Edited version of your written advice

Authorisation Number: 1013030501180

Date of advice: 8 July 2016

Ruling

Subject: Fringe benefits tax; accommodation; travelling allowance

Question 1

Do allowances paid by Employer X to its employees to cover short term accommodation, food and incidentals whilst performing relief duties, other than those amounts referred to in Question 2, constitute a living-away-from-home allowance (LAFHA) benefit pursuant to subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No

Question 2

Are allowances paid by Employer X to its employees to cover short term accommodation, food and incidentals in the nature of compensation to the employee for additional expenses to be incurred by employees, being deductible expenses, such that they would be precluded from being LAFHA pursuant to paragraph subsection 30(1)(b) of the FBTAA?

Answer

No, where the allowance is to reimburse employees for any 'actual expenses properly and reasonably incurred' for accommodation and meal expenses, it will be an expense payment benefit within paragraph 20(b) of the FBTAA.

Question 3

Do allowances paid by Employer X to its employees to cover short term accommodation, food and incidentals satisfy the substantiation exception pursuant to Subdivision 900-B of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Your request for a ruling on this issue is invalid as the provision in the question does not relate to Employer X's tax obligations or circumstances. Accordingly a ruling cannot be given on this issue. However general advice will be provided on this issue.

Question 4

Is an amount of PAYG required to be withheld under section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) from allowances paid by Employer X to its employees?

Answer

No for both allowances and reimbursed expenses where the amounts do not exceed the reasonable travel amounts as published by the Commissioner in each relevant year.

Question 5

Are allowances paid by Employer X required to be reported on employee PAYG payment summaries under section 16-155 of the TAA 1953?

Answer

No, where the amounts do not exceed the reasonable travel amounts as published by the Commissioner in each relevant year. However, reimbursed expenses will be required to be reported on employee PAYG payment summaries where the amounts form part of an employee's reportable fringe benefit amount for the relevant income year.

This ruling applies for the following fringe benefit tax years:

Year ended 31 March 2015

Year ended 31 March 2016

Year ended 31 March 2017

Year ended 31 March 2018

The scheme commences on:

The scheme has commenced

Relevant facts and circumstances

Employer X requires its employees to be available on a 24hr basis.

Employer X requires specific staffing levels at all times.

Employer X maintains a pool of employees (Employees) who are available for relief duties in order to satisfy the specific staffing levels at all times.

The employment agreement (Agreement) between Employer X and its employees provides Employees will be paid certain allowances for travelling compensation when performing relief duties, to the extent that relief duties require an Employee to reside at a place other than the Employee's residence.

The rates provided in the Agreement are based on the reasonable travel amounts as determined for the lowest salary band in Taxation Determination TD 2014/19. These rates are updated on an annual basis to reflect the Commissioner's determination for future income years.

The Agreement also provides for Employees to be reimbursed actual expenses for accommodation and meals in certain circumstances.

To the extent that there are days where the Employees are absent from their temporary accommodation other than for official duties, allowances are not payable.

The standard duration for an Employee to provide relief duties is up to several weeks.

Where required to obtain their own temporary accommodation, Employees ordinarily obtain short-term accommodation such as a hotel or motel. However, Employees may choose to reside with relatives or friends if appropriate when performing their relief duties.

Employees each continue to maintain their normal employment location during the period they are performing relief duties and immediately return to that location upon its conclusion.

Employees maintain a permanent home and allowances are not paid for days which the Employees return to their permanent home.

Employees are not ordinarily accompanied by family and typically return to their permanent home on weekends and days off.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 20

Fringe Benefits Tax Assessment Act 1986 section 20A

Fringe Benefits Tax Assessment Act 1986 section 30

Fringe Benefits Tax Assessment Act 1986 section 135P

Fringe Benefits Tax Assessment Act 1986 section 136

Income Tax Assessment Act 1997 section 6-1

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 subdivision 900-B

Taxation Administration Act 1953 Schedule 1 section 12-35

Taxation Administration Act 1953 Schedule 1 section 16-155

Reasons for decision

Summary

The allowances paid to Employees by Employer X to cover short term accommodation, food and incidentals whilst performing relief duties will not qualify as a LAFHA under section 30 of the FBTAA.

However, a reimbursement by Employer X of an actual expenses incurred by Employees will be an expense payment benefit as it comes within paragraph 20(b) of the FBTAA.

No FBT liability will arise where Employer X reimburses Employees for actual costs of accommodation and meals incurred while the Employees are performing relieving duties as the expense payment benefit will be an exempt benefit if Employer X makes a no-private use declaration.

Alternatively, if Employer X does not make a no-private use declaration, the expense payment 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 Employees.

Employer X will not be required to withhold an amount of tax on allowances paid to Employees to cover short term accommodation, food and incidentals whilst performing relief duties, where they continue to be based on, and do not exceed, the reasonable amounts published by the Commissioner from time to time.

Employer X will not be required to withhold an amount of tax for reimbursed actual expenses to cover short term accommodation, food and incidentals whilst Employees are performing relief duties.

Amounts paid for allowances will not be required to be reported on Employer X on Employees' PAYG payment summaries where the amounts do not exceed the reasonable travel amounts as published by the Commissioner in each relevant year. However, reimbursed expenses will be required to be reported on Employees PAYG payment summaries where the amounts form part of an Employee's reportable fringe benefit amount for the relevant income year.

Detailed reasoning

Question 1

Section 136 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) defines a living-away-from-home allowance (LAFHA) benefit as a benefit referred to in section 30 of the FBTAA.

Section 30 of the FBTAA sets out the circumstances in which an allowance paid by an employer to an employee will qualify as a LAFHA.

A LAFHA exists where it is reasonable to conclude from all the surrounding circumstances that some or all of the allowance is in the nature of compensation to the employee for additional expenses incurred, or additional expenses incurred and other disadvantages suffered, because the employee is required to live away from his or her usual place of residence in order to perform the duties of employment. Additional expenses do not include expenses for which the employee would be entitled to an income tax deduction.

The whole or such part of the allowance as satisfies these tests is a LAFHA fringe benefit, the taxable value of which is calculated in accordance with the rules contained in section 31 of the FBTAA.

Miscellaneous Taxation Ruling MT 2030 Fringe benefits tax: living-away-from-home allowance benefits (MT 2030) provides guidelines on LAFHA.

Paragraphs 35 and 36 of MT 2030 refer to the distinction between travelling allowances and LAFHA which state:

.....it is important that living-away-from-home allowances are distinguished from travelling allowances paid to employees. Living-away-from-home allowances are taxable fringe benefits [ ], whereas travelling allowances form part of the employee's assessable income against which 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.

When 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. As it was stated in Case No. B 84, 2 TBRD 390, " ... where the employment actually involves the duty of travelling and therefore staying away from home, the extra expenses of living at hotels, etc., together with costs of conveyance, etc., are deductible as, to that extent, they cease to be of a private or domestic nature."

Paragraphs 37 to 43 of MT 2030 outline factors which may indicate an employee is travelling in the course of performing their duties of their employment including:

(a) no change to their employment location

(b) generally not accompanied by spouse or family

(c) stay away from their employment location and residence for short periods of time; and

(d) no change to their place of residence

Below is an application of these factors to the current circumstances:

(a) No change to their employment location

At all times Employees each continue to maintain their normal employment location during the period they are performing relief duties and immediately return to that location upon its conclusion.

(b) Generally not accompanied by spouse or family

Employees are not ordinarily accompanied by family and typically return to their permanent home on weekends and days off.

(c) Stay away from their employment location and residence for a short period of time

Paragraph 40 of MT 2030 states that 'the nature of the allowance is not to be determined by reference solely to the period for which it is paid'.

Paragraph 41 of MT 2030 states:

There will be circumstances, however, when an employee is away from his or her home base for a brief period in which it may be difficult to conclude whether the employee is living away from home or travelling. As a practical general rule, where the period away does not exceed 21 days the allowance will be treated as a travelling allowance rather than a living-away-from-home allowance. For longer periods, it will be necessary to determine the nature of the allowance with the guidance provided by this Ruling.

Paragraph 39 of MT 2030 provides the example of academics studying on sabbatical leave travelling in the course of their employment rather than living away from home and thus could receive a travelling allowance over an extended period of time.

The standard duration for Employees performing relief duties is up to several weeks

In these circumstances, the Commissioner accepts the period up to several weeks for Employees to provide relief duties can be considered a short period of time.

(d) No change to their place of residence

Employees maintain a place of residence whilst providing relief duties.

Employees ordinarily obtain short-term accommodation such as a hotel or motel when providing relief duties.

Employees are not accompanied by family members and typically return to their permanent home on weekends and days off.

Employees each continue to maintain their normal employment location during the period they are performing relief duties and immediately return to that location upon its conclusion.

Conclusion

The Commissioner accepts that Employees are travelling in the course of their employment when performing relieving duties and not living-away-from-home.

Accordingly, allowances paid to Employees by Employer X, other than reimbursement of actual expenses, to cover short term accommodation, food and incidentals whilst performing relief duties will not qualify as a LAFHA under section 30 of the FBTAA.

Question 2

Reimbursement of actual expenses

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

Employer X's reimbursement of an expense incurred by an Employee will be an expense payment benefit as it comes within paragraph 20(b) of the FBTAA.

However, the expense payment benefit may be an exempt benefit under section 20A of the FBTAA of the FBTAA if it is covered by a no-private-use declaration.

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.

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 (ITAA 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:

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?

Employees ordinarily obtain short-term accommodation such as a hotel or motel when providing relief duties because of a requirement of their employment to reside close to the relevant work place.

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

Employees maintain a place of residence whilst providing relief duties.

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

The Commissioner accepts the standard period for Employees to provide relief duties can be considered a short period of time.

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

Employees are required to reside close to the relevant location they are assigned to when providing relief duties. In that respect, the Commissioner accepts Employees do not have a choice as to the location of the accommodation.

Conclusion

In these circumstances and with consideration to paragraph 4 of TD 96/7, it is determined that the Employees would be able to claim an income tax deduction for reasonable accommodation and meal expenses if Employer X had not reimbursed the costs.

Therefore, no FBT liability will arise where Employer X reimburses Employees for reasonable costs of accommodation and meals incurred while the Employees are performing relieving duties as the expense payment benefit will be an exempt benefit if Employer X makes a no-private use declaration.

Alternatively, if Employer X does not make a no-private use declaration, the expense payment 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.

Question 3

The request for a ruling on this issue is invalid as the provision in the question does not relate to Employer X's tax obligations or circumstances. Accordingly a ruling cannot be given on this issue. However, general advice on employee substantiation has been provided below.

General advice

Under Subdivision 900-B of the ITAA 1997, a deduction is not allowable for a work expense, including a meal allowance expense or a travel allowance expense, unless the expense qualifies as a deduction under a provision of the ITAA 1997 and written evidence of the expense has been obtained and retained by the employee taxpayer.

Taxation Ruling TR 2004/6 Income tax: substantiation exception for reasonable travel and overtime meal allowance expenses (TR 2004/6) explains the way in which the substantiation exception operates for work expenses of employees that are either reasonable travel allowance expenses or reasonable overtime meal allowance expenses.

Paragraph 13 of TR 2004/6 states:

The objective of the substantiation exception for travel and overtime meal allowance expenses provided for in Subdivision 900-B of the ITAA 1997 is to relieve taxpayers covered by the exception from the requirement to substantiate claims for deductible expenses by using detailed calculations, records or receipts. If a claim for expenses that are covered by a travel allowance or overtime meal allowance qualifies for exception from substantiation, it is not necessary to keep written evidence as would otherwise be required under Subdivision 900-E of the ITAA 1997

Paragraphs 21 to 23 of TR 2004/6 details reasonable travel allowances as follows:

21. A domestic or overseas travel allowance expense claim is considered to be reasonable if the amount of the claim covered by the allowance received by an employee, does not exceed the relevant reasonable amounts.

22. Subsection 900-50(2) of the ITAA 1997 requires that, in determining what is reasonable, the Commissioner must consider what it would be reasonable for the employee to incur for the travel.

23. It is the Commissioner's practice to publish reasonable amounts for accommodation at daily rates, meals (showing breakfast, lunch and dinner), and deductible expenses incidental to travel. These amounts are set out for various travel destinations and employee categories as considered appropriate by the Commissioner.

In these circumstances, the allowance rates provided are based on the reasonable travel amounts as determined for the lowest salary band in Taxation Determination TD 2014/19.

Therefore, the allowances paid to Employees by Employer X to cover short term accommodation, food and incidentals whilst performing relief duties will be considered reasonable amounts where they continue to be based on, and do not exceed, the reasonable amounts published by the Commissioner from time to time.

However, each Employer X Employee will be required to examine their individual circumstances when determining their personal taxation obligations. Accordingly, Employer X Employees should refer to TR 2004/6 and the reasonable amounts published by the Commissioner for the relevant income year for guidance in determining whether they individually fall within the substantiation exception in relation to allowances.

Question 4

As outlined in Question 1, the Commissioner does not consider the allowances paid to Employees to be a LAFHA.

Therefore, the allowances paid to Employees by Employer X to cover short term accommodation, food and incidentals whilst performing relief duties will constitute assessable income of the employee under section 6-1 of the ITAA 1997.

Under section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) an entity must withhold an amount from allowances it pays to an individual as an employee (whether of that or another entity).

Accordingly, Employer X will have an obligation to withhold tax under section 12-35 of Schedule 1 to the TAA 1953 because the allowance is paid by Employer X to its Employees.

ATO fact sheet Withholding from allowances (QC 16395) in Table 2 states that where allowances are paid in relation to domestic or overseas travel involving an overnight absence from an employee's ordinary place of residence, and those allowances do not exceed the reasonable allowances amount published by the Commissioner, no withholding is required and the allowance amount does not need to be included on payment summaries.

Therefore, Employer X will not be required to withhold an amount of tax on allowances paid to Employees to cover short term accommodation, food and incidentals whilst performing relief duties, where they continue to be based on, and do not exceed, the reasonable amounts published by the Commissioner from time to time.

Reimbursed expenses

As outlined in Question 2 above, a reimbursement of an expense incurred by an Employee will be an expense payment benefit as defined in section 20 of the FBTAA.

Pursuant to subsection 12-1(3) of the TAA 1953, an FBT expense payment benefit falls within the general exception provisions under section 12-1 of the TAA 1953 relating to PAYG withholding.

Therefore, Employer X will not be required to withhold an amount of tax on allowances paid to Employees as a reimbursement of actual expenses for reasonable accommodation and meals whilst performing relief duties.

Question 5

As outlined in Question 4 above, Table 2 of QC 16395 states that where allowances are paid in relation to domestic or overseas travel involving an overnight absence from an employee's ordinary place of residence, and those allowances do not exceed the reasonable allowances amount published by the Commissioner, the allowance amount does not need to be included on payment summaries.

Consequently, the allowance amounts paid by Employer X, except where the expense is reimbursed, to cover short term accommodation, food and incidentals whilst performing relief duties will not be required to be reported on Employer X's Employees' PAYG payment summaries.

Reimbursed expenses

Section 16-155 of the TAA 1953 relates to annual payment summaries.

Paragraph 16-155(1)(c) of the TAA 1953 provides that a payer entity must give a payment summary where the recipient is an individual and has a reportable fringe benefit amount at the end of a financial year.

Paragraph 16-155(2)(b) of the TAA 1953 provides the payment summary must cover the reportable fringe benefit amount, except so much as is covered by a previous payment summary.

A reportable fringe benefit amount is defined in section 135P of the FBTAA as follows:

An employee has a reportable fringe benefits amount for a year of income in respect of the employee's employment by an employer if the employee's individual fringe benefits amount for the year of tax ending on 31 March in the year of income in respect of the employee's employment by the employer is more than $2,000.

Therefore, Employer X will need to report on their Employees' annual payment summaries amounts which are:

(1) an FBT expense payment benefit as defined under section 20 of the FBTAA; and

(2) a reportable fringe benefit as defined in section 135P of the FBTAA; and

(3) total more than $2000 for the FBT tax year ending 31 March in each relevant income year;

Reportable fringe benefits will include amounts of allowances paid to Employees as a reimbursement of actual expenses for reasonable accommodation and meals whilst performing relief duties.