Edited version of private advice

Authorisation Number: 1051589460661

Date of advice: 2 October 2019

Ruling

Subject: LAFHA - fringe benefit and expense payment fringe benefit

Question 1

Will a payment by the Employer to the Employee in respect of rental accommodation expenses 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

If the answer to Question 1 is 'Yes', will the taxable value of the LAFHA fringe benefit be reduced by any exempt accommodation component pursuant to section 31 of the FBTAA?

Answer

Not applicable.

Question 3

If the answer to Question 1 is 'No', would the payment provided by the Employer to the Employee in respect of rental accommodation expenses constitute an 'expense payment fringe benefit' pursuant to subsection 136(1) of the FBTAA?

Answer

Yes.

Question 4

If the answer to Question 3 is 'Yes', would the expense payment benefit provided by the Employer to the Employee in respect of rental accommodation expenses be an exempt benefit pursuant to section 21 of the FBTAA?

Answer

No.

This ruling applies for the following period(s)

1 April 2019 to 31 March 2021.

The scheme commences on

1 April 2019.

Relevant facts and circumstances

The Employer is a not-for-profit income tax exempt entity.

An employee ('the Employee') has accepted a permanent contract of employment with the Employer. The Employee will commence their employment in XXX 2019.

The Employee was living at their normal residence in XXX when they were offered, and accepted, the new position. If the Employee continued to live at their normal residence throughout the period of their employment, the distance they would have to travel daily - in each direction between their home and work - is approximately XX kilometres.

The Employee would prefer to live closer to their work location during the week due to some anticipated late night work, given their position is at a senior level.

The Employer does not require the Employee to move closer to the work location, and in particular, the duties of the Employee's employment do not require the Employee to live away from their normal residence during the period of employment.

The estimated cost for third-party rental accommodation (not provided by the Employer) closer to the work location is expected to be around $XXX to $YYY per week.

The Employee has an ownership interest in their home and would continue to maintain this normal residence. They would return to their home for the weekends. During the working week, the Employee's home would continue to be available for their use and enjoyment. The Employee's spouse and children would continue to live in their normal residence while the Employee lives in rental accommodation closer to the work location during the working week.

It is expected that the Employer will provide the Employee with a payment to cover the cost of the Employee's rental accommodation expenses. Such a payment is expected to be in the form of either:

1.     a cash allowance - the value of which would be based on the actual amount of rental expenses the Employee is expected to incur (and has not yet incurred) in respect of the accommodation that the Employee has chosen to live in during the working week - upon presentation of evidence by the Employee to the Employer (such as a signed rental agreement), or

2.       a reimbursement for the rental accommodation expenses actually incurred, upon presentation of appropriate evidence by the Employee to the Employer (such as a signed rental agreement and proof of payment of the rental accommodation expenses).

The payment would be on a salary-packaged basis for the first twelve months of the Employee's employment, and for the amount that the Employee incurs in rental accommodation expenses near the work location. No cash allowance or reimbursement would be paid in respect of food and drinks.

The Employee will be expected to provide the Employer with the required documentary evidence to substantiate the amount they incur on rental accommodation - and any declarations if required - prior to the lodgement of the Employer's Fringe Benefits Tax (FBT) return.
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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 Subsection 30(1)

Fringe Benefits Tax Assessment Act 1986 Section 31

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Reasons for decision

Question 1

Will a payment by the Employer to the Employee in respect of rental accommodation expenses constitute a 'living-away-from-home allowance' (LAFHA) benefit pursuant to subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Summary

A payment made by the Employer to the Employee in respect of rental accommodation expenses would not constitute a LAFHA benefit pursuant to subsection 30(1) of the FBTAA on the basis that:

·        the payment does not constitute an 'allowance', and

·        the Employee's duties of employment do not require them to live away from their normal residence.

Detailed reasoning

For Fringe Benefits Tax (FBT) purposes, a LAFHA is an allowance an employer pays to an employee to compensate for additional expenses incurred and any disadvantages suffered because the employee's duties of employment require them to live away from their normal residence.

The term 'additional expenses' does not include expenses the employee would be entitled to claim as an income tax deduction.

Subsection 30(1) of the FBTAA sets out the circumstances in which an allowance paid by an employer to an employee will qualify as a LAFHA, and 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 their 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 summary, for a payment to an employee to be considered a LAFHA fringe benefit, there are three conditions that must be met:

1.     It is an allowance an employer pays an employee in respect of the employment of that employee.

2.     The duties of their employment require them to live away from their normal residence.

3.     The whole or part of the allowance is in the nature of compensation for:

·        non-deductible additional expenses an employee might be expected to incur, or

·        non-deductible additional expenses an employee might be expected to incur and other disadvantages suffered, because the duties of an employee's job require them to live away from their normal residence.

1.     Will the Employer be paying an allowance to the Employee in respect of the employee's employment?

Chapter 1 of the ATO's publication entitled Fringe benefits tax - a guide for employees provides guidance on what is meant by the term 'in respect of employment'.

According to the fringe benefits tax (FBT) legislation, a fringe benefit is a benefit provided in respect of employment. This effectively means a benefit is provided to somebody because they are an employee. The 'employee' may even be a former or future employee.

The Commissioner accepts that, should the Employer provide the Employee with a payment in respect of the rental accommodation expenses, the payment would be provided to the Employee because the Employee is an employee of the Employer.

However, it is necessary to determine whether the payment/benefit being provided is actually an allowance.

Taxation Ruling TR 92/15 Income tax and fringe benefits tax: the difference between an allowance and a reimbursement (TR 92/15) explains the difference between an allowance and a reimbursement for the purposes of determining whether a payment is a fringe benefit or whether that payment is assessable income.

Paragraph 2 of TR 92/15 describes an 'allowance' as:

A payment is an allowance when a person is paid a definite predetermined amount to cover an estimated expense. It is paid regardless of whether the recipient incurs the expected expense. The recipient has the discretion whether or not to expend the allowance.

'Reimbursement' is described at paragraph 3 of TR 92/15 as:

A payment is a reimbursement when the recipient is compensated exactly (meaning precisely, as opposed to approximately), whether wholly or partly, for an expense already incurred although not necessary disbursed. In general, the provider considers the expense to be its own and the recipient incurs the expenditure on behalf of the provider. A requirement that the recipient vouch expenses lends weight to a presumption that a payment is a reimbursement rather than an allowance.

Paragraph 10 of TR 92/15 further provides the following in respect of the term 'reimbursement':

The ordinary meaning of the word "reimburse" implies that the recipient is to be compensated exactly for an expense already incurred although not necessarily disbursed. The definition of "reimburse" under subsection 136(1) of the FBTAA is wide enough to include payments made before expenses are incurred. However, whether payment is made before or after expenses are incurred by the recipient, it qualifies as a reimbursement when the provider considers the expense to be its own and the recipient incurs the expense on behalf of the provider. As a result, a requirement that the recipient vouch or substantiate expenses lends weight to a presumption that a payment is a reimbursement rather than an allowance. A further indication of a reimbursement is where the recipient is required to refund unexpended amounts to the provider.

Therefore, a payment to an employee that constitutes a 'reimbursement' would not meet the first condition in subsection 30(1) of the FBTAA, as it would not be an 'allowance'.

As per the Facts, one of the means by which the Employer is expected to make a payment to the Employee in respect of their rental accommodation expenses is in the form of a 'cash allowance'. The value of such a cash payment would be based on the definite, pre-determined amount of rental expenses in respect of the particular accommodation chosen by the Employee. However, a payment in such a scenario is considered to constitute a 'reimbursement', not an 'allowance', on the basis that:

·        such a payment would compensate the Employee for the exact amount of the rental accommodation expenses the Employee is expected to incur, and

·        pursuant to paragraph 10 of TR 92/15, the definition of 'reimburse' is wide enough to include payments (exact compensation) made before expenses are incurred.

The Facts further provide that the other means by which the Employer is expected to make a payment to the Employee in respect of their rental accommodation expenses is in the form of a reimbursement. Such a payment is consistent with the description of a 'reimbursement' as provided in paragraphs 3 and 10 of TR 92/15.

As such, regardless of the form of payment provided by the Employer to the Employee to cover the Employee's rental accommodation expenses, the payment will constitute a reimbursement, and would not constitute the payment of an allowance.

In both circumstances/scenarios, the first condition in subsection 30(1) of the FBTAA would not besatisfied, regardless of whether or not such a benefit was provided to the Employee in respect of the Employee's employment.

2.     Do the duties of employment require the Employee to live away from their normal residence at the time the allowance is paid?

'Normal residence' is defined in subsection 136(1) of the FBTAA as the employee's usual place of residence, when the employee's usual place of residence is in Australia.

The FBTAA does not provide a definition of the term 'usual place of residence'.

However, subsection 136(1) of the FBTAA defines 'place of residence' to mean:

(a)   a place at which the person resides; or

(b)   a place at which the person has sleeping accommodation;

whether on a permanent or temporary basis and whether or not a shared basis.

In the absence of a legislative reference, it is relevant to refer to the ordinary meaning of the word 'usual'. The Macquarie Dictionary defines 'usual' to mean 'habitual or customary...'.

Paragraphs 75 to 77 of Taxation Ruling TR 2017/D6 Income tax and fringe benefits tax: when are deductions allowed for employees' travel expenses (TR 2017/D6) provides guidance for determining an employee's usual place of residence.

75. Whether an employee is living away from their 'usual place of residence' usually involves a choice between two places of residence - where the employee is living at the time and the location of the work.
76. An employee is only living away from home where it is reasonable to conclude that they intend to return to their previous location after work at the new location ceases. An employee who has permanently left their previous location is not living away from home but has relocated.
77. Indicators that an employee has a usual place of residence at a previous location include the employee's ownership or possession of premises at that location and occupation of the premises by the members of the employee's family.

As per the Facts, the Employee owns a unit of accommodation in XXX, which is their normal residence. The Employee would prefer to live closer to the work location during the week due to some anticipated late night work, given their position is at a senior level, and return to their normal residence on weekends when their work during the working week is completed.

Chapter 11.2 of the ATO's Fringe benefits tax - a guide for employers publication provides that whether an employee's job requires them to live away from their normal residence, and where the employee's normal residence is located, is a question of fact and will depend on each employee's circumstances.

The term 'required' is not defined in the FBTAA. ATO Interpretative Decision ATO ID 2013/8 Fringe Benefits Tax: Employee required to change usual place of residence in order to perform duties of employment (ATO ID 2013/8) states that the term 'required' must take its ordinary meaning in the context in which it is used. Relevantly, The Macquarie Dictionary Online defines 'require' as: 'to have need of; need; to impose need or occasion for; make necessary or indispensable; to place under an obligation or necessity.'

As stated in the Facts, the Employer does not require the Employee to move closer to the work location, and in particular, the duties of the Employee's employment do not require the Employee to live away from their normal residence during the period of employment. The Commissioner considers that the distance between the Employee's normal residence and the place of work of XX kilometres each way is not unreasonable. Accordingly, the duties of the Employee's employment will not require the Employee to live away from their normal residence.

Therefore, the second condition in subsection 30(1) of the FBTAA would not be satisfied.

3.     Will the allowance be in the nature of compensation for non-deductible additional expenses the Employee might be expected to incur, or non-deductible additional expenses an employee might be expected to incur and other disadvantages suffered, because the duties of the Employee's job require them to live away from their normal residence?

Given the conclusions held in relation to the first two conditions above, this (third) condition in subsection 30(1) of the FBTAA would also not be satisfied on the basis that:

·        the payment does not constitute an 'allowance', and

·        the Employee's duties of employment do not require them to live away from their normal residence.

Therefore, as all three of the conditions in subsection 30(1) of the FBTAA are not satisfied, a payment made to the Employee in respect of rental accommodation expenses will not constitute a LAFHA benefit under subsection 30(1) of the FBTAA.

Question 2

If the answer to Question 1 is 'Yes', will the taxable value of the LAFHA fringe benefit be reduced by any exempt accommodation component pursuant to section 31 of the FBTAA?

Summary

As the answer to Question 1 is 'No', a response to Question 2 is not required.

Question 3

If the answer to Question 1 is 'No', would the payment provided by the Employer to the Employee in respect of rental accommodation expenses constitute an 'expense payment fringe benefit' pursuant to subsection 136(1) of the FBTAA?

Summary

The payment provided by the Employer to the Employee in respect of rental accommodation expenses would constitute an 'expense payment fringe benefit' pursuant to subsection 136(1) of the FBTAA.

Detailed reasoning

Subsection 136(1) of the FBTAA defines an 'expense payment fringe benefit' as a 'fringe benefit that is an expense payment benefit'.

An 'expense payment benefit' is defined in subsection 136(1) of the FBTAA as a benefit referred to in section 20 of the FBTAA.

Section 20 of the FBTAA provides that an employee is provided with an 'expense payment benefit' in the circumstances as stated below:

Where a person (in this section referred to as the provider):

(a)   makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the recipient) to pay an amount to a third person in respect of expenditure incurred by the recipient, or

(b)   reimburses another person (in this section also referred to as the recipient), in whole or in part, in respect of an amount of expenditure incurred by the recipient.

Based on the response to Question 1, it was concluded that - regardless of the form of payment expected to be provided by the Employer to the Employee to cover the Employee's rental accommodation expenses - such a payment will constitute a reimbursement.

Where the Employer reimburses the Employee for rental accommodation expenses incurred by the Employee, paragraph 20(b) of the FBTAA would be satisfied. Such a reimbursement would thus be an 'expense payment benefit' pursuant to section 20 of the FBTAA.

In order for such an 'expense payment benefit' to constitute an 'expense payment fringe benefit' (as this term is defined in subsection 136(1) of the FBTAA), an 'expense payment benefit' must also be a 'fringe benefit'.

A 'fringe benefit' is defined in subsection 136(1) of the FBTAA, which holds that the following conditions must be satisfied:

1.     A 'benefit' (as that term is defined in subsection 136(1) of the FBTAA) is provided at any time during the year of tax.

2.     The benefit is provided to an 'employee' (as that term is defined in subsection 136(1) of the FBTAA) or an associate of the employee.

3.     The benefit is provided by:

a.     their 'employer' (as that term is defined in subsection 136(1) of the FBTAA); or

b.     an associate of the employer; or

c.      a third party other than the employer or an associate under an arrangement between the employer or associate of the employer and the third party; or

d.     a third party other than the employer or an associate of the employer, if the employer or an associate of the employer:

                                                    i.     participates in or facilitates the provision or receipt of the benefit; or

                                                   ii.     participates in, facilitates or promotes a scheme or plan involving the provision of the benefit; and the employer or associate knows, or ought reasonably to know, that the employer or associate is doing so;

4.     The benefit is provided in respect of the employment of the employee.

5.     The benefit is not one that is specifically excluded as per paragraphs (f) to (s) of the definition of a fringe benefit in subsection 136(1) of the FBTAA.

The 'expense payment benefit' provided by the Employer to the Employee is considered to also be a 'fringe benefit' on the basis of the following:

1.     Subsection 136(1) of the FBTAA provides a broad definition of a 'benefit' as including:

any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under:

(a) an arrangement for or in relation to:

(i) the performance of work (including work of a professional nature), whether with or without the provision of property; ...

The provision by the Employer to the Employee of a payment to cover the Employee's rental accommodation expenses thus meets the definition of a 'benefit'.

2.     An 'employee' is defined in subsection 136(1) of the FBTAA to mean a current, future or former employee. The Employee is therefore an 'employee', to whom the benefit was provided.

3.     An 'employer' is defined in subsection 136(1) of the FBTAA to mean a current, future or former employer. The Employer is therefore an 'employer' who provided a benefit to the Employee.

4. As per the response to Question 1, the Commissioner accepts that, should the Employer provide the Employee with a payment in respect of the rental accommodation expenses, the payment would be provided in respect of the Employee's employment.

5.     With respect to paragraphs (f) to (s) of the definition of a 'fringe benefit' in subsection 136(1) of the FBTAA, the relevant paragraph to consider is paragraph (g) which provides that an exempt benefit will not be a fringe benefit. The benefit provided in the current circumstances is not an exempt benefit.

As such, an 'expense payment fringe benefit' would arise where a payment (reimbursement) is made by the Employer to the Employee in respect of rental accommodation expenses pursuant to subsection 136(1) of the FBTAA.
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Question 4

If the answer to Question 3 is 'Yes', would the expense payment benefit provided by the Employer to the Employee in respect of rental accommodation expenses be an exempt benefit pursuant to section 21 of the FBTAA?

Summary

The expense payment fringe benefit provided by the Employer to the Employee in respect of rental accommodation expenses incurred by the Employee would not be an exempt benefit pursuant to section 21 of the FBTAA, as the duties of the Employee's employment do not require the Employee to live away from their normal residence.

Detailed reasoning

Section 21 of the FBTAA states that:

Where:

(a)   an expense payment benefit is provided in a year of tax to a current employee of an employer in respect of his or her employment; and

(b)   the recipients expenditure is in respect of accommodation for eligible family members; and

(ba) the accommodation is not provided while the employee is undertaking travel in the course of performing the duties of that employment; and

(c)   the accommodation is required solely because the duties of that employment require the employee to live away from his or her normal residence; and

(d)   the employee satisfies:

                                                  (i)     sections 31C (about maintaining an Australian home) and 31D (about the first 12 months); or

                                                 (ii)     section 31E (about fly-in fly-out and drive-in drive-out requirements); and

(e)   the employee gives to the employer, before the declaration date, a declaration, in a form approved by the Commissioner, purporting to set out:

                                                  (i)     if the employee satisfies sections 31C and 31 D - the matters in subparagraphs 31F(1)(a)(i) to (iii); or

                                                 (ii)     if the employee satisfies section 31E - the matters in subparagraphs 31F(1)(b)(i) to (iii);

the benefit is an exempt benefit in relation to the year of tax.

As stated in the Facts, and as concluded in the response to Question 1 above, the Employer does not require the Employee to move closer to their work location, and in particular, the duties of the Employee's employment do not require the Employee to live away from their normal residence during the period of employment.

Paragraph 21(c) of the FBTAA thus would not be satisfied. As all of the paragraphs in section 21 of the FBTAA are required to be met in order for the exemption to be available, it is not necessary to consider further the requirements in the other paragraphs of section 21 of the FBTAA.

Therefore (and as indicated in the response to Question 3), the expense payment benefit that would arise in circumstances where a reimbursement is provided by the Employer to the Employee for rental accommodation expenses incurred by the Employee would not be an exempt benefit pursuant to section 21 of the FBTAA.