Edited version of your written advice

Authorisation Number: 1051302502568

Date of advice: 2 November 2017

Ruling

Subject: Travel Allowance vs. Living Away From Home Allowance

Question 1

Will payment of Allowance A (defined below) from the Company to an employee be considered a living away from home allowance (LAFHA) under section 30 of the FBTAA 1986?

Answer

No

Question 2

Will payment of Allowance B (defined below) from the Company to an employee in the circumstances below be considered a LAFHA under section 30 of the FBTAA 1986?

Answer

No

This ruling applies for the following periods:

1 April 2016 to 31 March 2017

The scheme commences on:

1 April 2016

Relevant facts and circumstances

The Company provides electrical services throughout Australia.

The work undertaken by the Company is mainly based in New South Wales (NSW). Employees are based in one region with the main depot being located in another region of NSW.

The Company has secured work projects in remote locations as a result of the current economic climate. These projects have anticipated project end dates but may extend beyond forecasted end dates as a result of environmental factors. Employees are required to be at these locations for the duration of the project.

On top of their base salary, an allowance is paid by the Company to employees working on projects in remote locations. The amount of the allowance, and whether it covers both meals and accommodation, varies depending on who arranges the accommodation:

a) If an employee arranges and pays for their own accommodation:

i. an allowance is paid (Allowance A); and;

ii. the allowance covers both meals and accommodation.

b) If the Company arranges and pays for the employee’s accommodation:

i. an allowance less than Allowance A is paid (Allowance B); and;

ii. the allowance covers meals only.

An employee, X, was instructed by the Company to work on a project in a remote location in NSW for 51 days. X arranged for their own accommodation, and was paid an allowance in the form of Allowance A.

X is an Australian resident and usually resides in a non-remote location in NSW. X continued to maintain this residence for the duration of the project. X returned to this residence on the weekends and at the end of the project. X did not relocate any personal effects from their usual place of residence.

X shared accommodation with another employee (Y) for the duration of the project. The accommodation was a two bedroom and two bathroom townhouse with a living area, kitchen facilities and laundry. X was not accompanied or visited by their partner or family.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986, section 20

Fringe Benefits Tax Assessment Act 1986, section 21

Fringe Benefits Tax Assessment Act 1986, section 24

Fringe Benefits Tax Assessment Act 1986, section 30

Fringe Benefits Tax Assessment Act 1986, subsection 136(1)

Income Tax Assessment Act 1997 (ITAA 1997), section 8-1

Income Tax Assessment Act 1997, section 15-2

Reasons for decision

i. Living away from home allowance

Under subsection 136(1) of the FBTAA 1986, a “fringe benefit” is defined as a benefit provided to an employee by their employer in respect of their employment, not including the payment of salary or wages.

Relevantly for this case, section 30 of the FBTAA 1986 provides that a payment will constitute a LAFHA benefit if:

● an employer provides an allowance to an employee;

● the allowance is in the nature of compensation for additional expenses incurred, and additional disadvantages suffered by the employee; and

● the allowance is provided to compensate an employee because their employment duties require them to live away from their normal residence.

In considering whether an employee is living away from home, paragraph 72 of Taxation Ruling TR 2017/D6 (TR 2017/D6) provides that the following factors are relevant:

a) the time spent working away from home;

b) whether the employee has a usual place of residence at a previous location;

c) the nature of the accommodation; and

d) whether the employee is, or can be, accompanied by family or visited by family or friends.

In the present case, the Company has paid an allowance to X to compensate them for additional expenses (accommodation and food expenses) incurred during their work away from home.

The accommodation at which X stays with Y possesses the characteristics of a home – demonstrated by the cooking and storage facilities, living area, laundry and furnishings.

However, X has spent a relatively short amount of time working away from home (51 days), indicating that the stay at the remote location is temporary in nature.

X also has and maintains a usual place of residence at a previous location where their family also resides.

In addition, X works on projects that have a limited life, subject to environmental factors. In accordance with paragraph 82 of TR 2017/D6, the limited life of the projects would indicate that X is not living away from home.

Further, X’s family has not joined or visited them at the remote work location, rather X returns to their family home on the weekends. X also has not transferred personal effects to the work location. In accordance with paragraph 85 of TR 2017/D7, it is considered that X is less likely to be living away from home.

Given X’s circumstances and consideration of the aforementioned factors, the allowance paid by the Company is not a LAFHA for the purposes of section 30 of the FBTAA 1986.

ii. Travel allowance

Having established that the allowance paid by the Company to X is not a LAFHA, consideration is given to whether it may constitute a travel allowance.

The examples in TR 2017/D6 set out the Commissioner’s guidelines for circumstances under which an allowance may be found to be a travel allowance.

Example 15, at paragraphs 219 to 223 of TR 2017/D6, illustrates that:

● amounts paid to an employee to cover costs of accommodation, meal and incidental expenses;

● for periods that they are working away from home in the course of performing work activities; and

● where the employee is paid an annual salary that does not recognise a requirement to travel to fulfil their duties,

will be considered a travel allowance.

Further, paragraph 54 for TR 2017/D6 states that accommodation, meal and incidental expenses are incurred by an employee in performing work activities and are therefore deductible where:

a) the employee’s work activities require them to undertake the travel;

b) the work requires the employee to sleep away from home overnight;

c) the employee has a permanent home elsewhere; and

d) the employee does not incur the expenses in the course of relocating or living away from home.

In the present case, X is required to travel and sleep away from home overnight to undertake work activities. X also has a permanent home elsewhere, and does not incur the accommodation and meal expenses in the course of relocating or living away from home.

Therefore, the accommodation and meal expenses are incurred by X in performing work activities. As such, the allowance paid to X on top of their base salary will be considered a travel allowance.

By virtue of section 15-2 of the ITAA 1997, the travel allowance that X receives from the Company will be included in their assessable income for the relevant income year.

Question 2

Will payment of Allowance B from the Company to an employee be considered a LAFHA under section 30 of the FBTAA 1986?

Summary

No. The payment of an allowance from the Company to an employee to cover the cost of meals would not be considered to be a LAFHA where the circumstances in Question 1 apply.

The allowance paid by the Company to an employee for meals while they are working away from home will be classified as a travel allowance. Hence, this allowance will be assessable to an employee under section 15-2 of the ITAA 1997.

The payment made directly by the Company to a third person for accommodation for an employee will be considered an expense payment fringe benefit rather than a LAFHA. The otherwise deductible rule could apply where the circumstances in Question 1 apply and the taxable value of the benefit may be reduced to nil.

Detailed reasoning

i. Travel Allowance

Provided the same circumstances in Question 1 apply, an employee will not be considered to be living away from home, and thus Allowance B covering meal expenditure is a travel allowance.

Therefore, the travel allowance that an employee receives from the Company will be included in their assessable income for the relevant income year by virtue of section 15-2 of the ITAA 1997.

ii. Expense payment benefit - accommodation

In addition to the payment of Allowance B to an employee, the Company pays an amount directly to an accommodation provider to cover an employee’s accommodation expenditure.

Paragraph 20(a) of the FBTAA 1986 sets out that a payment made by a provider in discharge, in whole or in part, of an obligation of the recipient to pay an amount to a third person in respect of expenditure incurred by recipient, shall be taken to constitute the provision of an expense payment benefit.

Accordingly, the payment of the accommodation for an employee would constitute the provision of an expense payment benefit.

Exempt benefit or reduction in taxable value

An expense payment benefit may be exempt if it is found to be an exempt accommodation expense payment benefit. Assuming the same circumstances as Question 1 apply, the payment would not constitute an exempt accommodation expense payment benefit under section 21 of the FBTAA 1986. This is because an employee would be considered to be undertaking travel in the course of performing the duties of their employment rather than living away from home.

However, the taxable value of an expense payment benefit can be reduced by the amount of the expenditure that would otherwise have been deductible for the recipient of the benefit under the otherwise deductible rule set out in section 24 of the FBTAA 1986. It is therefore necessary to consider if the accommodation would have otherwise been deductible to an employee.

Under section 8-1 of the ITAA 1997, any loss or outgoing can be deducted from assessable income provided the loss or outgoing is incurred in gaining assessable income. In this instance, the accommodation expenditure must be incurred for work-related purposes.

Assuming the same circumstances as Question 1 apply, an employee would be considered to be undertaking travel in the course of performing the duties of their employment.

The amount therefore would have been incurred by the employee in the course of gaining assessable income as they were required to work in a remote location. Under section 8-1 of the ITAA 1997, this amount would have been otherwise deductible for an employee had the accommodation benefit not been the provision of an expense payment fringe benefit.

As the accommodation expenditure would have been otherwise deductible for an employee, the taxable value of the expense payment benefit may be reduced to nil under section 24 of the FBTAA 1986.