Edited version of your written advice

Authorisation Number: 1051340784375

Date of advice: 20 February 2018

Ruling

Subject: Fringe benefits tax – living away from home allowance

Question

Is the allowance paid by the taxpayer to its employees deployed to a location for the delivery of services for an event a living–away-from-home allowance (LAFHA) under section 30 of the Fringe Benefits Tax Assessment Act 1986?

Answer

No.

This ruling applies for the following periods:

Years ended 31 March 20XX and 31 March 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The taxpayer is responsible for delivery of services prior to, and during, an event.

The taxpayer will deploy its employees to several locations.

Its employees will be deployed for a set period of time determined prior to their deployment. The period of deployment will include rostered days off. No provision will be made for an employee to return to their usual place of residence on his or her days off.

Durations of deployments are not the same for each employee. The average duration for deployment is 18 days or less.

The employees will not be residents of the deployment locations and they are required to travel from other locations. The employees have a usual place of residence and of work at a location other than the deployment location.

The taxpayer will provide accommodation in hotels and apartments for the full term of deployment to each employee. The employees are required to reside in the accommodation provided.

In cases where employees are provided with accommodations in an apartment, they will have their own bedroom; however, they will be required to share the apartment with other employees.

Employees may also be provided with accommodation in hotels which have limited home type facilities.

Employees will not be able to bring their family members or guests to stay with them in the allocated accommodation.

The taxpayer will provide transport to accommodation and work placements. The employees are not permitted to bring their private vehicles with them.

The taxpayer will make limited provision for meals through some accommodation providers. Generally, accommodation will not be inclusive of meals and an allowance for meals and incidentals will be paid.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 30

Fringe Benefits Tax Assessment Act 1986 section 136

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Section 30 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) sets out the circumstance in which an allowance paid to an employee will be a living-away-from-home allowance (LAFHA) benefit.

Subsection 30(1) of the FBTAA states:

Where:

(a) at a particular time, in respect of the employment of an employee of an employer, the employer pays an allowance to the employee; and

(b) it would be concluded that the whole or a part of the allowance is in the nature of compensation to the employee for:

(i) additional expenses (not being deductible expenses) incurred by the employee during a period; or

(ii) additional expenses (not being deductible expenses) incurred by the employee, and other additional disadvantages to which the employee is subject, during a period;

by reason that the duties of that employment require the employee to live away from his or her normal residence;

the payment of the whole, or of the part, as the case may be, of the allowance constitutes a benefit provided by the employer to the employee at that time.

In applying subsection 30(1) of the FBTAA an allowance will be LAFHA if:

1. The allowance is paid in compensation for additional expenses incurred by an employee during a period by reason that the duties of employment require the employee to live away from his or her normal place of residence, and

2. The additional expenses are not deductible expenses.

The allowance in this case is paid in compensation for food and incidental expenses incurred by the employees while they are deployed.

The additional expenses will not be deductible expenses if they do not come within the definition of deductible expenses in subsection 136(1) of the FBTAA.

Are the additional expenses deductible expenses?

Subsection 136(1) of the FBTAA defines the term ‘deductible expenses’ as follows:

deductible expenses, in relation to an allowance paid to an employee, means expenses incurred by the employee in respect of which a deduction is allowable to the employee under section 8-1 of the Income Tax Assessment Act 1997 (ignoring Divisions 28, 32 and 900 of that Act).

Generally, section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for a loss or outgoing incurred in gaining or producing assessable income provided the loss or outgoing is not of a capital nature, a private or domestic nature or incurred in relation to gaining or producing exempt income or non-assessable non-exempt income.

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

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

Draft Taxation Ruling TR 2017/D6 Income tax and fringe benefits tax: when are deductions allowed for employees’ travel expenses? sets out general principles for determining whether an employee can deduct travel expenses (including meal and incidental expenses) under section 8-1 of the ITAA 1997.

Paragraph 54 of TR 2017/D6 states:

54. Accommodation, meal and incidental expenses are incurred by an employee in performing an employee’s work activities, and are therefore deductible, only when:

(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 expense in the course of relocating or living away from home.

Each of these conditions is considered below:

(a) Does the employee’s work activity require them to undertake the travel?

It is accepted that the employee’s work activity requires them to undertake the travel.

(b) Does the work require the employee to sleep away from home overnight?

It is accepted the work requires the employee to sleep away from home overnight.

(c) Does the employee have a permanent home elsewhere?

It is accepted that the employees have a permanent home elsewhere.

(d) Does the employee incur the expense in the course of relocating or living away from home?

Paragraph 72 of TR 2017/D6 lists the relevant factors to be considered when determining if an employee is living away from home.

Paragraph 72 of TR 2017/D6 states:

72. Whether an employee is living away from home depends on the facts of each case. Relevant factors are:

(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.

Time spent working away from home

Paragraph 73 of TR 2017/D6 states that the longer an employee spends working away from home, the more likely that the employee is living away from home.

The average deployment time is 18 days.

By considering the nature of the deployment and average deployment duration, it is accepted that the employees will spend a relatively short period of time working away from home.

Whether the employee has a usual place of residence at a previous location

As discussed previously, it is accepted the employees have a usual place of residence at a previous location.

The nature of the accommodation

Paragraphs 79 to 82 of TR 2017/D6 provide general principles for considering if the type of accommodation supports the view that the employees are living away from home.

Paragraphs 79 to 82 of TR 2017/D6 state:

79. An employee may live and make their home in any kind of accommodation, including huts and caravans. If the accommodation has amenities common in a home, such as an equipped kitchen and laundry, this would support the view that the employee is living away from home.

80. Where an employee works away from home for a considerable period and, for that period, stays in settled accommodation (such as a house, unit or apartment), this would support the view that they are living away from home.

81. By contrast, the rudimentary nature of accommodation available to an employee may indicate that they are not living away from home, even where they work at a particular location over an extended period. For employees, such as fly-in fly-out workers, this may be the case where:

● the employees have no choice about where they stay

● living quarters are shared and regularly used by different employees who are on rotating shifts

● living facilities do not allow employees to self-cater and provide limited if any storage space

● employees spend minimal amounts of time at the accommodation due to the long work shifts

● employees have to leave the work location between rostered work periods, and

● family or friends cannot visit the site.

82. Such an employee will not be living away from home where, in addition to these factors, they are on fixed period contracts or the projects they are working on having a limited life. (footnotes omitted)

The employees will have no choice as to the type of accommodation that they will be staying in whilst on deployment. Accommodation will be allocated by the taxpayer and no accommodation will be provided for or available to the members’ families or guests.

By considering the facts and the principles outlined in TR 2017/D6, it is accepted that the nature of accommodation the taxpayer provides does not support the view that those members are living away from home.

The employee is, or can be, accompanied by family or visited by family or friends

Employees will not be able to bring their family members or guests to stay with them in the allocated accommodation.

It is accepted that they cannot be accompanied by family or friends.

Further, the project requiring deployment is an event that has a limited life. This further supports the conclusion that the employees are not living away from home in these circumstances.

Conclusion

It is accepted that the employee’s meal and incidental expenses are deductible because:

● the employee’s work activities require them to undertake the travel

● the work requires the employee to sleep away from home overnight

● the employee has a permanent home elsewhere, and

● the employee does not incur the expense in the course of relocating or living away from home.

Therefore, the allowance will not be a living-away-from-home allowance.