Edited version of your written advice

Authorisation Number: 1013069044041

Date of advice: 29 August 2016

Ruling

Subject: Provision of accommodation, reimbursements for meals and allowances

Question 1(a)

Is the provision of the accommodation a fringe benefit provided by the employer as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

Question 1(b)

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?

Answer

Yes

Question 2(a)

Where the cost of meals and other expenses incidental to travel are reimbursed by A or B, is the reimbursement of these costs a fringe benefit?

Answer

Yes

Question 2(b)

If the reimbursement of the cost of meals and other expenses incidental to travel are a fringe benefit, does the otherwise deductible rule in section 24 of the FBTAA reduce the taxable value of the benefit to nil?

Answer

Yes

Question 3(a)

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

Answer

No

Question 3(b)

If the per diem provided by A is not subject to section 30 of the FBTAA 1986 and the per diem is equivalent to, or less than, the reasonable amounts for travel allowance expenses under Taxation Determination TD 2015/14 and 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 A need to withhold Pay-As-You-Go ("PAYG") withholding tax and report the per diem on the employee's PAYG payment summary?

Answer

No

Question 4(a)

Is the provision of transportation to and from the country X at the beginning and the end of the business trip a fringe benefit as defined in subsection 136(1) of the FBTAA?

Answer

Yes

Question 4(b)

If the provision of travel to and from the country X at the beginning and the end of the business trip 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 ended 31 March 2016

• FBT year ending 31 March 2017

• FBT year ending 31 March 2018

• FBT year ending 31 March 2019

• the income tax year ending 30 June 2016

• the income tax year ending 30 June 2017

• the income tax year ending 30 June 2018;and

• the income tax year ending 30 June 2019.

The scheme commences on:

1 April 2015

Relevant facts and circumstances

• A and B are wholly owned subsidiaries of D.

• A is the country Y's management services company in the E group. B is the main licensed entity in country Y. D, A and B are within a single tax consolidated group headed by D.

• D established C a branch of the country Y's entity, E Group Services Limited, which is a wholly owned subsidiary of D.

• The key objective in establishing the C for existing business lines is to manage their costs, streamline processes to improve service quality and to assist with managing the expansion of the business. This is part of a broader transformation of the business of the D group of companies.

• The C is responsible for assisting D's global divisions. However, the C specifically assists the following divisions:

• Finance

• Human Resources

• Claims

• Operations

• Information Technology; and

• Non-claims Procurement.

• In order to meet the objectives for the transformation of the business of the D group of companies, the business is extending its transformation process to transfer additional tasks and functions to the C, particularly in respect of finance processes and capabilities, and to establish more senior roles for the tasks that were previously transitioned.

• The transfer of the traditional tasks and functions is intended to be performed in the following stages for each additional task /function that is transitioned to the C.

Solution design

• Design of the function within the C.

• Determining the number of staff required to service the function.

Transition (between 11 and 14 weeks)

• Hiring employees for C in the country X.

• Transition of knowledge from A to the C in relation to the function.

• Training of C staff in carrying out their roles for the function.

• Testing the function delivery service before going live.

• Smoothing out any operational issues before going live.

Service Delivery (6 weeks)

• Testing the function delivery service live.

• Smoothing out any operational issues.

• The transformation process in respect of the country Y's operations of the D group of companies commenced in late xxxx, and it is expected to conclude in xxxx. C was established prior to this date and was performing services for other parts of the D group of companies.

• As part of the transformation process and before C can operate independently and increase the volume of its operations, A has been and still are required to send their employees from country Y to the county X, to recruit, then train new local hires. The objective of this was and remains to be, a seamless transition to C and to ensure the required quality output is achieved.

• The country Y's employees are selected to undertake the level based on a number of criteria. One of the key criteria is whether the employee has specific knowledge of the role that is being transitioned. Whilst in the country X in addition to recruiting and training the local hires the country Y's employees continue to be in their roles as their activities in the country X are part of this role. When they return to country Y, they continue to be in their country Y's role (albeit some of the duties of the role may have changed as a result of the transition activities in the country X). As a result, at all times there is a continuity of their country Y's role.

• The length of time the employees spend in the country X varies from employee to employee and depends on their role, and on the stage of the transformation process. Based on A travel, assignment policy, trips lasting up to 90 days are considered to be business trips, whereas those on trips exceeding 90 days are considered to be a formal secondment. Each travel type has a different purpose as well as terms and conditions (e.g. benefits). Based on current records, A employees on business trips spend between 3 days and 90 days per trip in the country X.

• While the employees are in country X, A or associates of A (B or C ) will provide the following benefits to their employees:

• A hotel room or serviced apartment for the employee only, for the duration of time they are in the country X. This is paid for by A or B, or by the C and recharged to A or B. With respect to the accommodation, A's preferred hotel for employee short stays is the A Hotel or B Hotel in the Global City as this is located within close proximity to the E office in the city. Under the company's policy, A will only cover the costs of the accommodation and meals. Any additional costs incurred at the accommodation such as room service, telephone charges, mini-bar and in- room movies will be at the employee's own cost. While it is standard policy anyone travelling to the country X for less than 3 months to stay at the hotel mentioned above, if an employee prefers to stay in a short stay (serviced) apartment, the C may arrange such accommodation at its discretion.

• Where employees have a corporate credit card, the payment of ad hoc costs such as meal expenses, airport departure tax and/or other local travel expenses on the credit card are reimbursed by A or B;

• Where employees do not have a corporate credit card, a net per diem of $300 per week is paid by A to cover day-to-day living expenses while the employees are in the country X.

• Where the employees do not have corporate mobile phones, an additional net per diem of $25 per week is provided. That is designed to assist with the costs of calling country Y (due to the high costs of phone calls when "roaming", or the requirement to pay for telephones at the hotel).

• Flights for the employee's travel from country Y to the country X and return are paid for directly by A or B or, where the cost is paid by the C, it is recharged back to A or B, as the costs are ultimately charged to the respective business lines of the D Global business.

• The Guide for E Employees: Business Trips to the city - under 3 months ('the E Guide for Employees') states that while it is possible for the employees' partners to travel with them to the country X, all additional costs for accommodation and travel relating to the employees' family will be the employee's responsibility. It is understood that the majority of the employees are not accompanied by their families when travelling to the country X.

• Whilst in the country X, the employment terms and conditions of the employee include:

• The employees are subject to the ultimate control of A, rather the C.

• Any leave entitlements continue to be accrued in accordance with country Y's laws.

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

• The employees continue to be subject to A' performance review procedures and report to a person in A (not the C).

• report to a person in A (not the C).

Assumptions

In considering this application, the applicant requested for the commissioner to make the following assumptions in relation to the employees and the travel, accommodation benefits and per diems provided to the employees by A, B or C:

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

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

• The accommodation in the country X is provided by a third party under an arm's length agreement between A, B or C and the third party.

• The per diem for the relevant future years will be equivalent to, or less than, the reasonable amounts for travel allowance expenses set out under a future Taxation Determination for that relevant income year in relation to income tax and the reasonable travel and overtime meal allowance expense amounts.

Relevant legislative provisions

Section 20 of the FBTAA

Section 23 of the FBTAA

Section 24 of the FBTAA

Section 30 of the FBTAA

Section 45 of the FBTAA

Section 47 of the FBTAA

Section 50 of the FBTAA

Section 51 of the FBTAA

Section 52 of the FBTAA

Section 136 of the FBTAA

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997)

Section 8-1 of the ITAA 1997

Section 900-30 of the ITAA 1997

Reasons for decision

These reasons for decision accompany the Notice of private ruling for A.

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

In order to more concisely answer the specific questions you have asked in your application, it is important for the Commissioner to consider whether the employees are travelling or living away from home.

Paragraphs 35 and 36 of Miscellaneous Taxation Ruling MT 2030 Fringe benefits tax: living-away-from-home allowance benefits (MT 2030) refer to the distinction between travelling and living away from home:

'35......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.

36. 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.'

Further, 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 that the employee:

(a) does not change their employment location;

(b) is generally not accompanied by their spouse or family;

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

(d) does not change their place of residence.

Having regard to the above factors listed in MT 2030, the application to the facts is as follows:

(a) The employee does not change their employment location

Whilst in the country X, the employee's job location is not changed. The employees are still performing their duties of employment for A in country Y. Their temporary travel to the country X is merely an extension of their country Y's duties and is a requirement of their country Y's role. They are asked by the country Y's entity to undertake a business trip to the country X. Whilst in the country X their duty is predominately to recruit and train staff so the C can better support the business lines of A and the D group of companies.

The employees remain on their country Y's employment contracts with A and continue to report to the business lines at A in country Y. They do not sign a separate employment contract to perform services in the country X. All employees:

• continue to be paid from country Y.

• continue to be subject to the country Y's terms and conditions of employment.

• continue to be under the ultimate control of A in country Y.

• continue to have country Y's superannuation contributions made on their behalf by A.

When the employee's duties on the transformation project in the country X finish or when there is a break between project phases, the employee would be required to return to country Y and perform their usual duties in the country Y's office without any transitional period.

In addition, all costs relating to the employees are borne by A (i.e. their employer in country Y or B which is also located in country Y).

Given the distance between country Y and the country X, if the employee's employment location had changed then typically their place of residence would also change. However, there has been no actual change of residence for the employee in question. Employees travelling to the country X continue to maintain their country Y's place of residence as the short duration of their trip makes it almost impossible to lease out their property during the travel period and, where applicable, their families are generally not accompanying them to the country X and so need accommodation to be retained in country Y. Whilst in country X, the employees do not establish a residence in the country X. The employee only stay in accommodation provided by the company which is very short term in nature, being, the B Hotel or A Hotel in country Z, or in very limited cases, a serviced apartment. Employees are not provided with a choice of the accommodation. The very nature of the accommodation in the country X is indicative that there has not been a change in job location or residence - if either of these has occurred in relation to the employees in the country X it would be more cost effective for their employer to provide them with accommodation that was longer term in nature (e.g. a lease over a residential property).

Based on the above reasons, we can conclude that the employees do not change their employment location while they are in the country X because at al times their job location/home base is in country Y. At all times, the employees continue to perform their duties of employment for A in country Y.

(b) The employee is generally not accompanied by spouse or family

Although it is possible for the spouse to accompany an employee to the country X, any costs of accommodation relating to the spouse are borne by the employee and the company will only cover the cost of accommodation for the employee as outlines in the "E Guide for Employees".

As stated in the background facts and circumstances, the majority of the employees do not travel to the country X with their spouse and/or family.

(c) The employee stays away from their employment location and residence for short periods 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 state that:

'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'.

Although paragraph 41 of MT 2030 contains a practical general rule that where the period away does not exceed 21 days the allowance will be treated as a travelling allowance, for longer periods consideration should be given to facts and circumstances of the travel.

Based on the facts provided, each individual employee is sent to the country X for a period of time ranging from 3 to 90 days. The reason for their travel for the short-term nature of the travel is the same in all cases. The transformation process is for a fixed period, and the expectation is that there will be minimal or no additional work or travel to the country X after the employee's role on transformation process is completed.

Even though the period that the E employees spend on business trips ranged from 3 days to 90 days for each trip in the country X, we cannot apply the 21 day rule in this case. This is because the conditions of their employment remain the same regardless of the length of time away from home. Therefore we have to look at the overall picture rather than the individual absences.

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, the employees could receive a travelling allowance over an extended period of time.

Furthermore, D also implements its internal policy on travel and assignment to ensure that staff travelling for periods less than 90 days to be on business trip and being paid a travel allowance and all staff travelling for periods over 90 days to be on formal secondment and in receipt of living-away-from-home allowance (LAFHA).

In consideration of the above, and based on the background facts and circumstances, we can conclude that the employees will only be staying away from their residence for a relatively short period of time.

(d) The employees does not change their place of residence

The nature of the accommodation provided (hotels or serviced apartments) is short term. The employees have no choice in relation to the accommodation in which they stay; the accommodation is chosen to be near their site. Employees maintain their place of residence in country Y and their associated living arrangements are not changed due to the short term nature of their assignments to country X. At the end of their travel in the country X it is the company's and the employee's intention that they return to their home in country Y.

In conclusion, on consideration of all the relevant factors, the Commissioner accepts that the employees are travelling in the course of their employment rather than living away from home.

Question 1(a)

Summary

The provision of the accommodation by E or its associates to the employees whilst in the country X is a fringe benefit under subsection 136(1) of the FBTAA.

Detailed reasoning

Pursuant to section 136 of the FBTAA, a fringe benefit is defined as:

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

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

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

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

(c) the employer; or

(d) an associate of the employer;

…

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

(f) a payment of salary or wages….; or

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

A benefit is defined in section 136 of the FBTAA as including any right, privilege, service or facility that is provided under an arrangement for or in relation to the provision of work.

For the provision of the accommodation by the employer to be a fringe benefit as defined, a benefit must be provided by the employer or an associate to an employee in respect of their employment.

Further, the benefit is not one that is specifically excluded as per paragraph (g) as defined in subsection 136(1) of the FBTAA which provides that an exempt benefit is not a fringe benefit.

In the present case, the employer A or an associate of A (i.e. B or C) provides short term accommodation in a hotel or served apartment for employees near their site when they are required to travel to the country X in the course of performing the duties of the employment.

The exemption for accommodation in subsection 47(5) of the FBTAA will not apply as the employees do not satisfy paragraph 47(5) (c). This is because the accommodation is provided while the employee is undertaking travel in the course of performing the duties of that employment as established previously.

Additionally, the exemption for accommodation in subparagraph 47(5)(d)(i) will not be satisfied on the basis that the employees' usual place of employment is not, or adjacent to, an eligible urban area within Australia or a remote location that is not in Australia.

Accordingly, as the employees are engaged by, and performing work for, their employer A or an associate of A (i.e. B or C) and the benefit provided is not an exempt benefit, the provision of accommodation by A, B or C will be a fringe benefit as defined by section 136 of the FBTAA.

Question 1(b)

Summary

There will be no fringe benefits tax liability in respect of the provision of accommodation by the employer as the taxable value of the benefit will be reduced to nil under the otherwise deductible rule (ODR) in section 52 of the FBTAA.

Detailed reasoning

As the provision of accommodation is a fringe benefit provided by A, B or C to the employee, the benefit will be a residual fringe benefit as defined in section 45 of the FBTAA.

The calculation of the taxable value of a residual fringe benefit is set out in sections 48 to 51 of FBTAA. These sections provide different valuation rules depending upon whether the residual benefit is:

• an in-house, or external residual fringe benefit; and

• a period, or non-period residual fringe benefit .

In general terms, a residual benefit will be an in-house residual benefit if the employer (or an associate) carries on a business that includes the provision of identical or similar benefits principally to outsiders. A residual benefit that is not an in-house residual benefit will be an external benefit.

Generally, where an external residual fringe benefit is provided for less than one day, the external residual fringe benefit will be valued as an external non-period residual fringe benefit in accordance with section 50 of the FBTAA. Where the fringe benefit is provided over a longer period, it will be valued as an external period residual fringe benefit in accordance with section 51 of the FBTAA

According to the above, the residual fringe benefit provided by A will be an "external period residual fringe benefit" as the benefit is not provided 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 51 of the FBTAA. As the accommodation will be paid for by A, B or C (i.e. B and C being associates of A) and will be purchased by those entities under arm's length transaction, prima facie the taxable value of the residual fringe benefit will be equal to the amount paid or payable by A, B or C in respect of the benefit under subsection 51(a) of the FBTAA.

However, the taxable value of the residual fringe benefit will be reduced to nil where the ODR in subsection 52 (1) of the FBTAA applies. For the ODR to apply, it is necessary to establish that the employee would have been entitled to a deduction under section 8-1 of the ITAA 1997 had they incurred the expenditure on their accommodation.

In relation to whether the employee would be able to claim a deduction for the cost of accommodation while they are undertaken in the course of carrying out the duties of employment, Paragraphs 35 and 36 of MT 2030 explain that 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 their employment.

Further, the ODR will apply where:

'(a) the recipient of a residual fringe benefit in relation to an employer 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 ( referred to as the "Gross Deduction" or "GD"), a once-only deduction would have been allowable to the recipient under, inter alia, the 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 this is the case for the A employees); and

(c) either of the below applies:

i. the fringe benefit is an "exclusive employee residual benefit' 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 to 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 A or its, associate, to the employee:

As the recipient of the benefit is an employee of A and the employee had incurred and paid unreimbursed expenditure in respect of the provision of the benefit, they would be able to claim a deduction under section 8-1 of the ITAA1997 on the basis that the expense was necessarily incurred in the course of their employment duties.

The amount calculated in accordance with the formula: GD less RD exceeds nil because the GD (which is equal to the amount paid by A, B or C) is greater than RD (which is nil because there is no contribution by the employee to the cost of the accommodation).

The accommodation expenditure related to travel for the transformation project and it was incurred to exclusively derive salary or wages in respect of employment with A. Accordingly, the fringe benefit is an "exclusive employee residual benefit" under the definition in subsection 136(1).Therefore, subparagraph 52(1)(c)(i) applies and the employee will not be required to provide a declaration in a form approved by the Commissioner to A.

Furthermore, there will be no fringe benefits tax liability in respect of the provision of accommodation by the employer as the taxable value of the benefit will be reduced to nil under the ODR in section 52 of the FBTAA.

Question 2(a)

Summary

The reimbursement of the cost of meals and other expenses incidental to travel that are provided by A or B to its employees is a fringe benefit as defined in section 136 of the FBTAA.

Detailed reasoning

Pursuant to section 136 of the FBTAA, a fringe benefit is defined as:

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

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

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

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

(c) the employer; or

(d) an associate of the employer;

…

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

(f) a payment of salary or wages….; or

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

A benefit is defined in section 136 of the FBTAA as including any right, privilege, service or facility that is provided under an arrangement for or in relation to the provision of work.

For the reimbursements to be a fringe benefit as defined, a benefit must be provided by the employer (or an associate) to an employee in respect of their employment.

Further, the benefit is not one that is specifically excluded as per paragraph (g) as defined in subsection 136(1) of the FBTAA which provides that an exempt benefit is not a fringe benefit.

In the present case, the employer reimburses their employees for expenses incidental to the travel to the country X that they are required to make in the course of performing the duties of the employment.

The exemption for the meals and other expenses incidental to travel in section 20A of the FBTAA will not apply as the benefit is not covered by a no-private-use declaration to render such benefits as an exempt benefit.

As the employees are engaged by, and performing work for, the employer A or its associate, B and the benefit provided is not an exempt benefit, the reimbursement of costs of meals and other expenses that are incidental to travel by A or B to its employees will be a fringe benefit as defined by subsection 136(1) of the FBTAA.

Question 2(b)

Summary

There will be no fringe benefits tax liability in respect of the reimbursement of the cost of meals and other expenses incidental to travel as the taxable value of the benefit will be reduced to nil under the ODR in section 24 of the FBTAA.

Detailed reasoning

As the reimbursement of the cost of meals and other expenses incidental to travel is a fringe benefit provided by A or B to the employee, the benefit will be an expense payment fringe benefit as defined in section 20 of the FBTAA.

The expense payment fringe benefit will not be an in-house property expense payment fringe benefit nor will be an in- house residual expense payment fringe benefit on the basis that A does not carry on a business that consists of or includes the provision of identical or similar property and other benefits principally to outsiders. As such, the expense payment fringe benefit would not be an in-house expense payment fringe benefit and will therefore be an "external expense payment fringe benefit".

The taxable value of an external expense payment fringe benefit will be calculated in accordance with section 23 of the FBTAA. As the reimbursement of the costs of meals and other expenses incidental to travel will be provided by A or B, prima facie the taxable value of the expense payment fringe benefit will be equal to the reimbursement paid or payable by A or B in respect of the benefit.

The taxable value of the expense payment fringe benefit will be reduced where the ODR in section 24 of the FBTAA applies. For the ODR to apply, it is necessary to establish that the employee would have been entitled to a deduction under section 8-1 of the ITAA 1997 had they incurred the expenditure on their meals and other expenses incidental to travel.

In relation to whether the employee would be able to claim a deduction for the cost of meals and other expenses incidental to travel while they are undertaken in the course of carrying out the duties of employment, paragraphs 35 and 36 of MT 2030 explains that 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 their employment.

Further, the ODR rule will apply where:

'(a) the recipient of an expense payment fringe benefit in relation to an employer 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 (referred to as the "Gross Deduction" or "GD", a once-only deduction would have been allowable to the recipient under inter alia, the ITAA 1997; and

(ba) the amount calculated in accordance with the formula GD less RD exceeds nil

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

(c) either of the below applies:

i. an "eligible incidental travel expense payment benefit", because it is a benefit where, if the recipient had incurred the expenditure, it is in respect of travel by the recipient away from the recipient's usual place of residence undertaken in the course of performing the duties of his/her employment, being expenditure in respect of the purchase of the food or drink or otherwise incidental to travel (except in respect of accommodation) and relates solely or principally to travel by the recipient outside Australia, and the reimbursement is in the nature of compensation for expenses the employee might reasonably be expected to have incurred; or

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; and

(d) Where the expense payment fringe benefit is an extended travel expense payment benefit (being a benefit where the recipient's expenditure is in respect of travel outside Australia and involves the recipient being away from the recipient's usual place of residence for a continues period including 5 nights or more), 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 reimbursement of the cost of meals and other expenses incidental to travel provided by A or B to the employee:

As the recipient of the benefit is an employee of A and the employee had incurred and paid unreimbursed expenditure in respect of the provision of the benefit, they would be able to claim a deduction under section 8-1 of the ITAA1997 on the basis that the expense was necessarily incurred in the course of their employment duties.

The amount calculated in accordance with the formula: GD less RD exceeds nil because the GD (which is equal to the amount paid by A, B or C) is greater than RD (which is nil because there is no contribution by the employee to the cost of meals and other expenses incidental to travel); and

The fringe benefit is an "eligible incidental travel expense payment benefit" because it is a benefit where, if the recipient had incurred the expenditure, is in respect of travel by the recipient away from the recipient's usual place of residence undertaken in the course of performing the duties of his or her employment, being expenditure in respect of food or drink or otherwise incidental to travel (except in respect of accommodation) and relates solely to travel by the recipient in the country X and the reimbursement is in the nature of compensation for expenses the employee might reasonably be expected to have incurred.

Therefore, the employee would not be required to provide documentary evidence to the employer before the declaration date.

Accordingly, there will be no fringe benefits tax liability in respect of the reimbursement of the cost of meals and other expenses incidental to travel as the taxable value of the benefit will be reduced to nil under the ODR in section 24 of the FBTAA.

Question 3(a)

Summary

The per diem paid will not qualify as a LAFHA under section 30 of the FBTAA.

Detailed reasoning

As already discussed, the Commissioner accepts that the employees are travelling in the course of their employment rather than living away from home.

Accordingly, the per diem paid to the employees will not qualify as a LAFHA under section 30 of the FBTAA.

Question 3(b)

Summary

As the per diem provided by A is not subject to section 30 of the FBTAA 1986 and the per diem is equivalent to, or less than, the reasonable amounts for travel allowance expenses under Taxation Determination TD 2015/14 and a future Taxation Determination in relation to income tax and the reasonable travel and overtime meal allowance expense amounts for an income tax year, A does not need to withhold PAYG withholding and report the per diem on the employee's PAYG payment summaries for 2016, 2017, 2018 and 2019 income years.

Detailed reasoning

Where the per diem does not qualify to be a LAFHA under subsection 30(1) of the FBTAA, the per diem will be subject to income tax under section 6-5 of the ITAA 1997 and prima facie should be reported on the employee's PAYG Payment Summary.

Subsection 900-30(3) of the ITAA 1997 defines a travel allowance as:

'…an allowance your employer pays or is to pay to you to cover the losses or outgoings:

(a) that you incur for travel away from your ordinary residence that you undertake

in the course of your duties as an employee; and

(b) that are losses or outgoings for accommodation or for food or drink, or are incidental to the travel.

The travel may be within or outside Australia.'

Taxation Ruling TR 2004/6 Income tax: substantiation exception for reasonable travel and overtime meal allowance expenses provides factors for consideration in determining when an allowance will qualify as a travel allowance. These factors include:

• the employee must sleep away from home;

• the allowance must cover the cost of accommodation (domestic travel only) or food or drink or expenses incidental to the travel;

• must cover specific journeys; and must be paid as an allowance.

As the per diem paid meets the requirements specified in TR 2004/6, the per diem is considered to be a travel allowance as defined in subsection 900-30(3) of the ITAA 1997.

For an employer to determine whether or not amounts are required to be withheld from payments of travel allowances, paragraph 34 of the TR 2004/6 indicates that this can be varied where special circumstances exist. That is, where it is reasonable to expect that:

• expenses up to at least the amount of the allowance will be incurred by the employee;

• the expenses will be incurred for the purpose for which the allowance is paid;

• the expenses will be tax deductible to the employee; and

• the amount and nature of the allowance is shown separately in the accounting records of the employer.

Accordingly, as the allowance received does not exceed the reasonable allowance amount specified in Taxation Determination TD 2015/14, the allowance is fully expected to be expended on deductible work-related expenses at least equal to the amount of the allowance, and the amount and nature of the allowance is shown separately in the accounting records of A, then A is not required to report the per diem amount on the employees' 2016 payment summary nor apply PAYG withholding for that year.

On the basis that the per diem for future income years will be equivalent to or less than the reasonable amount specified in a future Taxation Determination in relation to income tax and the reasonable travel and overtime meal allowance expense amounts for that relevant income tax year, on the same basis explained above, A will also not be required to withhold PAYG withholding tax nor they need to report the per diem on the employee's PAYG Payment Summary for the 2017, 2018 and 2019 income years.

Question 4(a)

Summary

The provision of transportation would be a benefit as defined in section 136 of the FBTAA.

Detailed reasoning

Pursuant to section 136 of the FBTAA, a fringe benefit is defined as:

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

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

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

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

(c) the employer; or

(d) an associate of the employer;

…

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

(f) a payment of salary or wages….; or

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

A benefit is defined in section 136 of the FBTAA as including any right, privilege, service or facility that is provided under an arrangement for or in relation to the provision of work.

For the provision of transportation by the employer to be a fringe benefit as defined, a benefit must be provided by the employer (or associate) to an employee in respect of their employment.

Further, the benefit is not one that is specifically excluded as per paragraph (g) as defined in subsection 136(1) of the FBTAA which provides that an exempt benefit is not a fringe benefit.

In the present case, A as the employer provides transportation for its employees when they are required to travel to and from the country X in the course of performing the duties of their employment.

The exemption for transportation in subsection 47A (2) of the FBTAA will not be satisfied on the basis that A does not make a 'no-private-use' declaration each FBT year in relation to the relevant benefits pursuant to section 20A of the FBTAA.

As the employees are engaged by, and performing work for, the employer and the benefit provided is not an exempt benefit, the provision of transportation by the either A or B or C (being associates of A) will be a fringe benefit as defined by section 136 of the FBTAA.

Question 4(b)

Summary

There will be no fringe benefits tax liability in respect of the provision of transportation by the employer as the taxable value of the benefit will be reduced to nil under the ODR in section 52 of the FBTAA.

Detailed reasoning

The provision of transportation by A, B or the C to the employee is a fringe benefit which will be a residual fringe benefit as defined in section 45 of the FBTAA.

The calculation of the taxable value of a residual fringe benefit is set out in sections 48 to 51 of FBTAA. These sections provide different valuation rules depending upon whether the residual benefit is:

• an in-house, or external residual fringe benefit; and

• a period, or non-period residual fringe benefit .

In general terms, a residual benefit will be an in-house residual benefit if the employer (or an associate) carries on a business that includes the provision of identical or similar benefits principally to outsiders. A residual benefit that is not an in-house residual benefit will be an external benefit.

Generally, where an external residual fringe benefit is provided for less than one day, the external residual fringe benefit will be valued as an external non-period residual fringe benefit in accordance with section 50 of the FBTAA. Where the fringe benefit is provided over a longer period, it will be valued as an external period residual fringe benefit in accordance with section 51 of the FBTAA.

According to the above, the transportation benefit provided will be an "external non-period residual fringe benefit" as it is not provided to members of the public and it is provided in relation to a period of less than 1 day (e.g. each journey takes less than one day).

The value of the residual fringe benefit will therefore be calculated in accordance with section 50 of the FBTAA. As the transportation is provided and it is purchased by A, B or C under arm's length transaction, prima facie the taxable value of the residual fringe benefit will be equal to the amount paid or payable by A, B or C in respect of the benefit under subsection (50)(a) of the FBTAA.

However, the taxable value of the residual fringe benefit will be reduced to nil where the ODR in subsection 52 (a) of the FBTAA applies. The ODR will apply where:

'(a) the recipient of a residual fringe benefit in relation to an employer 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 ( referred to as the "Gross Deduction" or "GD" ,a once-only deduction would have been allowable to the recipient under inter alia, the ITAA 1997; and

(ba) the amount calculated in accordance with the formula : GD less "RD" exceeds nil,

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

(c) either of the below applies:

i. the fringe benefit is an "exclusive employee residual benefit' 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 to 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 transportation provided by A, B or C to the employee:

As the recipient of the benefit is an employee of A and the employee had incurred and paid unreimbursed expenditure in respect of the provision of the benefit, they would be able to claim a deduction under section 8-1 of the ITAA1997 on the basis that the expense was necessarily incurred in in the course of performing their employment duties.

The amount calculated in accordance with the formula:

GD less RD exceeds nil because the GD (which is equal to the amount paid by A, B or C) is greater than RD (which is nil because there is no contribution by the employee to the cost of the transportation); and

The fringe benefit is an "exclusive employee residual benefit" because it is a benefit where, if the recipient had incurred the expenditure, is in respect of the provision of the transportation that is provided by A, B or C, that expenditure would have been exclusively incurred in gaining or producing the salary or wages of the employee in respect of the employment to which the fringe benefit relates.

Therefore, the employee would not be required to provide documentary evidence to the employer before the declaration date under paragraph 52(1) (c).

In these circumstances, there will be no fringe benefits tax liability in respect of the provision of transportation by A, B or C as the taxable value of the benefit will be reduced to nil under the ODR in section 52 of the FBTAA.