Edited version of your written advice

Authorisation Number: 1012972381094

Date of advice: 24 February 2016

Ruling

Subject: FBT - provision of accommodation

Question 1

Will a fringe benefits tax (FBT) liability arise under the Fringe Benefits Tax Assessment Act 1986 (FBTAA) from the provision of accommodation or reimbursement of accommodation expenses by Employer X to temporary employees?

Answer:

No

This ruling applies for the following periods:

1 April 2016 to 31 March 2020

The scheme commences on:

1 April 2013

Relevant facts and circumstances

Employer X is an Australian resident employer.

The volume of Employer X's work varies throughout the year.

During peak periods, Employer X uses the services of employees of an overseas based employer.

While the temporary employees are in Australia the home country employer continues to pay their net fixed salaries. The temporary employees remain tax residents of their home country and continue to be subject to tax in their home country.

The home country employer does not have a permanent establishment in Australia.

The temporary employees enter into an Australian work agreement with Employer X. This agreement outlines the working conditions including duration of assignment, normal working house, work location and dress standard.

This work agreement is to be read in conjunction with the employee's home work agreement.

Employer X bears the responsibility for any work produced by the employees.

The temporary employees:

• arrive in Australia with a valid work visa;

• are not able to bring their family; and

• retain a permanent home elsewhere to which they will return at the conclusion of their assignment.

Employer X covers the accommodation costs of the temporary employees for the duration of their stay. Depending on the specific circumstances, Employer X will either provide the accommodation or reimburse the temporary employee for the accommodation costs that they pay.

The accommodation will only be provided for the duration of the working period plus two days before and after.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act section 20

Fringe Benefits Tax Assessment Act subsection 136(1)

Fringe Benefits Tax Assessment Act section 137

Income Tax Assessment Act 1997 section 8-1

Taxation Administration Act 1953 section 12-35

Reasons for decision

Will an FBT liability arise from the provision of accommodation or reimbursement of accommodation expenses incurred by the temporary employees?

In general terms a fringe benefits tax liability will arise when a fringe benefit is provided to an employee. However, a liability will not arise if an exempt benefit is provided, or if the taxable value of the fringe benefit is nil.

A fringe benefit is defined as follows in subsection 136(1) of the FBTAA:

fringe benefit , in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit:

(a) provided at any time during the year of tax; or

(b) provided in respect of the year of tax;

being a benefit provided to the employee or to an associate of the employee by:

(c) the employer; or

(d) an associate of the employer; or

(e) a person (in this paragraph referred to as the arranger) other than the employer or an associate of the employer under an arrangement covered by paragraph (a) of the definition of arrangement between:

(i) the employer or an associate of the employer; and

(ii) the arranger or another person; or

(ea) a person other than the employer or an associate of the employer, if the employer or an associate of the employer:

(i) participates in or facilitates the provision or receipt of the benefit; or

(ii) participates in, facilitates or promotes a scheme or plan involving the provision of the benefit;

and the employer or associate knows, or ought reasonably to know, that the employer or associate is doing so;

in respect of the employment of the employee, but does not include:

(f) a payment of salary or wages or a payment that would be salary or wages if salary or wages included exempt income for the purposes of the Income Tax Assessment Act 1936; or

(g) a benefit that is an exempt benefit in relation to the year of tax; or

(h) …

For this definition to apply there must be a benefit provided to an employee or an associate of an employee.

Has a benefit been provided?

The definition of the term 'benefit' in subsection 136(1) of the FBTAA provides that a benefit includes:

any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under:

(a) an arrangement for or in relation to:

(i) the performance of work (including work of a professional nature), whether with or without the provision of property;

(ii) the provision of, or of the use of facilities for, entertainment, recreation or instruction; or

(iii) the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction;

(a) a contract of insurance; or

(b) an arrangement for or in relation to the lending of money.

Under the arrangement Employer X will either provide the employees with accommodation or will reimburse the employees for the accommodation expenses that they have paid. Both of these will be a benefit.

Is the benefit provided to an employee or an associate of an employee?

The term 'employee' is defined under subsection 136(1) of the FBTAA as:

(a) a current employee;

(b) a future employee; or

(c) a former employee.

A 'current' employee is defined under subsection 136(1) of the FBTAA as 'a person who receives, or is entitled to receive, salary or wages.'

Salary or wages is defined in subsection 136(1) of the FBTAA to mean:

(a) a payment from which an amount must be withheld (even if the amount is not withheld) under a provision in Schedule 1 to the Taxation Administration Act 1953 listed in the table, to the extent that the payment is assessable income; …

The table referred to in the definition of salary or wages includes section 12-35 of Schedule 1 of the Taxation Administration Act 1953 (TAA) which states:

An entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity).

In the situation being considered the home country employer is paying the employees their net fixed salaries. As the home country employer is not an Australian entity and does not have a permanent establishment in Australia, the home country employer will not have a withholding obligation in relation to the fixed salary or wages.

However, section 137 of the FBTAA extends the circumstances in which a person will be deemed to be an employee. Subsection 137(1) states:

For the purpose only of ascertaining whether a person is an employee or an employer within the meaning of this Act, where:

(a) a benefit is provided by a person (in this subsection referred to as the "first person") to, or to an associate of, another person (in this subsection referred to as the "second person");

(b) but for this subsection, the benefit would not be regarded as having been provided in respect of the employment of the second person; and

(c) either of the following conditions is satisfied:

(i) if the benefit were provided by the first person by way of a cash payment to the second person, the payment would constitute salary or wages paid by the first person to the second person;

(ii) all of the following conditions are satisfied:

(A) subparagraph (i) does not apply in relation to the benefit;

(B) the first person is an associate of a third person or the benefit is provided under an arrangement between the first person and a third person;

(C) if the benefit were provided by the third person by way of a cash payment to the second person, the payment would constitute salary or wages paid by the third person to the second person;

a definition in subsection 136(1) applies as if the benefit were salary or wages paid to the second person by

In applying section 137 of the FBTAA, the temporary employees can be considered to be Employer X employees in respect of the accommodation where if Employer X had made a cash payment to the temporary employee (instead of providing accommodation or a reimbursement) Employer X would have had a withholding obligation. This will depend upon the operation of the Double Tax Agreement (DTA) with the employee's home country.

Under the relevant Article of the DTA a cash payment may be taxable in Australia. If it is, then there would be a withholding obligation under section 12-35 of Schedule 1 of the TAA and the employees will be considered to be employees for the purposes of the FBTAA.

Guidance for determining whether Employer X would be taken to be the employer if Employer X made a cash payment is provided by Taxation Ruling TR 2013/1 Income tax: the identification of 'employer' for the purposes of the short-term visit exception under the Income from Employment Article, or its equivalent, of Australia's tax treaties (TR 2013/1).

Paragraphs 6 and 7 of TR 2013/1 state:

6. The employer for the purposes of the short-term visit exception is the enterprise to which a non-resident individual renders his or her services in what would be considered an employment relationship.

Determining the employer

7. In determining who the employer is for the purposes of the short-term visit exception, the Commissioner will in each case have regard to:

• the principles and factors at paragraphs 9 to 14 arising from Australian domestic law; and

• the context, object and purpose of the short-term visit exception, especially subparagraphs b) and c).

Paragraph 13 of TR 2013/1 lists a number of factors to be taken into account when determining whether Employer X would be taken to be the employer. Paragraph 13 states:

13. Under Australian common law, the factors listed below are considered in determining whether an employment relationship exists in respect of particular arrangements. As stated in paragraph 7 of this Ruling, the Commissioner will consider these factors in determining who is considered to be the employer for the purposes of the short-term visit exception:

• who exercises ultimate control over the worker - the right to control in terms of the ability to withdraw a worker from an assignment and/or terminate the relationship with the worker;

• who exercises day-to-day control over the worker - that is, the degree of actual control exercised in terms of, for example, how, when and what is to be done;

• integration - the nature of the services rendered by the worker and whether they are an integral part of the business activities carried on by the enterprise to which the services are provided;

• the terms of engagement - for example, entitlements to leave and who has obligations to deduct PAYG instalments, pay superannuation contributions and workers' compensation insurance;

• who is responsible for payment of remuneration for the worker's services;

• who bears the responsibility or risk for the results produced by the worker;

• whether or not the contract is for the achievement of a specified result;

• who provides or maintains the necessary equipment and resources to perform the work; and

• whether or not the work can be delegated by the worker.

14. The relevance of and weighting given to a particular factor may vary according to the circumstances. No one factor is determinative.

As set out in the Private Ruling application, an analysis of these factors based on the influence and control that Employer X has over the employees whilst they are in Australia leads to the conclusion that Employer X would be considered to be the employer if Employer X made a cash payment.

Therefore, as Employer X would be the employer if a cash payment was made, the employees are treated as Employer X employees for the purposes of the FBTAA in respect of the provision of the accommodation or reimbursement of accommodation expenses.

Is the benefit provided by the employer?

The term 'employer' is defined under subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) as:

(a) a current employer;

(b) a future employer; or

(c) a former employer….

A 'current' employer' is defined under subsection 136(1) of the FBTAA to mean 'a person (including a government body) who pays, or is liable to pay, salary or wages, and includes: …'.

As discussed above, subparagraph 137(1)(c)(i) applies to this situation and Employer X is considered to be the employer.

Therefore, the benefit will be provided by the employer.

Is the benefit provided in respect of the employment of the employee?

The phrase 'in respect of' in relation to the employment of an employee is defined in subsection 136(1) of the FBTAA to include 'by reason of, by virtue of, for or in relation directly or indirectly to, that employment'.

The meaning of this phrase was considered by the Federal Court in J & G Knowles v. Federal Commissioner of Taxation [2002] 96 FCR 402; 2000 ATC 4151; 44 ATR 22 (Knowles) and Starrim Pty Ltd v. Federal Commissioner of Taxation [2000] FCA 952; 2000 ATC 4460; 44 ATR 487 (Starrim).

In Knowles the Full Federal Court considered the judgements in Smith v. FCT (1987) 164 CLR 513; 19 ATR 274; 87 ATC 4883 and Federal Commissioner of Taxation v. Rowe (1995) 60 FCR 99; 31 ATR 392; 95 ATC 4691 before concluding that it is not sufficient for the purposes of the FBTAA to conclude that there is a causal connection between the benefit and the employment.

At paragraph 26 the Court said:

Whatever question is to be asked, it must be remembered that what must be established is whether there is a sufficient or material, rather than a, causal connection or relationship between the benefit and the employment

At paragraphs 28 and 29, the Court said:

While the width of the definition of "fringe benefit" was designed to capture benefits that, in truth, were other than remuneration, the stated purpose suggests that asking whether the benefit is a product or incident of the employment will be helpful. If it is not then the benefit is likely to be extraneous to the employment and will not bear FBT, notwithstanding that the employment might have been a causal factor in the provision of the benefit. In particular, the fact that a benefit is provided to a director because it was authorised by that director will not, of itself, be sufficient to characterise the benefit as one which is "in respect of" the employment. Without more, it is not a product of incident of that office.

To put the matter another way, although the process of characterising the benefit provided in a particular case can involve questions of fact and degree, it is not sufficient for the purposes of the FBTAA merely to enquire whether there is some causal connection between the benefit and the employment: see FCT v Rowe (1995) 60 FCR 99 at 114 and 123; 31 ATR 392 at 404 and 412; 95 ATC 4691 at 4703 and 4710. Although Brennan, Deane and Gaudron JJ observed in Technical Products (at 47), that the requisite connection will not exist unless there is "some discernible and rational link" between the 2 subject matters which the statute requires to be linked, as was pointed out by Dawson J (at 51), the connection must be "material".

The fact that Employer X only provides accommodation, or reimburses the accommodation expenses of the employees whilst they are undertaking employment duties provides the necessary material connection referred to in Knowles. It is the reason for the benefit being provided.

Therefore, the benefit has been provided in respect of the employment of the employee.

Does the benefit come within paragraphs (f) to (s) of the fringe benefit definition in subsection 136(1) of the FBTAA?

A benefit that comes within paragraphs (f) to (s) of the fringe benefit definition in subsection 136(1) of the FBTAA will not be a fringe benefit. For the purposes of this Ruling the relevant paragraph to consider is paragraph 136(1)(g) of the FBTAA which provides that an exempt benefit will not be a fringe benefit.

In considering whether the benefit is a fringe benefit it is necessary to initially determine the type of benefit that has been provided.

Under the arrangement Employer X will either provide accommodation to the employees, or will reimburse the accommodation expenses paid by the employees.

The provision of accommodation to an employee who is living away from their usual place of residence will be a residual benefit as defined in section 45 of the FBTAA as it does not come within a provision of Subdivision A of Divisions 2 to 11 of the FBTAA. Alternatively, a reimbursement will be an expense payment benefit as it comes within paragraph 20(b) of the FBTAA.

A benefit that is either an expense payment benefit or a residual benefit may be an exempt benefit where it is provided to an employee who is required to live away from his or her normal residence to perform their duties of employment. For the purpose of this Ruling the relevant exemptions are contained within section 21 of the FBTAA (expense payment benefit) and subsection 47(5) of the FBTAA (residual benefit).

Alternatively, the benefits may be an exempt benefit under either section 20A or section 47A of the FBTAA if they are covered by a no-private-use declaration.

Will the benefits be exempt benefits under either section 21 or subsection 47(5) of the FBTAA?

Since 1 October 2012, for either section 21 or subsection 47(5) of the FBTAA to apply it is necessary for the employee to satisfy:

• sections 31C and 31D; or

• section 31E if the employee is a fly-in fly-out and drive-in drive-out employee.

As the employees are not fly-in fly-out and drive-in drive-out employees the relevant exemption will not apply if either section 31C or section 31D are not satisfied.

Section 31C requires the employee to maintain a home in Australia that continues to be available for the employee's immediate use and enjoyment during the period that the duties of employment require the employee to live away from it.

As the employees do not have a home in Australia that they are required to live away from the exemptions in section 21 and subsection 47(5) of the FBTAA will not apply.

Will the benefits be exempt benefits under either section 20A or section 47A of the FBTAA?

Subsection 20A(2) of the FBTAA enables an employer to make a no-private-use declaration for expense payment benefits that arise from payments or reimbursements for which the employee would have been able to claim an income tax deduction if the cost had not been paid or reimbursed by the employer. Similarly, section 47A of the FBTAA enables an employer to make a no-private declaration for residual benefits that the employee would have been able to claim an income tax deduction for.

Would the employee who received the benefit have been entitled to claim a deduction for the benefit?

Section 8-1 of the Income Tax Assessment Act 1997 outlines that individuals can deduct from their assessable income any loss or outgoing to the extent that 'it is incurred in gaining or producing your assessable income...'

Paragraph 5 of Tax Determination TD 93/230 Income tax and fringe benefits tax: is a camping allowance assessable under section 30 of the Fringe Benefits Tax Assessment Act 1986 or under Division 6 of the Income Tax Assessment Act 1997? (TD 93/230) provides that:

5. Hill J. in Roads and Traffic Authority of NSW v FC of T 93 ATC 4508 recently considered a camping allowance where the allowance was found not to be a living-away-from-home allowance as the expenses would have been deductible under section 51 of the ITAA had they been incurred by the employee. The factors taken into account by Hill J. in determining whether section 51 would have applied to the expenses in that case included:

(a)  the employee was required by the employer, as an incident of their employment, to live close by their work;

(b)  the employee was only living away from home for relatively short periods of time;

(c)  the employee did not choose to live at the places where the camp sites were located; and

(d)  the employee had a permanent home elsewhere.

Furthermore, paragraph 4 of Taxation Determination TD 96/7 Fringe Benefits Tax: is fringe benefits tax 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? (TD 96/7) provides guidance as to whether the 'otherwise deductible' rule will apply to reduce the taxable values of meals provided to employees who are not travelling for work purposes. The following factors are relevant to consider and can be applied to your circumstances:

(a) is the assignee required to live close by work;

(b) does the assignee have a permanent residence away from the work site;

(c) does the assignee live away from home for a relatively short period of time; and

(d) does the assignee have any choice as to the location of the accommodation provided.

(a) Is the employee required to live close by work?

The purpose of hiring temporary employees is to meet Employer X's short term resource requirements. Employees are required to move from their overseas homes to Australia to work in Employer X's offices and consequently live close by work as it is not practical for the employees to travel to and from Australia on a daily basis.

(b) Has the employee a permanent residence away from the work site?

Employees come to Australia for approximately three months on a sponsored business visa to work. They only come to Australia temporarily and are not encouraged to bring their families. They maintain their overseas residence to which they will return once the secondment finishes.

Paragraph 93 of Taxation Determination TR 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business (TR 98/9) provides key factors to consider in determining whether a new home has been established. In these circumstances, employees do not establish a new home in Australia and their permanent residence remains in the overseas country.

(c) Does the employee live away from home for a relatively short period of time?

Paragraph 41 of Miscellaneous Taxation Ruling MT 2030 Fringe benefits tax: living-away-from-home allowance benefits (MT 2030) provides a practical general 21 day rule that can be used to determine whether an employee is travelling or living away from home. In providing this 21 day rule, paragraph 41 of MT 2030 states that the rule is to be used in circumstances where it is not possible to conclude whether the employee is travelling or living away from home.

In applying this guideline, the fact that the employees are in Australia for more than 21 days is not sufficient to conclude that the cost of the accommodation will not be deductible.

(d) Does the employee have a choice as to the location of the accommodation provided?

When employees are provided with the offer of temporary employment in Australia, they are provided with an office location where they are required to work to meet short term resource needs. The employees are provided with appropriate housing based on the local market specifics and the length of assignment. Employees do not have a choice of the location of the accommodation as you select the housing.

Therefore, employees are not provided with a choice of accommodation.

Conclusion

Based on Employer X's circumstances and consideration to paragraph 4 of TD 96/7, it is determined that the accommodation expenses would be deductible if paid by the employee.

Therefore, no FBT liability will arise where Employer X reimburses the cost of accommodation or pays for accommodation as the benefits will be exempt benefits if Employer X makes a no-private use declaration.

Alternatively, if Employer X does not make a no-private use declaration, the benefit will be a fringe benefit, but the taxable value will be able to be reduced to a nil value using the otherwise deductible rule if Employer X obtains a declaration from the employee.