away from his or her normal residence.

Therefore, the first requirement is met.

1. Are the additional expenses non-deductible expenses?

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.

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

• the employees are only expected to be away from their homes for a period of up to 70 days 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);

• the employees have no choice but to reside at the work locations; and

• the employees have a permanent home elsewhere.

Therefore, the factors are consistent with the circumstances in RTA.

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 home for up to 70 days;

b. during this time they will stay in one location, but may move to another location if they are employed on another project;

c. they will stay in short term accommodation such as motels or caravan parks;

d. their families do not accompany the employees;

e. the employees maintain their homes while at the project sites; and

f. do not return to their homes while working on a project.

Taking into account the employees' circumstances and weighing up the factors to be considered as listed in TD 93/120 and TR 98/9, it is accepted that the additional expenses for accommodation are deductible expenses.

Therefore, the second requirement is not met.

Conclusion

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

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

2. Is the allowance a travel allowance?

As the allowance is not a LAFHA, it will not be a fringe benefit. Instead, it will form part of the employee's assessable income.

Generally, an allowance paid to an employee is subject to PAYG withholding and required to be shown on the employee's payment summary. However, these requirements do not apply to certain allowances.

The allowances which are subject to a varied rate of withholding are listed in Table 2 of the publication Withholding from allowances. The listed allowances include Domestic or overseas travel allowance involving an overnight absence from the employee's ordinary place of residence which do not exceed the reasonable amounts set out in the annual Taxation Determination issued by the Commissioner.

Further guidance in relation to whether an allowance is a travel allowance is provided in the publication Travel allowances and PAYG withholding which states:

A travel allowance is a payment made to an employee to cover expenses that are:

incurred when your employee travels away from their home in the course of their duties

for accommodation, food, drink or incidental expenses related to the travel.

Section 900-30(3) of the ITAA 1997 in defining a travel allowance states:

A travel allowance is an allowance your employer pays or is to pay to you to cover losses or outgoings:

(a) that you incur for travel away from your ordinary residence that you undertake in the course of your duties as an employee; and

(b) that are losses or outgoings for accommodation or for food or drink, or are incidental to the travel.

The travel may be within or outside Australia.

In applying this definition it is accepted that the allowance is a travel allowance as it is paid to employees who work away from their normal residence at a project site for a relatively short period of time before returning home or moving to another project site for a similar period of time.