Edited version of your written advice

Authorisation Number: 1013000438705

Date of advice: 20 April 2016

Ruling

Subject: FBT and overseas deployment of employees

Question 1(a)

Is the provision of the accommodation for employees travelling to Country A a fringe benefit?

Answer

Yes

Question 1(b)

If the provision of accommodation is a fringe benefit, does the otherwise deductible rule in section 52 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) reduce the taxable value of the fringe benefit to nil where the total number of days spent in Country A during an income year is less than 30 days?

Answer

Yes

Question 1(c)

If the provision of accommodation is a fringe benefit, does the otherwise deductible rule in section 52 of the FBTAA reduce the taxable value of the fringe benefit to nil where the total number of days spent in Country A during an income year is less than 60 days?

Answer

Question 1(d)

If the provision of accommodation is a fringe benefit, does the otherwise deductible rule in section 52 of the FBTAA reduce the taxable value of the fringe benefit to nil where the total number of days spent in Country A during an income year is less than 90 days?

Answer

Question 1(e)

If the provision of accommodation is a fringe benefit, does the otherwise deductible rule in section 52 of the FBTAA reduce the taxable value of the fringe benefit to nil where the total number of days spent in Country A during an income year is less than 120 days?

Answer

Question 2(a)

Is the provision of the accommodation for employees travelling to Country B a fringe benefit?

Answer

Yes

Question 2(b)

If the provision of the accommodation is a fringe benefit, does the otherwise deductible rule in section 52 of the FBTAA reduce the taxable value of the fringe benefit to nil?

Answer

Yes

Question 3(a)

Where a per diem is paid to an employee travelling to Country A, is the allowance subject to section 30 of the FBTAA?

Answer

No

Question 3(b)

If the per diem is not subject to section 30 of the FBTAA and the allowance is equivalent to, or less than, the reasonable amounts for travel allowance expenses under Taxation Determination TD 2015/14 or a future Taxation Determination in relation to income tax and the reasonable travel and overtime meal allowance expense amounts for an income tax year, does X Ltd need to withhold Pay-As-You-Go (PAYG) withholding and report the per diem on the employee's PAYG Payment Summary?

Answer

No

Question 4(a)

Where a per diem is paid to an employee travelling to Country B, is the allowance subject to section 30 of the FBTAA?

Answer

No

Question 4(b)

If the per diem is not subject to section 30 of the FBTAA and the allowance is equivalent to, or less than, the reasonable amounts for travel allowance expenses under Taxation Determination TD 2015/14 or a future Taxation Determination in relation to income tax and the reasonable travel and overtime meal allowance expense amounts for an income tax year, does X Ltd need to withhold PAYG withholding and report the per diem on the employee's PAYG Payment Summary?

Question 5(a)

Is the provision of travel to and from Country A a fringe benefit?

Answer

Yes

Question 5(b)

If the provision of travel to and from Country A is a fringe benefit, does the otherwise deductible rule in section 52 of the FBTAA reduce the taxable value of the fringe benefit to nil where the total number of days spent in Country A during an income year is less than 30 days?

Answer

Yes

Question 5(c)

If the provision of travel to and from Country A is a fringe benefit, does the otherwise deductible rule in section 52 of the FBTAA reduce the taxable value of the fringe benefit to nil where the total number of days spent in Country A during an income year is less than 60 days?

Answer

Yes

Question 5(d)

If the provision of travel to and from Country A is a fringe benefit, does the otherwise deductible rule in section 52 of the FBTAA reduce the taxable value of the fringe benefit to nil where the total number of days spent in Country A during an income year is less than 90 days?

Answer

Yes

Question 5(e)

If the provision of travel to and from Country A is a fringe benefit, does the otherwise deductible rule in section 52 of the FBTAA reduce the taxable value of the fringe benefit to nil where the total number of days spent in Country A during an income year is less than 120 days?

Answer

Yes

Question 6(a)

Is the provision of travel to and from Country B a fringe benefit?

Answer

Yes

Question 6(b)

If the provision of travel to and from Country B is a fringe benefit, does the otherwise deductible rule in section 52 of the FBTAA reduce the taxable value of the benefit to nil?

Answer

Yes

This ruling applies for the following periods:

FBT year ending 31 March 2016

FBT year ending 31 March 2017

FBT year ending 31 March 2018

FBT year ending 31 March 2019

Income tax year ending 30 June 2016

Income tax year ending 30 June 2017

Income tax year ending 30 June 2018

Relevant facts and circumstances

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

Country A

• X Ltd has outsourced certain operational activities to third parties in an overseas location (Country A).

• X Ltd contracts with related entities (incorporated and tax resident in Country A) to oversee the work performed by the third parties.

• X Ltd sends employees from Australia to Country A to train, transfer knowledge and supervise the employees of the related entity.

• Upon completion of their task in Country A, the employees return to Australia and continue their role in Australia.

• The employees travel to Country A for periods ranging from 30 days, 60 days, 90 days and 120 days.

• Employees generally remain employed by X Ltd.

• In some cases, the employees may take a temporary leave of absence from their X Ltd employment and become an employee of Y Ltd for the period of time for which they are in Country A. Y Ltd is a wholly owned subsidiary of X Ltd.

• Employees are sent to Country A on business travel under the X Ltd Short Term Assignment Policy, under which the employees:

• Can only travel for a duration of up to 6 months as the travel is only for brief periods;

• Remain based in the location of their ordinary residence i.e. they hold Australian employment contracts, an Australian role and are remunerated by Australia; and

• Are expected to return to Australia after their travel to continue their role.

• The terms and conditions of travel for employees travelling to Country A include:

• They are personally responsible for maintaining their usual place of residence in Australia throughout the duration of their travel.

• When in Country A, the employees are required to stay in temporary hotel or apartment accommodation, the cost of which is paid by X Ltd.

• Families are not permitted to accompany the employees.

• X Ltd pays for the return flights to Country A as well as the cost of transport from home to and from the airport.

• The employees are subject to the provisions of their Australian employment contracts, X Ltd's code of conduct and X Ltd's Short Term Assignment Policy, whilst travelling to and from and while in Country A.

• Any leave entitlements continue to be accrued in accordance with Australian laws.

• The employees continue to be paid salary and other employment benefits from X Ltd.

• The employees are paid a Cost of Living Allowance (COLA) and a Mobility Premium per night to cover food and incidentals respectively while they are in Country A. All employees receive the same amount (being a combined per diem of $X per week).

Country B

• X Ltd has a joint venture in another overseas location (Country B) which provides a variety of services for customers in the region.

• As part of the joint venture, X Ltd sent employees to Country B to undertake implementation and mentoring projects.

• The employees work in Country B on a "Fly-In-Fly-Out" basis as follows:

• 3 weeks working in Country B and 1 week return to Australia (approximately 90% of employees); and

• 2 weeks working in Country B and 2 weeks return to Australia (approximately 10% of employees).

• Employees are required to return to Australia upon completion of every rotation in Country B.

• When an employee returns to Australia, their role in Country B is not filled by another employee and the employee is expected to continue performing their employment duties from the Australian office.

• The FIFO arrangement is generally for a period of one year.

• The employees are subject to the X Ltd Long Term-Home Based Assignment Policy, under which employees are temporarily seconded to another location.

• At the end of the secondment, it is expected that the employee will repatriate to Australia.

• During the secondment the employee also remains employed by X Ltd.

• The terms and conditions of travel to Country B are the same as those applying for employees travelling to Country A.

• The employees are paid a COLA and a Mobility Premium per night to cover food and incidentals respectively while they are in Country B. All employees receive the same amount (being a combined per diem of $X per week).

Assumptions

• The employees are residents of Australia for income tax purposes.

• To the best of X Ltd's knowledge, the employees maintained a usual place of residence in Australia during the period the employees were in Country A and Country B and returned to their usual place of residence when they returned to Australia.

• The employee will give X Ltd, before the declaration date, a travel diary, where the accommodation provided is in respect of travel away from the employee's usual place of residence for a continuous period of 5 nights or more.

• The employee's usual place of employment was not in, or adjacent to, an eligible urban area.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act Section 30.

Fringe Benefits Tax Assessment Act 1986 Section 45.

Fringe Benefits Tax Assessment Act Section 51.

Fringe Benefits Tax Assessment Act 1986 Section 52.

Fringe Benefits Tax Assessment Act 1986 Section 136.

Income Tax Assessment Act 1997 Section 8-1.

Income Tax Assessment Act 1997 Section 900-30.

Reasons for decision

Question 1(a)

A "fringe benefit" is defined in section 136(1) of the FBTAA as a benefit provided by the employer of an employee or by an associate of the employer, to the employee in respect of their employment.

As the employees are employed by X Ltd as employer to perform work and the provision of the accommodation by X Ltd, or an associate of X Ltd, was in respect of the employees' employment duties, there is a fringe benefit.

Question 1(b)

On the basis that the provision of the accommodation is a fringe benefit provided by X Ltd to the employee, the benefit will be a residual fringe benefit as defined in section 45 of the FBTAA.

The residual fringe benefit will be an "external period residual fringe benefit" as the benefit is not of a kind that X Ltd provides to members of the public and it is provided in relation to a period exceeding 1 day.

The residual fringe benefit will be an "external period residual fringe benefit" as the benefit is not of a kind that X Ltd provides to members of the public and it is provided in relation to a period exceeding 1 day. The value of the residual fringe benefit will therefore be calculated in accordance with section 52. As the accommodation will be provided by X Ltd, or an associate of X Ltd, under an arm's length transaction, prima facie the taxable value of the residual fringe benefit will be equal to the amount paid or payable by X Ltd or its associate in respect of the benefit (section 51(a)).

However, the taxable value of the residual fringe benefit will be reduced where the "otherwise deductible rule" in section 52(1) applies. This rule will apply where:

a.) The recipient of the benefit in relation to an employer in relation to a year of tax is an employee of the employer; and

b.) If the recipient of the benefit had incurred and paid unreimbursed expenditure, in respect of the provision of the benefit, a once-only deduction (referred to as "Gross Deduction" or "GD") would have been allowable to the recipient under, inter alia, the Income Tax Assessment Act 1997 (ITAA 1997)); and

ba)The amount calculated in accordance with the following formula exceeds nil:

GD - RD

"RD" is nil where there is no contribution by the recipient to the benefit (as is the case for the X Ltd employees); and

c.) Either of the below applies:

(i) The fringe benefit is an "exclusive employee residual benefit" as defined in section 136 because it is a benefit where, if the recipient had incurred expenditure in relation to the provision of the recipient's benefit, that expenditure would have been exclusively incurred in gaining or producing the salary or wages of the recipient in respect of the employment to which the fringe benefit relates; or

(ii) The recipient gives the employer, before the declaration date, a declaration in a form approved by the Commissioner, in respect of the recipient's benefit and

d) Where the fringe benefit is an extended travel residual benefit (being a benefit in respect to travel outside Australia and involves the recipient being away from the recipient's usual place of residence for a continuous period including more than 5 nights), 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.

In applying the above to the accommodation provided by X Ltd or its associate to the employee:

a.) The recipient of the benefit (the employee) is an employee of X Ltd.

b.) In respect of the benefit, if the employee had incurred and paid the unreimbursed expenditure, they would be able to claim a deduction under section 8-1 of the ITAA 1997 on the basis that the expense was necessarily incurred in producing their assessable income.

c.) The accommodation is an "exclusive employee residual benefit" because if the employee had incurred the accommodation expenditure, the expenditure would have been exclusively incurred in gaining or producing the salary or wage income in respect of the employment to which the fringe benefit relates.

Therefore section 52(1)(c)(i) applies and the employee should not be required to provide a declaration in a form approved by the Commissioner in respect of the benefit received by the employee.

d.) The employee will give X Ltd, before the declaration date, a travel diary, where the accommodation provided is in respect of travel away from the employee's usual place of residence for a continuous period of 5 nights or more.

In relation to whether the employee would be able to claim a deduction for the cost of accommodation while they are undertaking travel on business for X Ltd, Miscellaneous Taxation Ruling MT 2030 recognises at paragraph 35 that "…appropriate deductions may be allowed for the cost of meals, accommodation and incidental expenses incurred while the employee is travelling in the course of carrying out the duties of employment".

MT 2030 further recognises at paragraph 36 that where an employee is travelling on business on behalf of an employer, expenses of travel are incidental to the proper carrying out of the employment function and do not have the character of being private or domestic expenses.

The factors that indicate an employee is travelling on business on behalf of an employer are outlined in paragraphs 36 to 43 of MT 2030. These factors include the employee:

• Does not change their employment location;

• Is generally not accompanied by their spouse or family;

• Stays away from their employment location and residence for short periods of time; and

• Does not change their place of residence.

In applying the above factors to the facts, the following conclusions may be made:

• The employee does not change their employment location while they are in Country A, as their home base remains in Australia and they are only temporarily in Country A as part of their employment in Australia;

• The employee is generally not accompanied by their spouse or family, as X Ltd does not permit spouses to accompany the employee travelling to Country A on business;

• The employee stays away from their employment location and residence for short periods of time, for a fixed brief period of time of up to 30 days, 60 days, 90 days or 120 days;

• The employee does not change their place of residence; the employee's usual place of residence is in Australia and it will continue to be maintained during the period they are in Country A.

Based on these factors, the employees have been/are travelling on business for a period of up to 30 days. Further, if the employees had incurred expenses in relation to accommodation, they would be entitled to a deduction for the costs of accommodation. Therefore, the benefit will be an "exclusive employee residual benefit" under section 52(1)(c)(i) and the application of section 52(1) will reduce the taxable value of the benefit to nil.

Question 1(c)

Refer to the reasoning in question 1(b), which is equally applicable here. Also, regardless of whether an employee is in Country A for a period of less than 30 days or whether it is up to 60 days, the nature of their trips remains the same. The employees are in Country A to carry out the requirements of their jobs, which is to train and transfer knowledge and supervise local employees.

Question 1(d)

Refer to the reasoning in question 1(b), which is equally applicable here. Also, regardless of whether an employee is in Country A for a period of less than 30 days or indeed up to 90 days, the nature of their trips remains the same. The employees are in Country A to carry out the requirements of their jobs, which is to train and transfer knowledge and supervise local employees.

Question 1(e)

Refer to the reasoning in question 1(b), which is equally applicable here. Also, regardless of whether an employee is in Country A for a period of less than 30 days or indeed up to 120 days, the nature of their trips remains the same. The employees are in Country A to carry out the requirements of their jobs, which is to train and transfer knowledge and supervise local employees.

Question 2(a)

Refer to the analysis in question 1(a), which is equally applicable here. This is regardless of whether the benefit is being provided by the joint venture, which would be considered an arranger, under paragraph (e) of the definition of a fringe benefit under section 136 of the FBTAA.

Question 2(b)

Refer to the reasoning in question 1(b), which is equally applicable here. The employees are undertaking travel on business when they go to Country B. The employee would then be able to claim a deduction under section 8-1 of the ITAA 1997 and therefore the otherwise deductible rule in section 52(1) will apply.

Question 3(a)

Under section 30(1), an allowance will be considered a Living Away From Home Allowance (LAFHA) subject to FBT if:

• The allowance is paid to the employee by the employer as a result of employment; and

• The allowance is in the nature of compensation to the employee for additional expenses (not being deductible expenses) and other disadvantages incurred by the employee by reason that the employee is required to live away from their usual place of residence in order to perform duties of their employment.

Having regard to the analysis in question 1(b) above, the employees are considered to be travelling on business and are not LAFH for the following reasons:

• The employees do not change their employment location and remain on their Australian employment;

• The employees are generally not accompanied by their spouses or family;

• The employees stay away from their employment location and residence in Australia for a short period of time; and

• The employees do not change their usual place of residence.

As the employees are travelling on business and are not LAFH, the circumstances in which any meal and incidentals expenditure are incurred results in the expenses ceasing to be of a private or domestic nature and would therefore be deductible to the employee. As such, the outgoings incurred by the employee for food or drink, or which are incidental to travel on business, are considered as having a business related character. Therefore, the per diem should not be considered a LAFHA under section 30 of the FBTAA.

Question 3(b)

The ATO publication "PAYG Withholding from Allowances" outlines the treatment of various types of allowances. Table 2 provides that a domestic or overseas travel allowance involving an overnight absence from the employee's ordinary place of residence is not required to be reported on the employee's PAYG Payment Summary where the amount is equivalent to or less than the reasonable allowance amount.

Section 900-30 of the ITAA 1997 states that a travel allowance is an allowance an employer pays to an employee to cover losses or outgoings that:

• Are incurred for travel away from the employee's ordinary residence that is undertaken in the course of their duties as an employee; and

• The losses or outgoings are for accommodation, food or drink, or are incidental to travel.

Paragraphs 53 to 62 of Taxation Ruling TR 2004/6 provides the following factors to consider when determining if an allowance paid to an employee is a travel allowance:

• The employee is sleeping away from home;

• The allowance must cover costs of accommodation, food or drink or incidentals;

• The travel must cover specific journeys;

• The allowance must be paid as an allowance and not folded-in as part of normal salary/wages;

• The allowance must be a bona fide travel allowance.

Paragraph 60 of Taxation Ruling TR 2004/6 states that an allowance will be a bona fide travel allowance where the allowance paid is an amount reasonably expected to cover accommodation, meals and other expenses incidental to the travel.

Having regard to the definition of a travel allowance under section 900-30 ITAA 1997 and Taxation Ruling TR 2004/6 and the circumstances in which the per diem is provided to X Ltd employees, the per diem will be considered as a travel allowance.

The per diem will also be equivalent to or less than the reasonable amount specified in Taxation Determination TD 2015/14, therefore X Ltd will not need to withhold PAYG withholding or report the per diem on the employees' 2016 PAYG Payment Summaries. For the 2017 and 2018 income tax years, where the per diem is equivalent to or less than the reasonable amount specified in the relevant Taxation Determination, then the position should be the same as for the 2016 income tax year.

Question 4(a)

Refer to the analysis in question 3(a), which is equally applicable here.

Question 4(b)

Refer to the analysis in question 3(b), which is equally applicable here.

Question 5(a)

Refer to the analysis in question 1(a), which is equally applicable here. As the employees are employed by X Ltd to perform work, the provision of travel by X Ltd, or an associate of X Ltd, will be a fringe benefit.

Question 5(b)

Refer to the analysis in question 1(b), which is equally applicable here. The employees are undertaking travel on business when they go to Country A. The employee would then be able to claim a deduction under section 8-1 of the ITAA 1997 and therefore the otherwise deductible rule in section 52(1) will apply.

Question 5(c)

Refer to the analysis in question 5(b), which is equally applicable here. Furthermore, regardless of whether an employee is in Country A for a period of less than 30 days or whether it is up to 60 days, the nature of their trips remains the same. The employees are in Country A to carry out the requirements of their jobs, which is to train and transfer knowledge and supervise local employees.

Question 5(d)

Refer to the analysis in question 5(b), which is equally applicable here. Furthermore, regardless of whether an employee is in Country A for a period of less than 30 days or whether it is up to 90 days, the nature of their trips remains the same. The employees are in Country A to carry out the requirements of their jobs, which is to train and transfer knowledge and supervise local employees.

Question 5(e)

Refer to the analysis in question 5(b), which is equally applicable here. Furthermore, regardless of whether an employee is in Country A for a period of less than 30 days or whether it is up to 120 days, the nature of their trips remains the same. The employees are in Country A to carry out the requirements of their jobs, which is to train and transfer knowledge and supervise local employees.

Question 6(a)

Refer to analysis in question 5(a), which is equally applicable here.

Question 6(b)

Refer to the analysis in question 5(b), which is equally applicable here. The employees are undertaking travel on business when they go to and from Country B. The employee would then be able to claim a deduction under section 8-1 of the ITAA 1997 and therefore the otherwise deductible rule in section 52(1) will apply.