Edited version of your written advice

Authorisation Number: 1012989453936

Date of advice: 15 April 2016

Ruling

Subject: Fringe benefits tax - LAFHA - Travel allowance - Deductible

Issue 1 - Employees on short-term assignment

Question 1

Is the allowance paid to the employees a Living-away-from-home allowance (LAFHA) under section 30 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No

Question 2

Can the taxable value of the fringe benefits arising from the provision of the accommodation to employees be reduced to nil under section 52 of the FBTAA?

Answer

Yes

Issue 2 - Employee seconded to another organisation

Question 1a

Is the provision of accommodation to the employee seconded to Entity B exempt from fringe benefits tax under subsection 47(5) of the FBTAA for the first twelve months that the duties of employment require the employee to live away from home?

Answer

Yes

Question 1b

If the employee cannot provide the declaration, will it be a residual fringe benefit under section 45 of FBTAA?

Answer

Yes

Question 2

Are the employee's initial and final flights to and from the location of Entity B covered by the exemption under section 58F of the FBTAA?

Answer

Yes

Question 3

Does the reimbursement of family reunion travel to the employee by Entity B for travel between the location of Entity A and Entity B by the employee and/or the employee's family constitute the provision of expense payment fringe benefits under section 20 of the FBTAA?

Answer

Yes

This ruling applies for the following period(s)

Year ended 31 March 2016

Year ended 31 March 2017

Year ended 31 March 2018

Year ended 31 March 2019

Year ended 31 March 2020

The scheme commences on

1 April 2015

Relevant facts and circumstances

Short term assignment

Every year Entity A sends some employees to another work location to undertake seasonal work.

While working on temporary transfer at the temporary work location, Entity A provides shared accommodation in a house or cottage with a number of rooms with kitchen facilities where employees can cook their own meals.

Entity A pays the employees an allowance in the nature of compensation to the employee for the additional food expenses incurred because the employee is required to live away from his or her usual place of residence to perform the duties of employment.

The allowance is only paid for days when the employee is present at the temporary work location

The longest period of time an employee would be sent to the temporary work location is 18 weeks. However, this varies and some officers may stay for a shorter period.

The employees maintain a home elsewhere in Australia for their immediate use and enjoyment at all times while required to stay at the temporary work location.

Only employees travel to the temporary work location as under the policy of Entity A, the family of the employee is not allowed to stay in the accommodation provided.

An employee is allowed to visit their home if he or she has days off; however, the employee is not paid for the days off.

Transfer of specialist

An employee with specialist skills was seconded to Entity B. Entity B was located in a different State of Australia to Entity A.

The specialist was seconded to Entity B for 12 months under an arrangement with Entity A, whereby Entity A remains the employer of the specialist and Entity A invoices Entity B for the specialist's services.

The specialist's salary and superannuation is paid by Entity A and Entity A has the PAYG obligations for the specialist.

The following benefits will be provided to the specialist during the 12 months:

1. Accommodation in the location of Entity B

2. Car for work-related travel

3. Air-ticket for their first trip to the location of Entity B and the return trip to the location of Entity A at the end of the contract.

4. Air-tickets for the employee's family or the employee for a certain number of family reunion visits.

Entity B has arranged and paid for accommodation for the specialist near its work location in a self-contained unit.

The specialist does not receive any payments for accommodation expenses or a living-away-from-home allowance.

The specialist will satisfy the conditions under section 31C of the FBTAA regarding maintaining an Australian home and can provide the required living- away-from-home declaration.

Entity B will pay for the specialist's initial flight to its work location the final flight at the end of the contract.

Entity B will reimburse the specialist for the cost of air tickets for the family reunion travel.

The employee in fact finished the secondment earlier than the originally contracted 12 month period.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 20

Fringe Benefits Tax Assessment Act 1986 section 23

Fringe Benefits Tax Assessment Act 1986 section 30

Fringe Benefits Tax Assessment Act 1986 section 31C

Fringe Benefits Tax Assessment Act 1986 section 31D

Fringe Benefits Tax Assessment Act 1986 section 45

Fringe Benefits Tax Assessment Act 1986 subsection 47(5)

Fringe Benefits Tax Assessment Act 1986 section 58F

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 subsection 143A

Income Tax Assessment Act 1997 subsection 900-30(2)

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

Income Tax Assessment Act 1997 section 900-50

Reasons for decision

Issue 1 - Employees on short-term assignment

Question 1

Is the allowance paid to the employees a LAFHA under section 30 of the FBTAA?

Answer

No

Summary

The allowance is a travel allowance rather than a LAFHA.

Detailed reasoning

Section 30 of the FBTAA sets out the circumstances in which a payment to an employee will be a LAFHA.

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 as 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.

Additional expenses for the purposes of subsection 30(1) of the FBTAA include expenses for additional food and accommodation expenses.

It is accepted that the allowance is in the nature of compensation for additional expenses of food and drink.

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).

In general terms, section 8-1 of the ITAA 1997 allows a deduction to be claimed by an employee for a loss or outgoing to the extent that it is incurred in gaining or producing assessable income provided the loss or outgoing is not of a capital nature, a private or domestic nature or incurred in relation to gaining or producing exempt income or non-assessable non-exempt income.

The words 'incurred in gaining or producing assessable income' mean in the course of gaining or producing such income. In considering whether expenditure has been incurred in the course of gaining or producing assessable income for the purposes of determining a taxpayer's entitlement to a deduction, the High Court has held that the language is intended to cover any number of factual and legal situations in which expenditure is incurred. The enquiry posed by the provision is whether the occasion of the outgoing can be found in whatever is productive of the assessable income. Thus, essential to the enquiry is determining what is productive of the assessable income and then considering the connection between it and the expenditure. A causal connection will not suffice. What is required is a closer and more immediate connection: Federal Commissioner of Taxation v Day (2008) 236 CLR 163; 2008 ATC 20-064; [2008] HCA 53 (Day) citing Ronpibon Tin NL v FC of T (1949) 78 CLR 47 and Federal Commissioner of Taxation v Payne [2001] HCA 3; 2001 ATC 4027.

Various court decisions have concluded that, generally, food and accommodation expenses are essentially living expenses of a private or domestic nature and are not deductible.

However, as is recognised by Hill J in the Federal Court decision, Roads and Traffic Authority of NSW v Federal Commissioner of Taxation 26 ATR 76; 93 ATC 4508 (RTA) a consideration of the occasion for the outgoing can result in expenditure that has private or domestic qualities (e.g. accommodation, food and drink) being found to be deductible.

RTA concerned 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 93/230 Income tax and fringe benefits tax: is a camping allowance assessable under section 30 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) or under Division 6 of the Income Tax Assessment Act 1936 (ITAA)? 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:

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 Income tax: deductibility of self-education expenses incurred by an employee or a person in business also considered the issue of whether expenditure on food and accommodation may be deductible when an employee is 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.

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?

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.

As set out in paragraph 3 of TD 96/7, paragraphs 35 to 43 of Miscellaneous Taxation Ruling MT 2030 Fringe benefit tax: living-away-from-home allowance benefits outline factors which may indicate an employee is travelling in the course of performing their duties of their employment.

In summarising paragraph 35-40 of MT 2030, the factors that may indicate an employee is travelling in the course of performing their duties of their employment, include:

(a) no change of job location;

(b) the allowance is paid because the employee moves frequently from place to place;

(c) the allowance is paid for short periods;

(d) the employee is generally not accompanied by spouse or family; and

(e) the nature of the accommodation. Where the accommodation is obtained on a short term basis, this may indicate the employee is travelling.

We have considered the following factors and concluded that the expenses incurred by the employees in relation to the allowance are deductible:

• the maximum amount of time that an employee will be away from their home is 18 weeks and in some cases a shorter period of time

• the shared accommodation provided is considered to be temporary in nature

• the employees are required to live in the accommodation provided and are not permitted to have family stay with them

• the employees have a permanent home elsewhere.

Therefore, as the additional expenses that the allowance provides compensation for are deductible expenses, the allowance is not a LAFHA and will not be a fringe benefit. Instead, the allowance will form part of the employee's assessable income.

Issue 1 - Question 2

Question 2

Can the taxable value of the fringe benefits arising from the provision of the accommodation to the employees be reduced to nil under section 52 of the FBTAA?

Answer

Yes

Detailed reasoning

In considering whether you will incur a fringe benefits tax liability for the provision of accommodation to the employees it is necessary to consider the following questions:

1. Did a fringe benefit arise from the provision of a benefit?

2. If a fringe benefit did arise from the provision of a benefit, did the fringe benefit have a nil taxable value?

Is the provision of accommodation a fringe benefit?

A fringe benefit will arise where a benefit is provided by an employer in respect of the employment of the employee: subsection 136(1) of the FBTAA. However, an exempt benefit is not a fringe benefit.

'Benefit' is defined in subsection 136(1) of the FBTAA as follows:

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 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;

(b) a contract of insurance; or

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

The provision of the accommodation to the employees is a fringe benefit under the definition in subsection 136(1) of the FBTAA, unless it is an exempt benefit.

Type of benefit

There are a number of sections that deem a specific benefit type to have been provided when the relevant conditions are met.

Section 45 of the FBTAA provides that a benefit is a residual benefit if it is not a benefit by virtue of any provision of Subdivision A of Divisions 2 to 11 inclusive of the FBTAA. Therefore, in basic terms, a residual benefit is a benefit that does not fall within one of the other more specific benefit types contained in the FBTAA.

The provision of the accommodation to the employees is a benefit that does not fall within one of the more specific benefit types, and therefore, is a residual benefit under section 45 of the FBTAA.

Note: the provision of the accommodation is not a 'housing benefit' under section 25 of the FBTAA as it does not fall within the definition of 'housing right' in subsection 136(1) of the FBTAA. This is because the unit of accommodation, in respect of which the employee has a licence to occupy, is not the employee's usual place of residence.

Does the otherwise deductible rule apply to reduce the taxable value of the residual fringe benefits to nil?

Where the 'otherwise deductible rule' applies the taxable value of a residual fringe benefit can be reduced: section 52 of the FBTAA.

Section 52 of the FBTAA relevantly provides:

52 Reduction of taxable value - otherwise deductible rule

(1) Where:

(a) the recipient of a residual fringe benefit in relation to an employer in relation to a year of tax is an employee of the employer; and

(b) if the recipient had, at the comparison time, incurred and paid unreimbursed expenditure (in this subsection called the gross expenditure), in respect of the provision of the recipients benefit, equal to the amount that, but for this subsection and Division 14 and the recipients contribution, would be the taxable value of the residual fringe benefit in relation to the year of tax - a once-only deduction (in this subsection called the gross deduction) would, or would if not for section 82A of the Income Tax Assessment Act 1936, and Divisions 28 and 900 of the Income Tax Assessment Act 1997, have been allowable to the recipient under either of those Acts in respect of the gross expenditure; and

(ba) the amount (in this subsection called the notional deduction calculated in accordance with the formula

GD - RD

Where:

GD is the gross deduction; and

RD is:

(i) if there is no recipients contribution in relation to the residual fringe benefit - nil; or

(ii) …;

exceeds nil; and

(c) except where the fringe benefit is:

(i) an exclusive employee residual benefit; or

(ii) …; or

(iii) …; or

(iv) …;

the recipient gives to the employer, before the declaration date, a declaration, in a form approved by the Commissioner, in respect of the recipients benefit; and

(d) where the fringe benefit is an extended travel residual benefit (other than an international aircrew residual benefit) - the recipient gives to the employer, before the declaration date, a travel diary in relation to the travel undertaken by the recipient to which the fringe benefit relates; and

…

the taxable value, but for Division 14, of the residual fringe benefit in relation to the year of tax is the amount calculated in accordance with the formula:

TV - ND

where:

TV is the amount that, but for this subsection and Division 14, would be the taxable value of the residual fringe benefit in relation to the year of tax; and

ND is:

(f) if neither paragraph (da) nor paragraph (e) applies and paragraph (k) does not apply - the notional deduction; or

…

Consistent with similar provisions in other Divisions, section 52 of the FBTAA applies to reduce the taxable value of a residual fringe benefit to the extent to which any expenditure that has been, or would otherwise have been, incurred by the employee in acquiring the relevant benefit would have been immediately deductible for income tax purposes.

For the reasons given in relation to Issue 1 Question 1, if the employee had incurred and paid unreimbursed expenditure on the accommodation when residing at the temporary work location, it would have been deductible under section 8-1 of the ITAA 1997.

Therefore, the otherwise deductible rule in section 52 of the FBTAA will operate to reduce the taxable value of the accommodation residual fringe benefit to nil, subject to any applicable substantiation requirements, because:

• the recipient of the benefit, is an employee of the employer in respect of whom the benefit is provided;

• if the employee had incurred and paid unreimbursed expenditure in respect of accommodation (gross expenditure), equal to the amount of the taxable value of the benefit, a once-only deduction (gross deduction) ignoring Division 900 of the ITAA 1997 would have been allowable to the employee;

• as there is no recipients contribution the notional deduction is equal to the gross deduction; and

• the taxable value reduced by the notional deduction, is nil.

Substantiation for the otherwise deductible rule to apply

The relevant substantiation requirements for the otherwise deductible rule to apply are in paragraphs 52(1)(c) and (d) of the FBTAA.

Paragraph 52(1)(d) of the FBTAA applies to an extended travel residual benefit and requires the recipient to give the employer a travel diary before the declaration date. Extended travel residual benefit is relevantly defined in subsection 136(1) of the FBTAA as follows:

extended travel residual benefit means a residual fringe benefit where:

…

(b) the following conditions are satisfied:

(i) the recipients benefit consists of, or is in respect of, travel by the recipient within Australia that involves the recipient being away from the recipient's usual place of residence for a continuous period including more than 5 nights;

(ii) the travel was not undertaken exclusively in gaining or producing salary or wages of the recipient in respect of the employment to which the fringe benefit relates;

but does not include a car residual benefit.

It is noted that the requirement to obtain a travel diary is waived if the provision of the residual benefit is covered by an annual 'no private use declaration': Chapter 18.8 of the FBT - Guide for Employers.

It is accepted that the travel is being undertaken exclusively in gaining or producing salary or wages of the employee and a travel diary is not required.

Paragraph 51(1)(c) of the FBTAA requires the employee to give the employer a Residual benefit declaration in respect of the recipient's benefit. However, an employee declaration is not required for an exclusive employee residual benefit defined in subsection 136(1) of the FBTAA as follows:

exclusive employee residual benefit means a residual fringe benefit where, if the recipient had incurred expenditure in respect of the provision of the recipients benefit, that expenditure would have been exclusively incurred in gaining or producing salary or wages of the recipient in respect of the employment to which the fringe benefit relates.

The accommodation benefits provided to the employees are exclusive employee residual benefits because if they had incurred the expenditure themselves it would have been exclusively incurred in gaining or producing their salary.

Accordingly, the employees are not required to provide to the employer a declaration in respect of the residual fringe benefits under paragraph 52(1)(c) of the FBTAA.

Therefore, the substantiation requirements for the otherwise deductible rule to apply have been satisfied.

Is the provision of accommodation an exempt benefit?

Subsection 47A(1) of the FBTAA provides that a residual fringe benefit that is covered by a no-private-use declaration is an exempt benefit.

Subsections 47A(2) and (3) of the FBTAA provide:

47A(2) [No-private-use declaration]

An employer may make a no-private-use declaration that covers all the employer's residual fringe benefits for an FBT year that are covered by a consistently enforced policy in relation to the use of the property that is the subject of the benefit that would result in the taxable value of the benefit being nil.

47A(3) [Form of declaration]

The declaration must be in a form approved in writing by the Commissioner and be made by the declaration date.

Declaration date is defined in subsection 136(1) of the FBTAA as follows:

declaration date, in relation to an employer in relation to a year of tax, means the date of lodgment of the return of the fringe benefits taxable amount of the employer of the year of tax, or such later date as the Commissioner allows.

Where the accommodation benefits are covered by a consistently enforced policy and the employer makes a no-private-use declaration by the declaration date under section 47A of the FBTAA, the provision of accommodation to employees will be exempt benefits.

Conclusion in respect of accommodation

The provision of accommodation benefits to employees are residual benefits.

The residual benefits will be residual fringe benefits unless the employer makes a no-private-use declaration by the declaration date under section 47A of the FBTAA, in which case they will be exempt benefits.

In any event, the taxable value of the accommodation residual fringe benefits would be reduced to nil under section 52 of the FBTAA.

Issue 2 - Question 1a

Is the provision of accommodation to the employee seconded to Entity B exempt from fringe benefits tax under section 47(5) of the FBTAA for the first twelve months that the duties of employment require the employee to live away from home?

Answer

Yes

Detailed reasoning

Is the provision of accommodation a fringe benefit?

A benefit will be a fringe benefit as defined in subsection 136(1) of the FBTAA if it has been provided to an employee or an associate of an employee, in respect of the employee's employment, by:

• the employer

• an associate of the employer

• a third party under an arrangement (as defined) between the employer or an associate of the employer and the third party, or

• a third party where the employer or associate of the employer participates in or facilitates the provision of the benefit; or 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 it is doing so.

The benefit will not be a fringe benefit if it is an exempt benefit.

The definitions of an 'employee' and 'employer' in subsection 136(1) of the FBTAA are based on the payment or liability to pay salary or wages, and include a current employee and current employer respectively. These terms are defined in subsection 136(1) of the FBTAA as follows:

• 'current employee' means a person who receives, or is entitled to receive salary or wages…

• 'current employer' means a person…who pays, or is liable to pay, salary or wages…

Salary or wages is defined in subsection 136(1) and its meaning includes:

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 (TAA) listed in the table, to the extent that the payment is assessable income…

Section 12-35 of Schedule 1 to the TAA is one of the provisions listed in the table. It 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).

The provision of the accommodation to the specialist is a benefit under the definition in subsection 136(1) of the FBTAA. The accommodation has also been provided in respect of the employee's employment.

You have advised that Entity A pays the salary of the employee and has the PAYG obligations for the specialist. Therefore, Entity A remains the employer for the period of the secondment. Entity B has provided the accommodation to the employee.

The accommodation will be a fringe benefit, unless it is an exempt benefit, if it has been provided under an arrangement between Entity A and Entity B.

Arrangement is defined in subsection 136(1) of the FBTAA as:

(a) any agreement, arrangement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable, or intended to be enforceable, by legal proceedings; and

(b) any scheme, plan, proposal, action, course of action or course of conduct, whether unilateral or otherwise.

The provision of the accommodation has been provided under an arrangement between the two entities.

Therefore, unless it is an exempt benefit, the provision of the accommodation is a fringe benefit under subsection 136(1) of the FBTAA.

Type of benefit

There are a number of sections in the FBTAA that deem a specific benefit type to have been provided when the relevant conditions are met.

Section 45 of the FBTAA provides that a benefit is a residual benefit if it is not a benefit by virtue of any provision of Subdivision A of Divisions 2 to 11 inclusive of the FBTAA. Therefore, a residual benefit is a benefit that does not fall within one of the other more specific benefit types contained in the FBTAA.

The provision of the accommodation to the employee is a benefit that does not fall within one of the more specific benefit types, and therefore, is a residual benefit under section 45 of the FBTAA.

Note: the provision of the accommodation is not a 'housing benefit' under section 25 of the FBTAA as it does not fall within the definition of 'housing right' in subsection 136(1) of the FBTAA.

A 'housing right' is defined in subsection 136(1) of the FBTAA, to mean a lease or licence granted to the person to occupy or use a unit of accommodation, insofar as the lease or licence subsists at a time when the unit of accommodation is the person's usual place of residence.

Housing fringe benefits contained in Division 6 of Part III of the FBTAA will not extend to accommodation provided to an employee whose duties of employment require the employee to live away from his or her usual place of residence and that satisfy the conditions in section 31C of the FBTAA. Such accommodation benefits will be dealt with under the residual benefits rules contained in Division 12 of Part III of the FBTAA.

For the reasons given later, the employee's duties of employment require the employee to live away from their usual place of residence and the specialist satisfies section 31C of the FBTAA. Thus, the benefit will not be a housing benefit and will be a residual benefit.

Is the benefit an exempt benefit?

Subsection 47(5) of the FBTAA exempts the provision of accommodation to employees under certain limited circumstances. Subsection 47(5) of the FBTAA states (as relevant here):

Where:

(a) a residual benefit consisting of the subsistence, during a year of tax, of a lease or licence in respect of a unit of accommodation is provided to an employee of an employer in respect of his or her employment; and

(b) the unit of accommodation is for the accommodation of eligible family members and is provided solely because the duties of that employment require the employee to live away from his or her normal residence; and

(ba) the employee satisfies:

(i) sections 31C (about maintaining an Australian home) and 31D (about the first 12 months);...

(ii) ...and

(c) the accommodation is not provided while the employee is undertaking travel in the course of performing the duties of that employment; and

(d) any of the following conditions is satisfied:

(i) ...

(ii) if the employee satisfies sections 31C and 31D - the employee gives to the employer, before the declaration date, a declaration, in a form approved by the Commissioner, purporting to set out the matters in subparagraphs 31F(1)(a)(i) to (iii);

(iii) ...

the benefit is an exempt benefit in relation to the year of tax.

(a) is there a residual benefit consisting of the subsistence of a lease or licence in respect of a unit of accommodation provided to an employee of an employer in respect of the employee's employment?

Yes. As discussed above the provision of accommodation is a residual benefit. It consists of a licence to occupy the self-contained unit in the location of Entity B. The benefit is provided in respect of the employee's employment with Entity A.

(b) is the unit of accommodation for the accommodation of eligible family members provided solely because the duties of employment require the employee to live away from his or her normal residence?

Is the employee living away from his or her normal place of residence?

'Normal residence' is defined in subsection 136(1) of the FBTAA as the employee's usual place of residence, when the employee's usual place of residence is in Australia.

The FBTAA does not provide a definition of the term 'usual place of residence'. However, subsection 136(1) of the FBTAA defines 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 absence of a legislative reference, it is relevant to refer to the ordinary meaning of the word 'usual'. The Macquarie Dictionary defines 'usual' to mean:

1. Habitual or customary: his usual skill.

2. Such as is commonly met with or observed in experience; ordinary: the usual January weather.

3. In common use; common: say the usual things.

MT 2030 provides guidelines for determining an employee's usual place of residence.

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...

Paragraph 20 of MT 2030 provides the following general rule:

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.

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 (AAT) 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 these principles, it is accepted that during the secondment period the employee's family home will be the employee's usual place of residence as:

• the secondment was originally for a fixed 12 month period - as events have transpired this period will be less than 12 months ;

• you have advised that the employee will satisfy the requirements of section 31C of the FBTAA (about the employee maintaining a home in Australia).

Therefore, the employee will be living away from his usual place of residence during the period in which the employee is residing in the accommodation at the location of Entity B.

Do the duties of employment require the employee to live away from his usual place of residence?

The FBTAA does not provide a definition of the word 'require' in the context of subsection 30(1). Therefore, it is relevant to refer to the ordinary meaning of 'require'.

The Macquarie Dictionary defines 'require' to mean:

1. to have need of; need: he requires medical care.

2. to call on authoritatively, order, or enjoin (a person, etc.) to do something: to require an agent to account for money spent.

3. to ask for authoritatively or imperatively; demand.

4. to impose need or occasion for; make necessary or indispensable: the work required infinite patience.

5. to call for or exact as obligatory: the law requires annual income tax returns.

6. to place under an obligation or necessity.

7. to wish to have: to require room service.

8. to make demand; impose obligation or need: to do as the law requires.

ATO Interpretative Decision ATO ID 2013/8 Fringe Benefits Tax Employee required to change usual place of residence in order to perform duties of employment discusses the meaning of the term 'required' in the context of subparagraph 58B(1)(b)(iii) of the FBTAA. ATO ID 2013/8 refers to the ordinary meaning and concludes:

Therefore, it is considered that the term 'required' as it is used in subparagraph 58B(1)(b)(iii) does not mean that the change of usual place of residence must be compulsory. Rather, the change may be one that is necessary in the circumstances in order for the employee to perform the duties of their employment.

The term 'required' was also considered by the AAT in Compass at paragraph 63:

63. … it would seem that the agent requiring the employee to live away from his or her usual place of residence must be the employer, the inherent nature of the employment or a mixture of the two. It would seem that regard must be had to both in order to answer whether the employee is so required.

The duties of the employment require the employee to live away from his or her normal place of residence. Under the arrangement between the two entities, the employee is required to perform the duties of his/her employment with Entity A for a fixed period of time in service to Entity B because he/she has specialist skills that they require. Under the terms of the secondment arrangement the employee will be working at the location of Entity B which is in a different State in Australia than Entity A. It is evident that he/she could not perform his/her duties under the terms of the secondment arrangements unless he/she lived at the location of Entity B.

Eligible Family Member

The term 'eligible family member' is defined in subsection 136(1) of the FBTAA to mean (as relevant here):

eligible family member means:

(a) in relation to an employee whose duties of employment require the employee to live away, for a period, from his or her normal residence:

(i) the employee; or

(ii) the spouse of the employee, or a child of the employee, being a spouse or child, as the case may be:

(A) who lived with the employee during that period; and

(B) whose usual place of residence during that period was the same as the usual place of residence of the employee; and

(b) ...

The employee meets this definition.

(ba) Does the employee meet the requirements of section 31C and 31D of the FBTAA?

You have advised that the employee meets the conditions in section 31C of the FBTAA.

The employee satisfies section 31D of the FBTAA if the fringe benefit relates only to all or part of the first 12 months that the duties of that employment require the employee to live away from the place in Australia where he or she usually resides.

Section 31D of the FBTAA effectively limits the use of the valuation method in subsection 31(2) of the FBTAA to a 12 month period.

Therefore, it is accepted that during the first 12 months of the secondment period, section 31D of the FBTAA is satisfied. As the secondment will cease within the first 12 months, the employee will meet this condition for the entire period that he is living away from home under the secondment arrangements.

It is noted that the employer can pause the 12 month period under paragraph 31D(2)(a) of the FBTAA. If a LAFHA continues to be paid in this period the full amount of the fringe benefit is taxable: per subsection 31(4) of the FBTAA.

(c) The accommodation is not provided while the employee is undertaking travel in the course of performing the employee's duties of employment

MT 2030 provides guidelines to assist in determining whether an employee is travelling in the course of performing the duties of their employment. Paragraphs 35-40 of MT 2030 outline the following factors which may indicate an employee is travelling in the course of performing their duties of their employment:

1. no change of job location;

2. the allowance is paid because the employee moves frequently from place to place;

3. the allowance is paid for short periods;

4. the employee is generally not accompanied by spouse or family; and

5. the nature of the accommodation. Where the accommodation is obtained on a short term basis, this may indicate the employee is travelling

In relation to whether the employee is accompanied by their spouse and family, paragraph 43 of MT 2030 provides:

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.

Having regard to the circumstances, we have concluded that the relevant accommodation is not being provided while the employee is undertaking travel in the course of performing their duties of employment.

The relevant accommodation is being provided while the employee is providing their specialist services to Entity B under the secondment arrangement. Therefore, there is a change of job location for the duration of the secondment. The agreement was for the secondment of the employee for a 12 month period, which is not considered a short period of time. The nature of accommodation provided was a self-contained unit for the sole use of the employee and it is not considered to be temporary accommodation. It was contemplated as part of the arrangements, and benefits were to be provided, for the employee's family to visit at the location of Entity B during the period of the employee's secondment.

(d) The employee gives to the employer the required declaration (under section 31F), in the approved form, by the required date

Assuming the employee provides the declaration required under section 31F of the FBTAA, this condition will be satisfied.

Issue 2 - Question 1b

If the employee cannot provide the declaration, will it be a residual fringe benefit under section 45 of FBTAA 1986?

Answer

Yes.

Detailed reasoning

If the employee does not provide the declaration required under section 31F of the FBTAA, the conditions for the benefit to be exempt under subsection 47(5) of the FBTAA will not be satisfied and the provision of the accommodation will be a residual fringe benefit.

Question 2

Are the employee's initial and final flights to and from the location of Entity B covered by the exemption under section 58F of the FBTAA?

Answer

Yes

Question 3

Does the reimbursement of family reunion travel to the employee by Entity B for travel between the two work locations by the employee and/or the employee's family constitute the provision of the expense payment fringe benefit under section 20 of the FBTAA?

Answer

Yes

Detailed reasoning for Questions 2 & 3

The definitions of benefit and fringe benefit have been discussed under earlier questions.

When the specialist is provided with flights he/she is being provided with a benefit as defined in subsection 136(1) of the FBTAA.

Entity B is paying for the employee's flights. As the benefit is provided by Entity B under the arrangement with Entity A for the employee's services for the secondment period it will be a fringe benefit under the definition in section 136(1) of the FBTAA, unless it is an exempt benefit.

Type of benefit

Section 20 of the FBTAA states:

Where a person (in this section referred to as the "provider"):

(a) makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the "recipient") to pay an amount to a third person in respect of expenditure incurred by the recipient; or

(b) reimburses another person (in this section also referred to as the "recipient"), in whole or in part, in respect of an amount of expenditure incurred by the recipient'

the making of the payment referred to in paragraph (a), or the reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit to the recipient.

Section 45 of the FBTAA provides that a benefit is a residual benefit if it is not a benefit by virtue of any provision of Subdivision A of Divisions 2 to 11 inclusive of the FBTAA.

If the obligation to pay for the tickets is that of the employee and Entity B discharges that obligation or reimburses the expenditure incurred by the employee on the ticket it will be an expense payment benefit under section 20 of the FBTAA. You have advised that Entity B will reimburse the employee for family reunion travel. Therefore, this will be an expense payment fringe benefit, unless it is an exempt benefit.

If Entity B books the flights and has the obligation to pay for the tickets, the provision of the benefit to the employee will be a residual benefit under section 45 of the FBTAA. We assume that the initial and final flights to the location of Entity B will be booked and paid for by Entity B, and therefore, will be a residual benefit unless it is an exempt benefit.

Is the benefit an exempt benefit?

Section 58F of the FBTAA provides an exemption for the costs of providing relocation transport where an employee is required to live away from home or is required to relocate their usual place of residence in order to perform the duties of their employment. It states that:

Where:

(a) a car benefit, an expense payment benefit, a property benefit or a residual benefit is provided in, or in respect of, a year of tax in respect of the employment of an employee of an employer;

(b) the benefit is in respect of relocation transport; and

(c) in the case of an expense payment benefit:

(i) the benefit is not constituted by the reimbursement of the recipient, in whole or in part, in respect of an amount of a Division 28 car expense incurred by the recipient in relation to a car owned by, or leased to, the recipient, being a reimbursement calculated by reference to the distance travelled by the car; and

(ii) documentary evidence of the recipients expenditure is obtained by the recipient and that documentary evidence, or a copy, is given to the employer before the declaration date;

the benefit is an exempt benefit in relation to the year of tax.

The Fringe benefits tax - a guide for employers (FBT guide for employers) (NAT 1054) summarises relocation exemptions at chapter 20:

Where an employee is required to live away from home, or is required to relocate their usual place of residence, in order to perform employment-related duties, the costs of providing relocation transport (and any meals and accommodation en route) to the employee (and family members) are exempt benefits. The exemption also applies where the employee is returning to their usual place of residence after working at another location.

Section 143A of the FBTAA sets out the definition of 'relocation transport' for the purposes of the exemption and relevantly provides:

For the purposes of this Act, where:

(a) any of the following benefits is provided in, or in respect of, a year of tax to an employee, or to an associate of the employee, in respect of the employment of the employee:

(i) …;

(ii) an expense payment benefit where the recipients expenditure is in respect of the provision of transport, or meals or accommodation in connection with transport;

(iii) …;

(iv) a residual benefit where the recipients benefit consists of the provision of transport or accommodation in connection with transport;

(b) the transport, meals or accommodation is for a family member;

(c) the transport is required solely because:

(i) the employee is required to live away from his or her usual place of residence in order to perform the duties of that employment;

(ii) the employee, having lived away from his or her usual place of residence in order to perform the duties of that employment, is required to return to his or her usual place of residence:

(A) in order to perform those duties; or

(B) because the employee has ceased to perform those duties; or

(iii) the employee is required to change his or her usual place of residence in order to perform the duties of that employment;

(d) the transport is provided to enable a family member to:

(i) if subparagraph (c)(i) applies - take up residence at or near the place where the employee performs the duties of that employment while living away from his or her usual place of residence;

(ii) if subparagraph (c)(ii) applies - take up residence at the employee's usual place of residence; or

(iii) if subparagraph (c)(iii) applies - take up residence at the employee's new usual place of residence;

(e) if the transport is for the spouse, or a child, of the employee - the transport is not provided to enable the spouse or child to accompany the employee:

(i) while the employee is undertaking travel in the course of performing the duties of that employment; and

(ii) where the circumstances referred to in subsection 26-30(2) of the Income Tax Assessment Act 1997 do not apply; and

(f) if the transport is for the employee - the transport is not provided while the employee is undertaking travel in the course of performing the duties of that employment; and

(g) if subparagraph (c)(iii) applies - the benefit is not provided under a non-arm's length arrangement;

the benefit shall be taken to be in respect of relocation transport.

Each paragraph of section 143A contains a requirement that must be met in order for the transport to be considered relocation transport and the benefit therefore to be exempt under section 58F.

Paragraph 143A(a)

Paragraph 143A(a) requires that the benefit provided is one of the listed benefits in subparagraphs 143A(a)(i) to 143A(a)(iv). The flights provided are in respect of the employee's employment and will be listed benefits that consist of the provision of transport (subparagraph 143A(a)(ii) or (iv)).

Paragraph 143A(b)

Paragraph 143A(b) requires that the transport is for a family member.

'Family member' in this context is defined in subsection 136(1) of the FBTAA as follows:

family member, in relation to a benefit provided to an employee, or to an associate of an employee, in respect of the employment of the employee, means:

(a) the employee;

(b) the spouse of the employee; or

(c) a child of the employee.

The transport in this case is the initial and final flights provided to the employee and the reunion flights for the employee and the employee's family. Therefore the transport is for a family member if the family that receive the flights consist of the employee, spouse and children of the employee.

Paragraph 143A(c)

Paragraph 143A(c) states that the transport is required solely for one of the following reasons:

(i) the employee is required to live away from their usual place of residence in order to perform the duties of that employment

(ii) the employee, having lived away from their usual place of employment, is required to return to their usual place of residence

(A) in order to perform those duties; or

(B) because the employee has ceased to perform those duties

(iii) the employee is required to change their usual place of residence in order to perform the duties of that employment

The employee has a usual place of residence away from the location of Entity B and their usual place of employment that they return to at the end of their secondment. For the reasons given earlier, the employee is required to live away from their usual place of residence in order to perform the duties of their employment.

The term 'solely' is not defined in the FBTAA and so it takes on its ordinary meaning.

The Macquarie dictionary (The Macquarie Dictionary online 2016) (Macquarie Dictionary), defines 'solely' as:

1. as the only one or ones: solely responsible.

2. exclusively or only: plants found solely in the tropics.

3. wholly; merely.

Therefore, in order to meet the requirement of paragraph 143A(c) each of the flights must be provided for only one reason and the reason must be one of the reasons listed in subparagraphs 143A(c)(i) to 143A(c)(iii).

The employee is provided with three types of flights:

1. the first flight from their usual residence in the location of Entity B

2. flights returning the employee from the secondment location to their normal residence or for their family going from the normal residence to the secondment location to visit the employee nine times for a period of recreational leave/family reunion

3. the final flight returning the employee from the location in Entity B to their normal residence after the cessation of their secondment.

The flights referred to in number 2 above are not provided solely for any of the purposes listed in subparagraphs 143A(c)(i) to 143A(c)(iii). These flights have a dual purpose of flying the employee back to their usual residence for a period of recreational leave and returning them to the work location.

The first and final flights referred to in numbers 1 and 3 above are considered to be provided solely for one of the reasons listed in subparagraphs 143A(c)(i) to 143A(c)(iii). The first flight is provided solely because the employee is required to live away from their usual place of residence in order to perform the duties of their employment (subparagraph 143A(c)(i)) and the final flight is provided solely because the employee having lived away from their usual place of residence in order to perform the duties of their employment, is required to return to their usual place of residence because they have ceased to perform their employment duties under the secondment arrangement (subparagraph 143A(c)(ii)).

Therefore, only the first and final flights meet the requirements of paragraph 143A(c) and can be exempt.

Paragraph 143A(d)

As concluded above subparagraph 143(c)(i) applies to the first flight and subparagraph 143A(c)(ii) applies to the final flight.

Paragraph 143A(d) requires that the transport is provided to enable a family member to:

• take up residence at or near the place where the employee performs the duties of that employment while living away from their usual place of residence (where subparagraph 143A(c)(i) applies)

• take up residence at their usual place of residence (where subparagraph 143(c)(ii) applies)

As concluded above the employee is a 'family member' for the purposes of the exemption.

The first flight is provided to enable the employee to take up residence near the place where they perform the duties of their employment while living away from their usual place of residence, and the final flight is provided to enable the employee to take up residence at their usual place of residence where the employee is required to return to their usual place of residence because they have ceased to perform the duties of their employment that required them to live away from their usual place of residence. Therefore the requirements of paragraph 143A(d) are met for the first and final flights.

Paragraph 143A(e)

This requirement does not need to be considered as we have concluded that the provision of benefits in respect of the transport of the employee's family for reunion flights will not satisfy the requirements in section 143A of the FBTAA.

Paragraph 143A(f)

Paragraph 143A(f) requires that transport for the employee is not provided while the employee is undertaking travel in the course of performing the duties of their employment.

As previously concluded in question 1a, it is considered that the employee is not undertaking travel in the course of his employment.

Paragraph 143A(g)

Subparagraph 143A(c)(iii) does not apply therefore consideration of the requirement contained in paragraph 143A(g) is not necessary.

Conclusion

As all of the relevant requirements in section 143A of the FBTAA are satisfied in relation to the first and final flights provided to the employee, the residual benefits provided in respect of those flights are considered to be provided in respect of relocation transport and will be exempt benefits under section 58F of the FBTAA.

The expense payment benefits in relation to the reimbursement of family reunion flights will not be exempt pursuant to subsection 58F of the FBTAA. There are no other relevant exemptions that apply to these flights. Therefore, they are expense payment fringe benefits under section 20 of the FBTAA and the taxable value of the benefit will be the amount of the reimbursement under section 23 of the FBTAA.

Other information

Fringe benefits tax is payable by the employer under section 66 of the FBTAA, regardless of whether the employer actually provides the benefit, i.e., even where the benefit is provided by an associate or by a third party under an arrangement with the employer.