Edited version of your written advice

Authorisation Number: 1012857453424

Date of advice: 11 September 2015

Ruling

Subject: Travelling allowance

Question 1

Will the allowance paid under Policy One change from being a travelling allowance if:

(a) the employee is away from home working at a client's site for between 21 and 60 days;

(b) the employee works away from home at a client's site for between 21 and 60 days on two separate occasions separated by a period of 30 days in which the employee works at the site of a local client;

(c) the employee works away from home at a client's site for between 21 and 60 days on two separate occasions separated by a period of 14 days in which the employee has a rest and recreation period at his or her usual place of residence;

(d) the initial period of 21 to 60 days is extended to an agreed deferred return date?

Answer

(a) No

(b) No

(c) No

(d) No. However, the employee may not be considered to be travelling during the period that occurs after the extension of the agreed deferred return date.

This ruling applies for the following period:

Year ended 30 June 2016

The scheme commences on:

1 July 2015

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The employer provides services to clients.

The employees who perform these services are regularly required to work at client's premises.

The employees remain based in the location of their ordinary residence but are expected to travel to different locations to perform the requirements of their role.

The employer has commenced a project that requires employees to travel to and work at an overseas location.

There are four scenarios that are being considered:

Scenario 1:

The employee spends a continuous period of between 21-60 days working at the overseas location before returning to their ordinary place of residence in Australia.

Scenario 2:

The employee will spend a continuous period of between 21-60 days working at the overseas location before returning to their usual place of residence in Australia for a period of about 30 days. During their return, the employee will work on a separate project at a local client location. The employee will then return to the overseas location for a second and final continuous period of 21-60.

Scenario 3:

The employee will spend a continuous period of between 21 to 60 days working at the overseas location before returning to their ordinary place of residence in Australia for a 'rest and recreation period' of up to 14 days. During the return period in Australia, the employee will not perform the normal duties of their employment and will not work on any projects. The employee will then return to the overseas location for a second and final continuous period of between 21 to 60 days.

Scenario 4:

The employee is initially expected to spend a continuous period of between 21 to 60 days working at the overseas location. However, due to human resource constraints, the employee's stay at the overseas location may be extended beyond 60 days when the employer and the client agree that there is to be a deferred return date. When this occurs the 'global mobility policy' will apply.

When at the overseas location, the employee will be accommodated in a hotel room or serviced apartment near the client site paid for by either the employer or the client.

The employee will maintain a home in Australia at all relevant times and will not lease out their main residence in Australia while at the client site. The employee will not be accompanied by their spouse or family.

All employees are tax residents of Australia at all relevant times for income tax purposes.

At all times in all scenarios, the employees:

• will be subject to the terms and conditions of their employment with the employer and their business and travel policy;

• will be subject to the ultimate control of the employer;

• will accrue leave with the employer;

• will receive their salary and other employment benefits from the employer;

• will be subject to the performance review procedures of the employer, and

• will not be provided with home leave flights due to the short period of time that they are working at the overseas location.

The employer has two separate policies.

Policy One applies where the expected assignment is less than two months. This allowance which will be paid in each of the four scenarios includes a daily allowance intended to cover meals and incidentals, which is been based on the reasonable travel allowance rates published annually by the ATO.

Policy Two applies to continuous absences of at least two months provides benefits normally associated with a change of residence such as a potential accompaniment by family members. It does not specifically include allowances for meals and incidentals.

For situations such as scenario 4 where a short term assignment is extended, Policy One will cease at such time as the employer and the client agree that there is to be a deferred return date, at which point Policy Two will apply.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 30

Fringe Benefits Tax Assessment Act 1986 section 136

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Will the allowance paid under Policy One change from being a travelling allowance in the given scenarios?

The allowance paid under Policy One is an allowance to cover the meals and incidentals expenses incurred by employees required to stay away from home whilst working at a client's site for a period that is less than 60 days.

In general terms, an allowance paid to an employee to cover expenses incurred by the employee whose duties of employment require the employee to stay away from his or her normal residence home may be one of the following:

• a travel allowance when it is paid to an employee who is travelling in the course of performing their job; or

• a living-away-from-home allowance (LAFHA) when it is paid for non-deductible expenses incurred by an employee who is required to live away from his or her normal residence in order to carry out their employment duties; or

• an allowance if it is paid for deductible expenses incurred by an employee who is required to stay away from home, but is not travelling.

Guidance in relation to the criteria that are considered when determining the category that applies to a particular allowance is provided in paragraphs 3 and 4 of Taxation Determination TD 96/7 Fringe benefits tax: is fringe benefits tax (FBT) payable on meals and accommodation provided to employees who work at remote construction sites, where the accommodation is not the usual place of residence of the employee? in the context of meals provided to employees who work at remote construction sites.

Paragraphs 3 and 4 of TD 96/7 state:

3. Where meals are provided, and it is concluded that the employee is travelling in the course of their employment, the taxable value of the benefit will be reduced to nil under the 'otherwise deductible' rule. The criteria for determining whether an employee is travelling in the course of performing their job are set out in paragraphs 35-43 of Taxation Ruling MT 2030. These criteria include:

* the nature of the duties performed;

* whether the employee is accompanied by dependants; and

* the length of time spent away from home.

As a practical general rule, where the question of whether or not the employee is travelling cannot easily be determined and the period away does not exceed 21 days, the employee may be accepted as travelling.

4. Guidance as to 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 is found in paragraph 5 of Taxation Ruling TD 93/230. Relevant factors to take into account include whether the employee:

* is required to live close by 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.

Again, the 21 day period mentioned in paragraph 3 above will be accepted as a relatively short period of time for the purpose of these tests.

Is the allowance a travelling allowance?

As set out in paragraph 3 of TD 96/7, the criteria for determining whether an employee is travelling in the course of performing their job are set out in paragraphs 35 to 43 of Miscellaneous Taxation ruling MT 2030 Fringe benefits tax: living-away-from-home allowance benefits.

Paragraphs 36 to 43 of MT 2030 state:

36. When an employee is travelling on business on behalf of an employer, expenses of travel are incidental to the proper carrying out of the employment function and do not have the character of being private or domestic expenses. …

37. Unlike living-away-from-home allowances, there is generally no change of employment location in relation to the payment of travelling allowances. While the expenses that they are intended to compensate for may be similar - meals and accommodation, etc., - the circumstances in which the allowances are paid are essentially different.

38. A living-away-from-home allowance is paid where the employee has moved and taken up temporary residence away from his or her usual place of residence so as to be able to carry out employment duties for a time at the new (but temporary) workplace. A travelling allowance, on the other hand, is paid because the employee is travelling in the course of performing his or her job. In the former case, there is a change of job location and an actual change of residence to a place at or near that location. In the latter, the employee does not change job locations but simply travels in order to carry out the requirements of the job.

39. Travelling allowances are often paid for comparatively short periods, exceptions being allowances paid where the employment is inherently itinerant in nature or where travelling is a regular incident of the occupation, e.g., commercial travellers, travelling entertainers, etc. Academics studying on sabbatical leave have also been held to be travelling in the course of their employment rather than living away from home and thus could receive a travelling allowance over an extended period of time.

40. The nature of an allowance is not to be determined by reference solely to the period for which it is paid. As mentioned, a travelling allowance might be paid to a commercial traveller almost continuously throughout the year whereas another employee may receive a living-away-from-home allowance only for a month or so.

41. There will be circumstances, however, when an employee is away from his or her home base for a brief period in which it may be difficult to conclude whether the employee is living away from home or travelling. As a practical general rule, where the period away does not exceed 21 days the allowance will be treated as a travelling allowance rather than a living-away-from-home allowance. For longer periods, it will be necessary to determine the nature of the allowance with the guidance provided by this Ruling.

42. An employee travelling in the course of employment ordinarily would not be accompanied by his or her spouse and family. On the other hand, it is more common for the spouse and children of an employee who has temporarily changed job locations and is living away from the usual place of residence to have his or her family living at the new location.

43. That is not to say that an unaccompanied employee should always be treated as travelling and an accompanied one regarded as living away from home. While those factors might be indicative of the nature of the employee's absence, the tests for determining the purpose of an allowance are as previously explained. To illustrate the point, an employee who lives during the working week in the country town where his permanent job is located but who travels perhaps several hundred kilometres to live during weekends with his wife and children in the family home located in another town would be, during the week, living away from home. So, too, would a married public servant based in a capital city who is seconded for six months to carry out a special task interstate in circumstances where his family stays behind in the family home. It is not where the family is that determines the nature of the allowance but where the employee is in relation to the usual place of residence and whether, on the facts, the employee can be said to be travelling on the job or living away from home.

In applying this guidance, it is agreed that where the period of time for which an employee undertakes his or her duties at a client's premises is less than 21 days the Policy One allowance will be a travelling allowance as:

• the employee's duties require the employee to work regularly change his or her work location;

• the employee is not accompanied by dependants;

• the employee has a residence to which he or she returns at the conclusion of a project; and

• the period is a short period of time.

Does the allowance change from being a travelling allowance if the employee works at a client's site for between 21 and 60 days?

Where the employee works at a client's site for more than 21 days it is necessary to consider whether the employee establishes a new home at the location where the client's site is located. Guidance for determining whether a new home is established is provided in paragraphs 93 to 109 of TR 98/9.

Paragraph 93 of TR 98/9 states:

The key factors to be taken into account in determining whether a new home has been established include:

• the total duration of the travel;

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

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

• whether the taxpayer is accompanied by his or her family;

• 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: Case N13 13 TBRD (NS) 45; 10 CTBR (NS) Case 98; Case N16 13 TBRD (NS) 65; 10 CTBR (NS) Case 99; Case N19 13 TBRD (NS) 76; Case N20 13 TBRD (NS) 79; and

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

Paragraphs 95 to 109 provide six examples that illustrate the application of these factors. For the purposes of this ruling the relevant examples are example 1 in paragraphs 95 and 96, example 3 in paragraphs 99 and 100, example 5 in paragraphs 104 to 106 and example 6 in paragraphs 108 and 109.

These paragraphs state:

95. Example 1: Elizabeth ordinarily lives with her parents in a country town outside Brisbane. She takes 4 months leave from her job to undertake a course of education at a training college in Brisbane. She shares a rented unit in Brisbane with two other students and returns to her parental home every weekend and during holiday periods.

96. The relatively short period of her stay in Brisbane and the frequency of her return visits to her parental home indicate that Elizabeth has not established a new home in Brisbane.

…

99. Example 3: Madonna undertakes a 5-month study tour in Europe. Her husband and family remain at the family home in Melbourne. The study tour involves travel to four separate locations in Europe for periods of between four and six weeks each. At each location, Madonna stays in serviced apartments.

100. The relevant factors are the short-term nature of the tour and accommodation, travel to several locations and the fact that she is maintaining a home in Melbourne. Together, they indicate that Madonna is travelling away from her home. The conclusion is the same if Madonna was accompanied by her husband and family and their Melbourne home was rented out for the period of the study tour.

…

104. Example 5: Katherine travelled overseas for 6 months to study at a university in Germany. She was accompanied by her husband and three children. An apartment suitable to accommodate the family was rented for the period of her stay and the family home in Australia was rented out.

105. The relevant factors are the period of time away, the renting of the family home and staying in one place with her family. These factors indicate that a new home was established in Germany.

106. A similar factual situation occurred in Case S80 85 ATC 589; 28 CTBR (NS) Case 88. While the case concerned the question of the appropriate apportionment of a rental expense, preliminary comments made by T J McCarthy (Member) support our view. He did not consider that any part of expenditure on accommodation was allowable as a deduction under section 8-1. He stated (85 ATC at 595; 28 CTBR (NS) at 690):

'Between ... the taxpayer was not travelling away from his home on his work. The apartment in Bonn was, and was intended to be, the family residence for five months. The older children went to school in Bonn and family life was centred in Bonn. Whilst in some cases questions of degree may be involved, I do not think there is any doubt in the present circumstances. The essential character of the rental expenditure is of a private or domestic nature.'

…

108. Example 6: Don travels to London to undertake a 3-week course of study to maintain and improve knowledge relevant to his income-earning activities. He stays in hotel accommodation until the end of the 3-week period when he decides he should extend his stay and complete a more extensive 6-month course of study. He rents an apartment and arranges for his family to join him in London.

109. Expenditure on accommodation and meals during the initial 3-week period is deductible as Don is away from home. However, depending on all the relevant facts, Don may be considered to have established a new home for the period of his stay in the apartment with his family.

In considering these factors:

• a period of less than 60 days can be considered to be a relatively short period as per examples 1 and 3;

• a 60 day stay in one place does not alter the conclusion that the employees frequently move from place to place;

• the employees stay in a hotel room or a short term serviced apartment;

• the employee is not accompanied by his or her family;

• the employee maintains a home while away which is occupied by the family;

• the employee returns to the home at the end of the period.

These factors do not indicate the employee has established a new home. Therefore, a 60 day period will not cause the allowance to change from being a travelling allowance.

Does the allowance change from being a travelling allowance if the employee returns to work at a client's site for a second period of 21 to 60 days if the two periods are separated by a 30 day period in which the employee works at the site of a local client?

The return to the client's site for a second short term period will not alter the conclusion above where the employee returns to his or her usual place of residence to work at the site of a local client between the two periods as the return to the usual place of residence does not indicate the establishment of a new home and it does not alter the pattern of regularly changing work locations.

Does the allowance change from being a travelling allowance if the employee returns to work at a client's site for a second period of 21 to 60 days if the two periods are separated by a 14 day rest and recreation period at the employee's usual place of residence?

In scenario (c) the employee works at a client's site for 120 days in a 134 day period. Although this is a longer period, the period by itself will not alter the conclusion that the allowance is a travelling allowance as:

• the period is not sufficient to indicate a change in the nature of employment from a position involving a pattern of regularly changing work locations to a position where the duties are carried out in one place;

• the nature of the accommodation does not change;

• the employee is not accompanied by family;

• the employee maintains a home at the usual place of residence; and

• the employee returns to the usual place of residence during the rest and recreation period.

Does the allowance change from being a travelling allowance if the initial period is extended?

This final scenario is comparable with example 6 in paragraphs 108 and 109 of TR 98/9. In applying that example, the allowance paid under Policy One during the initial period will be a travelling allowance for the reasons discussed above.

However, depending upon all of the relevant facts, the employee may be considered to have established a new home for the extended period in which Policy Two applies to the employee.