Edited version of your written advice

Authorisation Number: 1012858241060

Date of advice: 24 August 2015

Ruling

Subject: Fringe benefits tax - living away from home allowance

Question 1

In the event that the employee is granted a permanent resident visa in Australia, will the allowance described in the Employment Agreement as 'Living Away From Home Allowance' be a living-away-from-home allowance benefit as described in subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No

Question 2

In the event that the employee is granted a permanent resident visa in Australia, will the grossed up value of the allowance described in the Employment Agreement as 'Living Away From Home Allowance', be included in the calculation of the employer's aggregate non-exempt amount?

Answer

No. The allowance will not be included in the calculation of the employer's aggregate non-exempt amount, as it is not a living-away-from-home allowance.

This ruling applies for the following periods:

Year ended 31 March 2016

Year ended 31 March 2017

Year ended 31 March 2018

Relevant facts and circumstances

The employee was initially employed under an Employment Agreement signed in 20XX for a four year period.

As part of the remuneration package, the employee is paid an allowance described as 'Living Away From Home'.

In December 20XX a second Employment Agreement was signed. This second agreement was for the period until 20XX.

The terms of the second agreement were similar to those in the original Employment Agreement.

The employee was born in Country A and is a citizen of country A.

They have lived and worked in a number of countries throughout their life.

In 19XX, the employee and their spouse purchased a property in country A and they lived there for X years before moving to Country B in 19XX. From 19XX to 19XX the property was rented out, but has since been used by the employee and their family predominantly as a holiday retreat during their visits to Country A.

In 19XX, the employee and their moved to Country B, and purchased a house there in 20XX. The property is fully furnished and garages two cars for use by the employee and their spouse during their visits. The property is maintained and available for the employee and their family to use at any time.

The employee maintains health insurance and bank accounts in Country B, is in receipt of a pension in Country B, and pays taxes there.

In 20XX, the employee took an employment position in Country A and purchased another property at which they resided during the week. The employee usually returned to the property in Country B at the weekends.

In 20XX, the employee commenced employment in Australia for an employer that is exempt from FBT (subject to the relevant cap).

The employee came to Australia under a four year Temporary Work (Skilled) visa (subclass 457) (457visa).

Since 20XX, the employee and their spouse have lived in a rental property in Australia. They return to Country B usually twice a year and stay in their property when they do so. They also usually take the opportunity to return to Country A to see extended family and friends. On visits to Country A, the employee and their spouse stay in the property that they own.

Since the employee and their spouse moved to Australia in 20XX, their two children have returned to the property in Country B to live for varying periods of time. One of their children lives and works in Country B.

The other child came to Australia in 20XX under a 457 visa. They intend to return to Country B at or before the completion of their visa in 20XX.

The employee has made an application for a permanent resident visa in Australia for the following reasons:

(a) in order to gain access to Government funding;

(b) to ease the stress on the employee's spouse who would be required to leave the country within 28 days in the event they passed away while on a 457 visa; and

(c) to enable the employee and their spouse to purchase a property in Australia.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Section 30

Fringe Benefits Tax Assessment Act 1986 Section 31

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Reasons for decision

1. In the event that the employee is granted a permanent resident visa in Australia, will the allowance described in the Employment Agreement as 'Living Away From Home Allowance' be a living-away-from-home allowance benefit as described in subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Section 30 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) sets out the circumstances in which an allowance will be a living-away-from-home allowance.

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 summarising the requirements of subsection 30(1), an allowance will be a living-away-from home-allowance if:

(a) it is reasonable to conclude from all the surrounding circumstances that some or all of the allowance is in the nature of compensation to the employee for:

• additional non-deductible expenses incurred by the employee during a period; or

• additional non-deductible expenses and other additional disadvantages to which the employee is subject during a period; and

(b) the additional expenses and other disadvantages arise because the duties of employment require the employee to live away from his or her normal place of residence.

(a) Is the allowance paid for additional non-deductible expenses?

The allowance is comprised of an accommodation and a food component.

The accommodation component is paid to compensate the employee for the accommodation expenses incurred by the employee in residing in Australia.

The food component is paid to compensate the employee for the additional food expenses incurred by the employee and family members.

The employee is not able to claim an income tax deduction for these expenses.

(b) Do the additional expenses arise because the employee is required to live away from their normal place of residence in order to perform the duties of employment?

Subsection 136(1) defines 'normal residence' to mean:

(a) if the employee's usual place of residence is in Australia - the employee's usual place of residence; or

(b) otherwise - either:

(i) the employee's usual place of residence; or

(ii) the place in Australia where the employee usually resides when in Australia.

The FBTAA does not define 'usual place of residence'. However, in subsection 136(1) it does define a 'place of residence' to mean:

(a) a place at which the person resides; or

(b) a place at which the person has sleeping accommodation;

whether on a permanent or temporary basis and whether or not on a shared basis.

In the period being considered, the employee will have residences in Country A, Country B and Australia.

Guidelines for determining which of these locations is the usual place of residence are provided by Miscellaneous Taxation Ruling MT 2030 Fringe benefits tax: living-away-from-home allowance benefits (MT 2030).

Paragraphs 15 to 18 refer to various decision of Taxation Boards of Review relating to the former section 51A of the Income Tax Assessment Act 1936 (ITAA 1936). In referring to these decisions paragraph 14 of MT 2030 states:

As the decisions illustrate, the question whether an employee is living away from his or her usual place of residence normally involves a choice between two places of residence, i.e., the place where the employee is living at the time or some other place. A person is regarded as living away from a usual place of residence if, but for having to change residence in order to work temporarily for his employer at another locality, the employee would have continued to live at the former place. It would be relevant in reaching that view that there is an intention or expectation of the employee returning to live at the former place of residence on cessation of work at the temporary job locality. This would be relevant even if the employee is living in temporary quarters close to a temporary job site.

Further discussion occurs at paragraphs 19 to 25. Paragraphs 19 and 20 provide the following general rules:

19. An underlying theme of the cases is a general presumption that a person's usual place of residence will be close to the place where he or she is permanently employed. Correspondingly, an employee who changes his or her place of residence because of a change in the location of a permanent job, whether by reason of a transfer with the same employer or a change of employment, would not usually be living away from home on moving to a new place of residence close to the new job location. That would be the case notwithstanding that the new place of residence was a temporary one pending the obtaining of suitable long term accommodation.

20. Employees who move to a new locality to take up a position of limited duration with an intention to return to the old locality at the end of the appointment would generally be treated as living away from their usual place of residence. For example, a construction worker having to travel to a construction site to live and work would be in this category unless he had abandoned the former place of residence upon moving to the locality of the site. A case of the latter situation would be where the employee decided to permanently leave the former home, e.g., if a resident of Sydney, on obtaining a job for two years on a construction site in a remote part of Western Australia, decided to "sell up" in Sydney and move permanently to Western Australia to live.

As an example of the application of the general rule in paragraph 20, paragraph 22 states:

Examples of employees on appointments of finite duration who will generally be living away from their usual place of residence are foreign nationals employed in Australia on a temporary basis and Australian residents (e.g., export consultants, diplomats, immigration officials, etc.) stationed in a foreign country for a time. Provided the appointment is for a limited period and the employee can be expected in the normal course to return to the same city or district of the home country to live, the employee may be treated as living away from his or her usual place of residence.

An alternative general rule is contained in paragraph 21 which states:

Some employees may be unable to establish that they are living away from their usual place of residence because the transitory nature of their lifestyle means that their usual place of residence is wherever they happen to sleep at night. Employees who follow the job, say, from construction site to construction site and have no permanent place of residence would fit into this particular category.

In providing examples of occupations to which this general rule may apply, paragraph 25 states:

… certain kinds of occupations have a career structure which brings with it the necessity to accept regular transfers from one location to another, e.g., police officers, school teachers, members of the defence force, bank employees, etc. Employees in these situations will generally not be treated as living away from home when they move on transfer to live in proximity to the current work place. That will be the case even if the employee owns a home elsewhere in which he or she eventually intends to reside.

These principles and the various cases that have considered usual place of abode or usual place of residence were discussed by the Administrative Appeals Tribunal in Compass Group (Vic) Pty Ltd (as trustee for White Roche & Associates Hybrid Trust) v FC of T [2008] AATA 845; 2008 ATC 10-051 (Compass). At paragraph 56, Deputy President S A Forgie said:

56. Putting to one side the case of Case 50, all cases looked to the taxpayer's place of residence before he or she acquired another place of residence. Each looked to the taxpayer's continuing connection with the first place of residence including matters such as whether his or her family continued to live there, the frequency of the taxpayer's visits there and whether or not that was a place to which the taxpayer could return at will if he or she so wished. Also relevant was the nature of the employment and whether the move to another place was a temporary or permanent move.

In considering the factors referred to in MT 2030 and in Compass, it is necessary to balance the factors that indicate Australia is the usual place of residence against those that indicate the employee is living away from the usual place of residence as there is no one factor is determinative. In so doing, the factors can be summarised as follows:

In considering these factors, it is acknowledged that:

• the employee has maintained a connection with Country B which appears to have been the employee's usual place of residence of the employee when the employee commenced working in Australia;

• the appointment was for a limited duration (4 years); and

• the terms of the 457 visa required the employee to leave Australia at the end of their appointment.

On the basis of these factors it is accepted that the relevant general rule that applied to the employee when they first arrived in Australia is the rule contained in paragraphs 20 and 22 of MT 2030. That is, when the employee commenced their employment, the expenses for which the allowance was paid were incurred by reason that the duties of employment required the employee to live away from their normal residence (in Country B).

However, since that time, the employee's appointment was extended to a seven year period (in 20XX) and an application for a permanent resident visa was made in 20XX. In your application you advised that the application for permanent resident visa was made:

• to enable the employee to obtain funding from the relevant Government body;

• to relieve the stress that would be felt by the employee's spouse on being required to leave Australia within 28 days of the employee passing away if the employee remained on a 457 visa; and

• to enable the employee to purchase a residence in Australia without being required to seek approval from the Foreign Investment Review Board (FIRB). This was due to the rental living arrangement being unsuitable and disruptive.

In considering these reasons, a question arises as to why it took four years for the application to be made if it was required to obtain funding and overcome the stresses associated with being on a 457 visa.

Further, with the passage of time, the changing of residency status and the purchase of a residence in Australia, the factors listed above as indicating that Country B was the normal residence become less significant as:

• the employee will have a stronger tie with the Australian property than the property in Country B as it is the property that is closer to the place at which he is permanently employed;

• the employee has been in Australia for a five year period;

• the employee's spouse and one of the two children is in Australia; and

• although the appointment is limited to a seven year period, there is no requirement for the employee to return to Country B at that time.

As a result, the balancing of the factors that indicated that Country B was the normal residence, rather than Australia has changed and the normal residence will be considered to be in Australia.

Therefore, In the event that the employee is granted a permanent resident visa in Australia the allowance will cease to be a living-away-from-home allowance as the employee is not considered to be living away from their normal residence.

2. In the event that the employee is granted a permanent resident visa in Australia, will the grossed up value of the allowance described in the Employment Agreement as 'Living Away From Home Allowance', be included in the calculation of the employer's aggregate non-exempt amount?

In general terms, benefits that would be fringe benefits for other employers are exempt benefits under section 57A of the FBTAA. However, the exemption is limited to a grossed-up value per employee.

The amount by which the grossed-up value of the benefits provided to an individual employee exceeds the relevant cap is the aggregate non-exempt amount on which you are liable to pay fringe benefits tax.

The allowance will only be included in this calculation if it is a living-away-from-home allowance. As discussed above, the allowance will cease to be a living-away-from-home allowance if the employee is granted a permanent resident visa. At that point in time, the allowance will cease to be included in the calculation of the employer's aggregate non-exempt amount and will become assessable income of the employee.