Edited version of your written advice

Authorisation Number: 1012897232147

Date of advice: 22 October 2015

Ruling

Subject: Fringe benefit allowance

Question and answer

Is the accommodation and living allowance you receive in respect of your foreign employment non-assessable income under section 23L of the Income Tax Assessment Act 1936?

No.

This ruling applies for the following period:

Year ended 30 June 2015

The scheme commences on:

1 July 2014

Relevant facts and circumstances

You are a statutory Australian resident employee of the Australian Commonwealth government on leave without pay.

You commenced employment with a foreign employer in a foreign country.

Under your employment contract, you are paid a monthly salary plus an additional accommodation and living allowance.

The employment contract states that the accommodation and living allowance is to assist with living expenses.

Your salary and allowances are included in your taxable income in the foreign country.

There are no deductible expenses from employment income in the foreign country.

Your employer is not registered for Fringe Benefits Tax in Australia.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 30

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Income Tax Assessment Act 1936 section 23L

Taxation Administration Act 1953 section 12-35 of Schedule 1

Reasons for decision

Broadly, the definition of 'fringe benefit' in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986) is a benefit, other than salary or wages, provided to an employee (or associate) by an employer (or associate) in respect of that employee's employment.

Fringe benefits tax is payable by employers under the FBTAA 1986 on the value of fringe benefits provided to their employees or employees associates.

Where a fringe benefit is taxed in the hands of the employer, the benefit is not assessable income and is not exempt income in the hands of the employee under section 23L of the Income Tax Assessment Act 1936 (ITAA 1936).

Conversely, where fringe benefits tax is not payable on the benefit, section 23L of the ITAA 1936 will not operate to make the allowance non-assessable to the employee.

In your situation, you are an Australian resident employee who performs work in a foreign country for a foreign employer and you receive a benefit or allowance in respect of your employment.

Taxation Determination TD 2011/1 (TD 2011/1) provides the Commissioner's view on the obligations of non-resident entities and the interaction of the Pay As You Go (PAYG) withholding and fringe benefits tax provisions in respect of benefits provided to Australian resident employees who perform work overseas.

Paragraph 2 of TD 2011/1 provides that a non-resident entity/employer that pays an Australian resident for work performed overseas must withhold an amount in accordance with section 12-35 of Schedule 1 to the Taxation Administration Act 1953 if the non-resident entity has a 'sufficient connection' with Australia.

A non-resident entity will have a sufficient connection to Australia if they have a physical business presence in Australia; that is, the entity must be carrying on an enterprise or income producing activities (paragraph 3 of TD 2011/1).

Paragraph 4 of TD 2011/1 explains that where a non-resident employer has an obligation to withhold PAYG tax from salary and wages paid to an Australian resident employee, the employer will also have an obligation under the FBTAA 1986 in relation to benefits provided in respect of the employment of the employee.

If there is no PAYG withholding obligation, amounts paid to the employee by the non-resident employer for work performed overseas will not be 'salary and wages' as defined in subsection 136(1) of the FBTAA 1986 and no obligations under the FBTAA 1986 can arise for the non-resident employer in relation to benefits provided to the employee.

Therefore, where the employer has no obligation under the FBTAA 1986, the benefit is not taxed in the hands of the employer and will be assessable income in the hands of the employee.

TD 2011/1 provides several examples in relation to the fringe benefits tax concepts discussed above. Example 2 is reproduced below:

Raj is an Australian resident for tax purposes. While on a 6 month backpacking holiday overseas, he works as a fruit-picker for a local family-owned business. He is paid by the hour and given free board and lodging. His non-resident employer has no staff or operations in Australia, and therefore no connection with Australia. Raj's wages are assessable income in Australia. However, his non-resident employer has no obligation to withhold Australian tax from the wages paid to him. As there is no obligation to withhold, no obligations under the FBTAA can arise to his non-resident employer in respect of the board and lodging provided. Raj will be required to include this employment income and the value of the benefits received from the non-resident employer in his Australian assessable income.

In your case, your non-resident employer is not registered for fringe benefits tax in Australia and consequently has no obligations under the FBTAA 1986.

Therefore, section 23L of the ITAA 1936 does not apply to your employment allowances and the amounts you receive are required to be included in your assessable income.