Edited version of private advice

Authorisation Number: 1051629523172

Date of advice: 24 June 2020

Ruling

Subject: Travel and accommodation benefits to employees deployed overseas

Issue 1: Accommodation - Country A and Country C

Question 1(a)

Is the provision of accommodation to employees travelling to Country A and Country C a 'fringe benefit' as per the definition of that term 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 where the total number of days spent in Country A and Country C during an income year is less than 30 days?

Answer

Yes.

Question 1(c)

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 where the total number of days spent in Country A and Country C during an income year is less than 60 days?

Answer

Yes.

Question 1(d)

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 where the total number of days spent in Country A and Country C during an income year is less than 90 days?

Answer

Yes.

Issue 2: Accommodation - Country B

Question 2(a)

Is the provision of accommodation to employees travelling to Country B a 'fringe benefit' as per the definition of that term in subsection 136(1) of the FBTAA?

Answer

Yes.

Question 2(b)

If the provision of accommodation to employees travelling to Country B 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.

Issue 3: Per Diem - Country A and Country C

Question 3(a)

Where a per diem is paid to an employee travelling to Country A and Country C, is the allowance subject to section 30 of the FBTAA?

Answer

No.

Question 3(b)

If the per diem is not subject to section 30 of the FBTAA and the allowance is equivalent to, or less than, the reasonable amounts for travel allowance expenses under Taxation Determination TD 2019/11 ('Income tax: what are the reasonable travel and overtime meal allowance expense amounts for the 2019-20 income year?') or 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 the Employer need to withhold Pay-As-You-Go (PAYG) withholding and report the per diem on the employee's PAYG Payment Summary?

Answer

No.

Issue 4: Per Diem - Country B

Question 4(a)

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

Answer

No.

Question 4(b)

If the per diem is not subject to section 30 of the FBTAA and the allowance is equivalent to, or less than, the reasonable amounts for travel allowance expenses under Taxation Determination TD 2019/11 ('Income tax: what are the reasonable travel and overtime meal allowance expense amounts for the 2019-20 income year?') or 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 the Employer need to withhold PAYG withholding and report the per diem on the employee's PAYG Payment Summary?

Answer

No.

Issue 5: Travel - Country A and Country C

Question 5(a)

Is the provision of travel to and from Country A and Country C a 'fringe benefit' as per the definition of that term in subsection 136(1) of the FBTAA?

Answer

Yes.

Question 5(b)

If the provision of travel to and from Country A and Country C is a fringe benefit, does the 'otherwise deductible rule' in section 52 of the FBTAA reduce the taxable value of the benefit to nil where the total number of days spent in Country A and Country C during an income year is less than 30 days?

Answer

Yes.

Question 5(c)

If the provision of travel to and from Country A and Country C is a fringe benefit, does the 'otherwise deductible rule' in section 52 of the FBTAA reduce the taxable value of the benefit to nil where the total number of days spent in Country A and Country C during an income year is less than 60 days?

Answer

Yes.

Question 5(d)

If the provision of travel to and from Country A and Country C is a fringe benefit, does the 'otherwise deductible rule' in section 52 of the FBTAA reduce the taxable value of the benefit to nil where the total number of days spent in Country A and Country C during an income year is less than 90 days?

Answer

Yes.

Issue 6: Travel - Country B

Question 6(a)

Is the provision of travel to and from Country B a 'fringe benefit' as per the definition of that term in subsection 136(1) of the FBTAA?

Answer

Yes.

Question 6(b)

If the provision of travel to and from Country B 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 ending 31 March 20XX

FBT year ending 31 March 20XX

FBT year ending 31 March 20XX

Income tax year ending 30 June 20XX

Income tax year ending 30 June 20XX

Income tax year ending 30 June 20XX

Relevant facts and circumstances

Country A and Country C

The Employer has outsourced certain activities to overseas locations, which are hereafter referred to respectively as 'Country A and Country C'. The outsourced activities will continue into the foreseeable future.

Outsourcing Arrangement

The activities are outsourced to third party vendors in Country A and/or Country C. To ensure that the third party vendors perform the outsourced activities in accordance with required standards, related entities of The Employer (incorporated and tax resident in Country A and/or Country C) are contracted by the Employer to liaise with, and oversee, the work performed by the third party vendor.

To ensure that the Employer's related entities are able to perform these roles, the Employer is required to send employees from Australia to Country A and/or Country C to train, transfer knowledge and supervise the employees of the related entity. In some cases, the Australian employees are required to liaise directly with the third party vendor. Once the Employer's related entity is able to successfully perform the contracted arrangement without assistance, the Employer will no longer be required to send employees to Country A and/or Country C.

The employees travel to Country A and/or Country C as part of their role with the Employer in Australia.

Employees of the Employer

Broadly, the aim of sending employees to Country A and/or Country C on business travel is to ensure the successful implementation and ongoing operation of the outsourced activities.

The employee must have been performing the role in Australia in order to be selected for travel to Country A and/or Country C and their travel to Country A and/or Country C is part of their role with the Employer in Australia. Upon completion of their task in Country A and/or Country C, they must return to Australia and continue their role in Australia.

Generally all employees are employed by the Employer. In some cases, the employee may take a leave of absence from their employment with the Employer and become an employee of a related entity for the period of time for which they are in Country A and/or Country C. At the end of their time in Country A and/or Country C, their employment with the related entity and their leave of absence from the Employer both end. Their role and activities while employed by the related entity are all part of their role within the Employer's Group.

The length of each business trip to Country A and/or Country C varies between each individual and depends on their role and expertise. Generally, the employee's business unit will decide the length of business travel based on the specific requirements of a developed training program for the particular outsourced activity.

The employees travelling to Country A and/or Country C (hereafter referred to as 'Employee As' and Employee Cs') will be those who travel to Country A and/or Country C for less than:

·         30 days

·         60 days, and

·         90 days.

Employees that are sent to Country A and/or Country C on business travel are covered under the Employer's short-term travel policy. This policy is most suited for business travellers as employees under this policy:

·         can only travel for a duration of up to six months as the travel is only for brief periods

·         remain based in the location of their ordinary residence, i.e. they hold Australian employment contracts, an Australian role and are remunerated by Australia, and

·         are expected to return to Australia after their travel to continue their role.

The terms and conditions of travel for employees travelling to Country A and/or Country C include:

·         They are personally responsible for maintaining their usual place of residence in Australia throughout the duration of their travel. The Employer will not reimburse the employee for any costs incurred to maintain their usual place of residence whilst travelling to Country A and/or Country C. This is on the basis the employee would ordinarily have incurred the cost.

·         When in Country A and/or Country C, employees are required to stay in temporary hotel or serviced apartment accommodation (the cost of which is paid by the Employer or an associate of the Employer). Employees are provided with flexibility to choose their accommodation from a limited list of the Employer's preferred suppliers. In making this decision employees will be required to select accommodation which is in the vicinity of their work site - this is to ensure that costs are minimised and travel time is reduced. To illustrate the limited choice employees have for accommodation, on one specific project the Employer required employees travelling on business to reside on the project campus to reduce travel time and for commercial reasons. Generally, bookings are made by the employee's business unit administrator. In some cases, to expedite the process, bookings will be made by the employees. All employees are provided with similar accommodation. If employees were to undertake formal long term assignments to Country A and/or Country C, the type of accommodation provided would differ. Families are not permitted to accompany the employees.

·         The Employer pays for the return flights to Country A and/or Country C as well as the cost of transport from home to and from the airport.

·         The employees are subject to the terms and conditions of their Australian employment contracts, the Employer's code of conduct and the Employer's short-term travel policy, whilst travelling to and from and while in Country A and/or Country C.

·         The employees are subject to the ultimate control of the Employer, rather than the overseas related entity or the third party vendor, whilst in Country A and/or Country C.

·         Any leave entitlements continue to be accrued in accordance with Australian laws.

·         The employees continue to be paid salary and other employment benefits from the Employer.

·         The employees continue to be subject to the Employer's performance review procedures.

·         Employee behaviour while travelling on business is continually monitored by the Employer.

·         The employees are paid an allowance per night to cover food and incidentals respectively while they are in Country A and/or Country C. All employees receive the same amount.

·         There are no other arrangements or benefits provided to the employees in relation to day-to-day living expenses incurred. The employees are personally liable to all other costs incurred whilst on business travel.

Country B

The Employer has established a joint venture in an overseas location, which is hereafter referred to as 'Country B'.

As part of the joint venture agreement, the Employer agreed to contribute the company's intellectual property and provide support during the establishment phase. Once the joint venture was established, local individuals in Country B were employed to operate the business.

Employees of the Employer

The intellectual property and provision of support to be provided under the agreement could only be supplied by the Employer's employees.

Upon completion of certain projects, the employees to whom this application applies will no longer be required in Country B.

There are different groups of employees assigned to Country B, for example, employees sent on long-term assignments and who become employees of the Joint Venture. This application will only focus on those employees who work in Country B on a Fly-In-Fly-Out (FIFO) basis (hereafter referred to as 'Employee Bs').

Generally, the rotation periods are as follows:

·         3 weeks working in Country B and 1 week return to Australia (approximately 90% of employees), and

·         2 weeks working in Country B and 2 weeks return to Australia (approximately 10% of employees).

Where the nature of the employee's role allows them to perform their duties with less time spent in Country B then the latter rotation scheme is chosen. Employees are required to return to Australia upon completion of every rotation in Country B. When an employee returns to Australia, their role in Country B is not filled by another employee and the employee is expected to continue performing their employment duties from the Australian office.

The FIFO arrangement is generally for a period of one year (although in some cases the time spent was less than this). Therefore, as the travel is intended to be for a period of greater than six months, these employees travel to Country B under the Employer's long-term assignment policy. This policy applies to an employer initiated relocation of a current employee of the Employer for a pre-defined period. Under this policy, employees are temporarily seconded to another location. At the end of the secondment, it is expected that the employee will repatriate to their home country (Australia). During the secondment the employee remains employed by their home country employer in Australia.

As these employees are required to reside in Country B for short periods of time during the assignment, to the best of the Employer's knowledge, the employees continue to maintain their usual place of residence in Australia.

The terms and conditions of travel to Country B include:

·         The employee being personally responsible for maintaining their usual place of residence in Australia throughout the duration of their travel. The Employer will not reimburse the employee for any costs incurred to maintain their usual place of residence whilst travelling to Country B. This is on the basis the employee would ordinarily have incurred the cost.

·         When in Country B, the employee being required to stay in hotels or short stay serviced apartment accommodation (the cost of which is paid by or reimbursed by the Employer or the joint venture). The employees are not given a choice as to the accommodation provided.

·         Family members not being permitted to accompany the employee whilst in Country B.

·         The Employer paying for all return flights to Country B.

·         The Employer paying for return transport to and from airports.

·         The employees being subject to the terms and conditions of their Australian employment contracts, the Employer's code of conduct and the Employer's long-term assignment policy while travelling to and from and while in Country B.

·         The employees being subject to the ultimate control of the Employer, rather than the joint venture.

·         Any leave entitlements continuing to accrue in accordance with Australian laws.

·         The employees continue being paid salary and other employment benefits from the Employer.

·         The employees continue being subject to the Employer's performance review procedures.

·         Employee behaviour while in Country B being continually monitored by the Employer.

·         The employees being paid an allowance per night to cover food and incidentals respectively while they are in Country B. All employees receive the same amount.

·         No other arrangements or benefits provided to the employees in relation to day-to-day living expenses incurred. The employee is personally liable to all other costs incurred whilst on travelling.

Generally all employees are employed by the Employer. In some cases, the employee may take a leave of absence from their employment with the Employer and become an employee of a related entity for the period of time for which they are in Country B. At the end of their time in Country B, their employment with the related entity and their leave of absence from the Employer both end. Their role and activities while employed by the related entity are all part of their role within the Employer's Group.

Assumptions

Country A, Country B and Country C

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

The employees maintained/will maintain a usual place of residence in Australia during the period the employees were/are in Country A, Country B and Country C and returned/will return to their usual place of residence when they returned/will return to Australia.

The employee will give the Employer, before the declaration date, a travel diary, where the accommodation provided is in respect of travel away from the employee's usual place of residence for a continuous period of five nights or more.

The employee's usual place of employment was not in, or adjacent to, an eligible urban area.

The per diems provided to employees are less than the reasonable amounts for overseas travel expenses outlined in TD 2019/11 (for the 2019-20 income year) or in any future Taxation Determination outlining the reasonable amounts for the substantiation exception in subdivision 900-B of the ITAA 1997.

Relevant legislative provisions

Income Tax Assessment Act 1997

·         Section 6-5

·         Section 8-1

·         Section 900-15

·         Section 900-30

·         Section 900-50

Fringe Benefits Tax Assessment Act 1986

·         Section 20

·         Section 23

·         Section 24

·         Section 30

·         Section 45

·         Section 47

·         Section 50

·         Section 51

·         Section 52, and

·         Section 136

Reasons for decision

Issue 1: Accommodation - Country A and Country C

Question 1(a)

Is the provision of accommodation to employees travelling to Country A and Country C a 'fringe benefit' as per the definition of that term in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Summary

The provision of accommodation to employees travelling to Country A and Country C is a 'fringe benefit' as per the definition of that term in subsection 136(1) of the FBTAA.

Detailed reasoning

A 'fringe benefit' is defined in subsection 136(1) of the FBTAA, requires the following conditions to be satisfied:

1. A benefit is provided at any time during the year of tax.
2. The benefit is provided to an employee or an associate of the employee.
3. The benefit is provided by:

a.    their employer; 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.

A benefit is provided

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 of accommodation to employees travelling to Country A and/or Country C constitutes a 'benefit'.

This condition in the definition of a 'fringe benefit' in subsection 136(1) of the FBTAA is therefore satisfied.

Is the benefit provided to an employee or an associate of an employee?

An employee is defined in subsection 136(1) of the FBTAA to include a current, future and former employee. Subsection 136(1) defines a 'current employee' to mean a person who receives, or is entitled to receive, salary or wages.

'Salary or wages', as defined in subsection 136(1) of the FBTAA, means payments from which an amount must be withheld under section 12-35 of Schedule 1 to the Taxation Administration Act 1953.

Section 137 of the FBTAA extends the definition of 'salary or wages' to include benefits that would constitute salary or wages if they were instead provided by way of a cash payment.

Staff travelling to Country A and/or Country C receive 'salary or wages' from the Employer

by virtue of the definition in subsection 136(1) of the FBTAA and the extension of that definition in subsection 137 of the FBTAA. They are therefore 'current employees' of Employer in accordance with the definition in subsection 136(1) of the FBTAA.

This condition in the definition of a 'fringe benefit' in subsection 136(1) of the FBTAA is therefore satisfied.

Is the benefit provided by the employer, an associate of the employer or a third party in a situation that comes within either paragraph (e) or (ea) of the 'fringe benefit' definition?

The definition of 'provide' and 'provider' in subsection 136(1) of FBTAA are as follows:

provide:

(a)  in relation to a benefit - includes allow, confer, give, grant or perform; and

(b)  ...

provider, in relation to a benefit, means the person who provides the benefit.

The benefit, being the provision of accommodation to employees travelling to Country A and/or Country C, is provided by the Employer.

As such, this condition in the definition of a 'fringe benefit' in subsection 136(1) of the FBTAA is satisfied.

Is the benefit provided in respect of the employee's employment?

In considering whether a benefit is provided to an employee 'in respect of' their employment, subsection 136(1) of the FBTAA defines 'in respect of', in relation to the employment of an employee, to include 'by reason of, by virtue of, or for or in relation directly or indirectly to, that employment.' The term 'employment' includes the holding of an office.

There is no evidence the Employer and employees are dealing with each other in any other capacity than employer and employees. Therefore, it is considered that the provision of accommodation to the Employer's employees travelling to Country A and/or Country C is sufficiently and materially connected to those employees' employment,[1] and as such, would be considered to be 'in respect of the employee's employment'.

Therefore, this condition in the definition of a 'fringe benefit' in subsection 136(1) of the FBTAA is satisfied.

Is the benefit excluded from the definition of a fringe benefit?

A benefit which comes within paragraphs (f) to (s) of the definition of a 'fringe benefit' in subsection

136(1) of the FBTAA is excluded from being a fringe benefit.

There is no evidence on the information provided that the benefit of accommodation provided to the Employer's employees travelling to Country A and/or Country C is not a benefit that is specifically excluded as per paragraphs (f) to (s) of the definition of a 'fringe benefit' in subsection 136(1) of the FBTAA.

As such, this condition in the definition of a 'fringe benefit' (that is, the benefit provided is not

excluded from the definition of a 'fringe benefit') as defined in subsection 136(1) of the FBTAA is satisfied.

Conclusion

As all of the conditions in the definition of a 'fringe benefit' in subsection 136(1) of the FBTAA are satisfied, the provision by the Employer of accommodation to employees travelling to Country A and/or Country C is a 'fringe benefit' as per the definition of that term in subsection 136(1) of the FBTAA.

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 where the total number of days spent in Country A and Country C during an income year is less than 30 days?

Summary

The 'otherwise deductible rule' in subsection 52(1) of the FBTAA would apply to reduce the taxable value of the fringe benefit (being the provision of accommodation) to nil where the total number of days spent in Country A and/or Country C during an income year is less than 30 days.

Detailed reasoning

It has already been concluded that the accommodation arranged or facilitated, and paid for, by the Employer, to employees travelling to Country A and/or Country C is a 'benefit'. Specifically, it is a 'residual benefit' because it is not specifically covered under Divisions 2 to 11 of the FBTAA. It is also a 'fringe benefit', and therefore constitutes a 'residual fringe benefit' pursuant to section 45 of the FBTAA.

The valuation of a residual fringe benefit is dependent upon whether the residual benefit is an:

(a)  in-house non-period residual fringe benefit

(b)    in-house period residual fringe benefit

(c)    external non-period residual fringe benefit, or

(d)    external period residual fringe benefit.

Broadly, an 'in-house residual fringe benefit' is a residual benefit provided by an employer or

associate of the employer as part of their business activities. An 'external residual fringe benefit' is

a benefit that is not an in-house residual fringe benefit.

The distinction between a 'period' and a 'non-period' residual fringe benefit depends on the

definition of 'period residual fringe benefit' in subsection 136(1) and section 149 of the FBTAA.

A 'period residual fringe benefit' is defined as a residual fringe benefit that is provided during a

period. Under subsection 149(1) of the FBTAA, a benefit is taken to be provided during a period if,

and only if, it is provided and subsists during a period of more than one day and is not deemed to

be provided at a particular time or on a particular day. The effect of this is that, generally, where a

residual fringe benefit is provided and subsists for more than one day, it is a period residual fringe

benefit.

The Employer does not provide accommodation to members of the public, and it is provided in relation to a period exceeding one day. Therefore, the benefit is an 'external period residual fringe benefit' as the benefit.

The taxable value of the external period residual fringe benefit calculated in accordance with section 51 of the FBTAA will be reduced where the 'otherwise deductible rule' in subsection 52(1) of the FBTAA applies. The 'otherwise deductible' rule in section 52 of the FBTAA operates to reduce the taxable value of a residual fringe benefit where the employee would have been entitled to a once-only deduction under, inter alia, the Income Tax Assessment Act 1997 (ITAA 1997) for the unreimbursed expense had it been personally incurred by the employee.

Each of the conditions in subsection 52(1) of the FBTAA is considered below.

Paragraph 52(1)(a)

The recipient of the benefit (the employee) is an employee of the Employer.

Paragraph 52(1)(b)

Where an employee incurs unreimbursed accommodation expenses, they may be entitled to a deduction under section 8-1 of the ITAA 1997.

Subsection 8-1(1) provides a deduction for a loss or outgoing to the extent that it is incurred in gaining or producing assessable income. Under subsection 8-1(2), no deduction is available to the extent the loss or outgoing is a loss or outgoing of capital, private or domestic nature. For example, Case No. B 84, 2 TBRD 390 states:

...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.

In relation to whether the employee would be able to claim a once-only deduction for the cost of accommodation if they had incurred and paid the unreimbursed expenditure while undertaking travel on business for the Employer, Draft Taxation Ruling TR 2017/D6 Income tax and fringe benefits tax: when are deductions allowed for employees' travel expenses? (TR 2017/D6) recognises at paragraph 54 that:

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

Each of the factors in paragraph 54 of TR 2017/D6 is considered below.

The employee's work activities require them to undertake the travel

Paragraphs 59 and 60 of TR 2017/D6 provide the following:

59. Expenses an employee incurs on accommodation, meals and incidentals are not deductible under section 8-1 unless the work requires the employee to be away from home. In many situations, it can be concluded from the nature of the work and scope of the employee's duties that the travel is required without referring to the specific terms of employment.

60. This is the case where it is reasonably necessary to incur the expense because of travel undertaken in the performance of the employee's work...

In order to fulfil particular tasks (for example, training and supervising employees of related entities to ensure the successful offshoring of certain businesses) which form part of their employment duties with the Employer in Australia, the employees are required to travel to Country A and/or Country C.

Upon completion of the particular task in Country A and/or Country C, the employees are required to return to Australia and continue their usual employment duties. The employees' role and/or tasks they perform do not change and no transitional period is allowed for differences between performing services in Australia and in Country A and/or Country C. The employees do not have a permanent role in Country A and/or Country C. Simply, the employee's work location temporarily changes from Australia to Country A and/or Country C.

Whilst working in Country A and/or Country C, the employees continue to:

·         be subject to the terms and conditions of employment with the Employer (for example, the Employer's code of conduct)

·         be under the ultimate control of the Employer

·         report to their business lines within the Employer

·         be paid from Australia, and

·         have Australian superannuation contributions made on their behalf by the Employer.

As such, the employees' usual place of work remains in Australia and they are only required to undertake travel to Country A and/or Country C to undertake the particular work activities required of them.

The work requires the employee to sleep away from home overnight

Paragraphs 61 and 62 of TR 2017/D6 states that:

61. The accommodation, meal and incidental expenses are only deductible to the extent that the work requires the employee to sleep away from home.

62. Where an employee is required to stay away from home overnight for work, such expenses that would otherwise be private have an employment-related character.

Due to the international travel that is required, this condition is met.

The employee has a permanent home elsewhere

Paragraphs 67 and 68 of TR 2017/D6 provide the following:

For these purposes, 'permanent home' is the residential accommodation where the employee ordinarily lives when not temporarily absent for work and where they intend to return to live immediately after the work travel.

Indicators that residential accommodation is an employee's permanent home include the employee's ownership or possession of the premises and occupation of the premises by members of the employee's family.

The employees' permanent residences are in Australia and will continue to be maintained during the period they are in Country A and/or Country C. At the end of the short period of time working in Country A and/or Country C, the employees will return to their usual place of residence in Australia.

The employees have not moved to, or taken up temporary residence in, Country A and/or Country C. They are only temporarily using the accommodation (being hotels or temporary short stay serviced apartments) in Country A and/or Country C for the duration of their temporary work assignment. The employees do not relocate their personal belongings (such as furniture, vehicles etc) to Country A and/or Country C. The accommodation is generally booked and selected by the Employer and the employees have very limited choice from a range of Employer-preferred suppliers. They do not have a choice to stay elsewhere. They are, generally, not accompanied by their families while in Country A and/or Country C (and the choice to be accompanied is at an employee's discretion and the Employer does not sponsor or support the employee's family's travel for trips of this duration). Home leave, and the flights to enable this to occur, are not provided for assignments of less than three months. As such, the employees do not change their usual place of residence while they are in Country A and/or Country C.

The employee does not incur the expenses in the course of relocating or living away from home

Paragraphs 69 to 72 of TR 2017/D6 state:

69. Expenditure on accommodation, meals and incidentals is only deductible where the employee is travelling in performing their work activities and not living away from home.

70. Relocating or moving to live away from home for work is preliminary to work. The costs of doing so are not incurred in performing an employee's work activities. Such expenses also have a private or domestic nature, often reflecting the employee's choice about where to live.

71. Expenditure on accommodation, meals and incidentals by an employee who is living away from home is likewise of a private or domestic nature.

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.

The application of each of the factors outlined in paragraph 72 of TR 2017/D6 to the facts is considered below.

The time spent working away from home

Paragraphs 73 and 74 of TR 2017/D6 provide the following:

73. The longer an employee spends working away from home, the more likely that the employee is living away from home. Whether an employee is considered to be travelling in performing their duties or living away from home depends on the circumstances. The time period is just one factor.

74. 'Time spent working away from home' means the time the employee spends working away at a particular work location. Where an employee works at one location for an extended period, that period is not broken by short trips they take from that location. However, where an employee works at different locations for extended periods, each period is considered separately.

Each employee is sent to Country A and/or Country C for a fixed period of time (up to 30, 60 or 90 days) and generally stays in the one location for the duration of that time. These periods of time suggest the employee may be living away from home. However, the length of time spent working at a particular location is only one factor to consider (per paragraph 73 of TR 2017/D6). As such, the period of time each employee is in Country A and/or Country C will be considered in light of the other factors. It is enough to say that if an employee's time away from home was divided or split between Country A and/or Country C it is less likely they would be considered to be living away from home.

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

Paragraphs 75, 76 and 77 of TR 2017/D6 provide the following:

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 members of the employee's family.

To the best of the Employer's knowledge, each employee retains their usual places of residence in Australia. In any case, the Employer does not reimburse the employee for any costs incurred to maintain their usual place of residence whilst travelling to Country A and/or Country C. The Employer advises it is each employees' personal responsibility to maintain their residence during the period they are in Country A and/or Country C. Therefore, this factor does not support a conclusion the employees are living away from home.

The nature of the accommodation

Paragraphs 78 to 82 of TR 2017/D6 state the following:

78. The nature of an employee's accommodation while working away from home is relevant, but does not determine whether the employee is travelling in performing their duties or living away from home.

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.

The employees are provided with accommodation (being temporary hotel or serviced apartments) in Country A and/or Country C for the duration of their stay(s)). As it would be possible to make a home in such accommodation, this lends itself to the view the employees are living away from home. This conclusion is less likely if the employee is required to travel to both Country A and/or Country C.

In any case, TR 2017/D6 says the nature of the accommodation is only relevant, not determinative. As such, it is also noted the employees only stay in this accommodation to be in the vicinity of their work site for the duration of their assignment. They do not relocate their personal belongings (such as furniture, vehicles etc) to Country A and/or Country C. The accommodation is generally booked and selected by the Employer and the employees have very limited choice from a range of Employer-preferred suppliers. They do not have a choice to stay elsewhere. Therefore, this factor does not support a conclusion the employees are living away from home.

Whether the employee is, or can be, accompanied by family or visited by family or friends

Paragraphs 83 and 84 of TR 2017/D6 provide the following:

83. An employee working away from home for an extended period who is accompanied by their family is likely to have relocated, and is therefore not living away from home.

84. The transfer of family belongings to the new location or the employee's children attending school at the new location would support this conclusion. In this case, accommodation and living costs at the new location are of a private nature and are not deductible.

Whether the employees are accompanied or visited by their families (or friends) while they are in Country A and/or Country C is at the employee's discretion. For trips of this duration, the Employer will not sponsor or support the employee's family to accompany them.

Conclusion on whether the employees are living away from home

Having had regard to the factors listed in paragraph 72 of TR 2017/D6, it is considered that the employees are not living away from home in circumstances where the total number of days that the employee is required to spend in Country A and/or Country C is less than 30 days.

Conclusion on whether the employees would be entitled to a deduction for their accommodation expenses

Having had regard to the factors in paragraph 54 of TR 2017/D6, it is considered that, in circumstances where accommodation is provided to an employee required to work in Country A and/or Country C for a total period of less than 30 days, the employee would have been able to claim a once-only deduction under section 8-1 of the ITAA 1997 for the cost of the accommodation if they had incurred and paid the unreimbursed expenditure, on the basis that the expense was necessarily incurred in producing their assessable income.

Paragraph 52(1)(ba)

The amount calculated in accordance with the 'GD - RD' formula would exceed nil. This is because 'RD' would be nil on the basis that there is no contribution by the relevant employee to the accommodation benefit.

Paragraph 52(1)(c)

The accommodation is an 'exclusive employee residual benefit' because if the employee had incurred the accommodation expenditure, the expenditure would have been exclusively incurred in gaining or producing the salary or wage income in respect of the employment to which the fringe benefit relates.[2] The accommodation is also an 'extended travel residual benefit' because it is in respect of travel outside Australia and involves the employee being away from their usual place of residence for a continuous period of five or more nights.[3]

Therefore, both subparagraph 52(1)(c)(i) and subparagraph 52(1)(c)(iii) of the FBTAA apply (and only one needs to apply). As a result, the employee would not be required to provide a declaration in a form approved by the Commissioner in respect of the benefit received by the employee.

Paragraph 52(1)(d)

This condition is satisfied if, as the ruling application states, the employee gives the Employer, before the declaration date, a travel diary, where the accommodation provided is in respect of travel away from the employee's usual place of residence for a continuous period of five nights or more.

Conclusion - application of section 52 of the FBTAA

Therefore, on the basis of each of the above conditions being satisfied, the 'otherwise deductible rule' in subsection 52(1) of the FBTAA would apply to reduce the taxable value of the fringe benefit (being the provision of accommodation) to nil where the total number of days spent in Country A and/or Country C during an income year is less than 30 days.

Question 1(c)

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 where the total number of days spent in Country A and Country C during an income year is less than 60 days?

Summary

The 'otherwise deductible rule' in subsection 52(1) of the FBTAA would apply to reduce the taxable value of the fringe benefit (being the provision of accommodation) to nil where the total number of days spent in Country A and/or Country C during an income year is less than 60 days.

Detailed reasoning

The relevant law and associated reasoning as per the response to Question 1(b) above is equally applicable to this question.

In summary, the time spent working away from home is only one factor in determining if an employee is living away from home. Given only the period of time spent away from home is longer for these employees (being up to 60 days), the conclusion that an employee in this category would have been able to claim a once-only deduction under section 8-1 of the ITAA 1997 for the cost of the accommodation if they had incurred and paid the unreimbursed expenditure remains the same.

Therefore, the 'otherwise deductible rule' in subsection 52(1) of the FBTAA would likewise apply to reduce the taxable value of the fringe benefit (being the provision of accommodation) to nil where the total number of days spent in Country A and/or Country C during an income year is less than 60 days.

Question 1(d)

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 where the total number of days spent in Country A and Country C during an income year is less than 90 days?

Summary

The 'otherwise deductible rule' in subsection 52(1) of the FBTAA would apply to reduce the taxable value of the fringe benefit (being the provision of accommodation) to nil where the total number of days spent in Country A and/or Country C during an income year is less than 90 days.

Detailed reasoning

The relevant law and associated reasoning as per the response to Question 1(b) above is equally applicable to this question.

Only the time spent working away from home in Country A and/or Country C is longer for these employees and this is only one factor in determining if an employee is living away from home. Therefore, as the employees are not living away from home, their accommodation expense would be deductible. The 'otherwise deductible rule' in subsection 52(1) of the FBTAA would likewise apply to reduce the taxable value of the fringe benefit (being the provision of accommodation) to nil where the total number of days spent in Country A and/or Country C during an income year is less than 90 days.

Issue 2: Accommodation - Country B

Question 2(a)

Is the provision of accommodation to employees travelling to Country B a 'fringe benefit' as per the definition of that term in subsection 136(1) of the FBTAA?

Summary

The provision of accommodation to employees travelling to Country B is a 'fringe benefit' as per the definition of that term in subsection 136(1) of the FBTAA.

Detailed reasoning

The relevant law and associated reasoning as per the response to Question 1(a) above is equally applicable to this question. This is regardless of whether the benefit is being provided under the joint venture, the other party to which would be considered an 'arranger' under paragraph (e) of the definition of a 'fringe benefit' in subsection 136(1) of the FBTAA.

Furthermore, where the Employer discharges an employee's obligation to pay the accommodation provider or reimburses the employee for incurring the accommodation expenditure it provides an 'expense payment fringe benefit' under section 20 of the FBTAA. Section 23 of the FBTAA provides the taxable value of an external expense payment fringe benefit is the amount of the payment (reduced by the recipient's contribution, if any) or the reimbursement.

Question 2(b)

If the provision of accommodation to employees travelling to Country B 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?

Summary

The 'otherwise deductible rule' in subsection 52(1) of the FBTAA would apply to reduce the taxable value of the fringe benefit (being the provision of accommodation to employees travelling to Country B) to nil.

Detailed reasoning

The relevant law and associated reasoning as per the response to Question 1(b) above is equally applicable to this question. The Employer's employees are undertaking travel on business when they go to Country B. An employee would then be able to claim a deduction under section 8-1 of the ITAA 1997 and therefore the 'otherwise deductible rule' in subsection 52(1) of the FBTAA will apply.

Where the Employer provides an 'expense payment fringe benefit', the otherwise deductible rule in section 24 of the FBTAA would apply to reduce the taxable value of the 'expense payment fringe benefit' in an analogous way to the otherwise deductible rule in section 52 of the FBTAA which was discussed in response to Question 1(b).

Issue 3: Per Diem - Country A and Country C

Question 3(a)

Where a per diem is paid to an employee travelling to Country A and Country C, is the allowance subject to section 30 of the FBTAA?

Summary

A per diem paid to an employee travelling to Country A and/or Country C is not a Living-Away-From-Home Allowance (LAFHA) subject to section 30 of the FBTAA.

Detailed reasoning

Under subsection 30(1) of the FBTAA, an allowance will be considered a LAFHA subject to FBT if:

·         The allowance is paid to the employee by the employer in respect of their employment; and

·         The allowance is in the nature of compensation to the employee for additional expenses (not being deductible expenses) and other disadvantages incurred by the employee by reason that the employee is required to live away from their usual place of residence.

Having regard to the analysis in the response to Question 1(b) in relation to the factors at paragraph 54 of TR 2017/D6, it is considered that the employees' meal and incidental expenses are similarly deductible because the employees are travelling in the course of performing their work activities. This is because:

·         the employees retain their Australian employment.

the Employer selects the employees to undertake the travel as part of their role primarily for the specific technical skills and expertise they possess.

·         the employees are required to sleep away from home overnight due to the international travel.

·         the employees have not relocated and are not living away from home for the following reasons:

-        while each employee is sent to Country A and/or Country C for a fixed period of time (up to 30, 60 or 90 days) and generally stays in the one location for the duration of that time, the length of time spent working at a particular location is only one factor to consider.[4]

-        to the best of the Employer's knowledge, each employee retains their usual places of residence in Australia. In any case, the Employer does not reimburse the employee for any costs incurred to maintain their usual place of residence whilst travelling to Country A and/or Country C. The Employer advises it is each employees' personal responsibility to maintain their residence during the period they are in Country A and/or Country C.

-        the employees do not relocate their personal belongings (such as furniture, vehicles etc) to Country A and/or Country C. The accommodation is generally booked and selected by the Employer and the employees have very limited choice from a range of Employer-preferred suppliers. They do not have a choice to stay elsewhere; and

-        the employees are, generally, not accompanied or visited by their families (or friends) while they are in Country A and/or Country C. In any case, the Employer will not sponsor or support an employees' family's travel.

As the meal and incidentals expenditure would be deductible expenses, the per diem the Employer pays the employees for these additional expenses cannot be a LAFHA under section 30 of the FBTAA.

Question 3(b)

If the per diem is not subject to section 30 of the FBTAA and the allowance is equivalent to, or less than, the reasonable amounts for travel allowance expenses under Taxation Determination TD 2019/11 (Income tax: what are the reasonable travel and overtime meal allowance expense amounts for the 2019-20 income year?) (TD 2019/11) or 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 the Employer need to withhold Pay-As-You-Go (PAYG) withholding and report the per diem on the employee's PAYG Payment Summary?

Summary

Where the per diem is equivalent to, or less than, the reasonable amounts for travel allowance expenses under TD 2019/11 or a future Taxation Determination in relation to income tax and the reasonable travel and overtime meal allowance expense amounts for an income tax year, the Employer does not need to withhold PAYG withholding or report the per diem on the employees' PAYG Payment Summary.

Detailed reasoning

The ATO's publication entitled 'Travel allowances' provides that a travel allowance involving an overnight absence from the employee's ordinary place of residence is not required to be reported on the employee's PAYG Payment Summary where the amount is equivalent to or less than the reasonable travel allowance rate.

Section 900-30 of the ITAA 1997 states that a 'travel allowance' is an allowance an employer pays to an employee to cover losses or outgoings that:

·         are incurred for travel away from the employee's ordinary residence that is undertaken in the course of their duties as an employee, and

·         are for accommodation, food or drink, or are incidental to travel.

Paragraphs 53 to 62 of Taxation Ruling TR 2004/6 Income tax: substantiation exception for reasonable travel and overtime meal allowance expenses (TR 2004/6) provides the following factors to consider when determining if an allowance paid to an employee is a travel allowance:

·         the employee is sleeping away from home

·         the allowance must cover costs of accommodation, food or drink, or incidentals

·         the travel must cover specific journeys

·         the allowance must be paid as an allowance and not folded-in as part of normal salary/wages, and

·         the allowance must be a bona fide travel allowance.

Paragraph 60 of TR 2004/6 states that an allowance will be a bona fide travel allowance where the allowance paid is an amount reasonably expected to cover accommodation, meals and other expenses incidental to the travel.

Having regard to the definition of a 'travel allowance' in section 900-30 of the ITAA 1997 and TR 2004/6, and the circumstances in which the per diem is provided to the Employer's employees, the per diem is a 'travel allowance'.

The facts are applied as follows:

·         The employees are sleeping away from home while undertaking travel to Country A and/or Country C in the course of their duties as employees of the Employer under their existing employment contracts in Australia. They are required by the Employer, as an incident of their employment with the company in Australia, to spend up to 90 days in Country A and/or Country C.

·         The per diem is paid to cover reasonable costs of food and drink and other outgoings that are incidental to the travel to Country A and/or Country C.

·         The travel will specifically relate to travel from Australia to Country A and/or Country C.

·         The employees are paid a total per diem in relation to their time in Country A and/or Country C. This amount is paid in addition to their salary and wages and is only paid in relation to days spent in Country A and/or Country C.

·         The per diem is only paid to employees because they are travelling to Country A and/or Country C in the course of their employment and not because they are living away from home.

On the basis the per diem is less than the minimum 'reasonable' amounts specified in Taxation Determination TD 2019/11 for Country A and Country C, it is an allowance that is subject to the varied withholding rate. Therefore, the Employer will not need to withhold PAYG withholding or report the per diem on the employees' 2019-20 PAYG Payment Summaries.

For the 2020-21 and 2021-22 income years, where the per diem is equivalent to, or less than, the reasonable amount specified in the relevant Taxation Determination, then the position should be the same as for the 2019-20 income year.

Issue 4: Per Diem - Country B

Question 4(a)

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

Summary

A per diem paid to an employee travelling to Country B is not a Living-Away-From-Home Allowance (LAFHA) subject to section 30 of the FBTAA.

Detailed reasoning

The relevant law and associated reasoning as per the response to Question 3(a) above is equally applicable to this question.

Question 4(b)

If the per diem is not subject to section 30 of the FBTAA and the allowance is equivalent to, or less than, the reasonable amounts for travel allowance expenses under TD 2019/11 or 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 the Employer need to withhold PAYG withholding and report the per diem on the employee's PAYG Payment Summary?

Summary

Where the travel allowance is equivalent to, or less than, the reasonable amounts for travel allowance expenses under TD 2019/11 or a future Taxation Determination in relation to income tax and the reasonable travel and overtime meal allowance expense amounts for an income tax year, the Employer does not need to withhold PAYG withholding or report the per diem on the employees' PAYG Payment Summary.

Detailed reasoning

The relevant law as per the response to Question 3(b) above is equally applicable to this question.

Having regard to the definitions of a 'travel allowance' under section 900-30 of the ITAA 1997 and Taxation Ruling TR 2004/6, the circumstances in which the per diem is provided to the Employer's employees, the per diem is a 'travel allowance'.

The background facts can be applied as follows:

·         The employees are sleeping away from home while undertaking travel to Country B in the course of their duties as employees of the Employer under their existing employment contracts in Australia. They are required by the Employer, as an incident of their employment with the company in Australia, to FIFO of Country B for up to 3 weeks per rotation.

·         The per diem is paid only to cover reasonable costs of food and drink and other outgoings that are incidental to the travel to Country B.

·         The travel specifically relates to travel from Australia to Country B.

·         The employees are paid a total per diem in relation to their time in Country B. This amount is paid in addition to their salary and wages and is only paid in relation to days spent in Country B.

·         The per diems are only paid to employees because they are travelling to Country B in the course of their employment and not because they are living away from home.

On the basis the per diem is less than the minimum 'reasonable' allowance amount for food, drink and incidentals for Country B in the income year, as specified in TD 2019/11, it is an allowance that is subject to the varied withholding rate. Therefore, the Employer will not need to withhold PAYG withholding or report the per diem on the employees' 2019-20 PAYG Payment Summaries.

For the 2020-21 and 2021-22 income years, where the per diem is equivalent to, or less than, the reasonable amount specified in the relevant Taxation Determination, then the position should be the same as for the 2019-20 income year.

Issue 5: Travel - Country A and Country C

Question 5(a)

Is the provision of travel to and from Country A and Country C a 'fringe benefit' as per the definition of that term in subsection 136(1) of the FBTAA?

Summary

The provision of travel to and from Country A and/or Country C will constitute a 'fringe benefit' as per the definition of that term in subsection 136(1) of the FBTAA.

Detailed reasoning

The relevant law and associated reasoning as per the response to Question 1(a) above is equally applicable to this question. As the employees are employed by the Employer and the travel (benefit) is provided to enable the employee to perform their work, the provision of travel by the Employer (or an associate of the Employer) will constitute a 'fringe benefit' as per the definition of that term in subsection 136(1) of the FBTAA.

The travel is also a 'residual benefit' because it is not specifically covered under Divisions 2 to 11 of the FBTAA. It is also a fringe 'benefit', and therefore constitutes a 'residual fringe benefit' pursuant to section 45 of the FBTAA.

Question 5(b)

If the provision of travel to and from Country A and Country C is a fringe benefit, does the 'otherwise deductible rule' in section 52 of the FBTAA reduce the taxable value of the benefit to nil where the total number of days spent in Country A and Country C during an income year is less than 30 days?

Summary

The 'otherwise deductible rule' in subsection 52(1) of the FBTAA will apply to reduce the taxable value of the benefit to nil where the total number of days spent in Country A and/or Country C during an income year is less than 30 days.

Detailed reasoning

The relevant law and associated reasoning as per the response to Question 1(b) above is equally applicable to this question.

Further, Draft Taxation Ruling 2019/D7 Income tax: when are deductions allowed for employees' transport expenses? (TR 2019/D7) sets out when an employee can deduct transport expenses under section 8-1 of the ITAA 1997.

TR 2019/D7 states at paragraph 6:

6.    An employee can only deduct a transport expense under section 8-1 to the extent that:

·      they incur the expense in gaining or producing their assessable income

·      the expense is not of a capital, private or domestic nature

·      the applicable substantiation requirements are satisfied.

The ATO view in respect of the meaning of 'incurred in gaining or producing assessable income' are provided in paragraphs 9 to 12 of TR 2019/D7, as follows:

9. It has long been established that the term 'incurred in gaining or producing assessable income' is understood as meaning incurred 'in the course of gaining or producing' assessable income. Other ways that this has been expressed in the context of transport expenses, is that the employee is travelling 'on work', the travel is part of the employment or the travel is an incident of the employment.

10. Conversely, a close connection between a journey and the employee's private or domestic life is a strong indication that the journey occurs outside of the employee's income-producing activity and is not deductible. Where the employee is travelling between home and a regular place of work, the transport expenses are usually a prerequisite to, rather than being incurred in, gaining or producing the employee's assessable income, and are simply a necessary consequence of living in one place and working in another.

11. Determining whether a particular transport expense is incurred in gaining or producing assessable income will involve consideration of the proper scope of the particular employee's work activities to determine if the circumstances of the transport expense have a sufficiently close connection to earning the employment income. It is important to have regard not just to the duties in the contract of employment, but to the nature of the work as a matter of substance. The following factors may support a characterisation of transport expense as being incurred in producing assessable income:

·      the travel occurs on work time

·      the travel occurs when the employee is under the direction of the employer

·      the travel fits within the duties of employment

·      the travel is relevant to the practical demands of carrying out the work duties

·      the employer asks for the travel to be undertaken.

12. The factors need to be considered in the context of both the form and substance of the employment arrangement. No single factor on its own will necessarily support a conclusion that an expense is deductible.

Each of the factors in paragraph 11 of TR 2019/D7 is considered further below in determining whether the expenses relating to the travel to Country A and/or Country C are incurred in gaining or producing assessable income.

The travel occurs on work time

Paragraph 19 of TR 2019/D7 states that most employees have a regular place of work, being a usual or normal place where the employee starts and finishes their work duties. Considering the deductibility of travel expenses, the Full Federal Court in John Holland Group Pty Ltd v. Federal Commissioner of Taxation [2015] FCAFC 82 (John Holland), contrasted the requirement to travel to a regular place of work, with the travel being required because of the specific demands of the employment. This in turn informed the decision of whether the expense was incurred in the course of gaining or producing the assessable income of the employee.

Pagone J, at paragraph 57 of John Holland, posed the question 'The answer to the question in dispute depended upon whether the travel undertaken by the employees between Perth Airport and Geraldton was within the employment of the employees.'

Pagone J concluded that the facts such as being rostered on from arrival at Perth airport, taking flights because they were directed to do so and required to do so as part of their employment obligations, that travel was included in working time hours and employees were required to act in accordance with the directions from their employers during the travel (including observing codes of conduct), all supported a conclusion that the travel occurred in the course of employment.

At paragraph 60 of John Holland, Pagone J observed that whilst the extremes of distance between home and work alone are not sufficient to make the occasion of travel employment related, remoteness of a project location may be a relevant factor:

A distant or remote location for the performance of employment duties may, however, be a relevant factor in determining whether travel is part of the employment. The location of the place at which work needs to be performed may occasion a need for travel to be part of the employment. The remoteness of the project location in this case provides the explanation for the travel being part of the employment. .....

In the present circumstances, the Employment Agreement states that the Employer 'may require you [the employee] to travel to other locations (including interstate and overseas). Employees are required to travel to an overseas location, being Country A and/or Country C. The employees are also subject to the terms and conditions of their Australian employment contracts, Employer code of conduct and short term travel policy, whilst travelling to and from and while in Country A and/or Country C. However, the employees' travel is not included in their working time hours and therefore they do not receive additional compensation for their travel time.

The travel occurs when the employee is under the direction of the employer

In John Holland, Edmonds J. concluded that the travel undertaken by the employees was in the course of employment. Edmonds J. concluded that Perth airport was the point at which the employee's duties and remuneration for performance of those duties commenced and ceased. He found that from the time the relevant employees checked in at Perth airport, they were travelling in the course of their employment, subject to the direction of their employer. He also said that John Holland employees were being paid for their travel time.

As indicated above, the employees, whilst not travelling in working time hours, were subject to the terms and conditions of their Australian employment contracts, Employer's code of conduct and short term travel policy, whilst travelling to and from and while in Country A and/or Country C. The Employer also pays for the return flights and the transfers to and from the airport and the employees are subject to the ultimate control of the Employer, rather than the overseas related entity or the third party vendor, whilst in Country A and/or Country C.

The travel fits within the duties of employment

Paragraph 36 of TR 2019/D7 states (in part) that:

If the duties of employment require that the employee travels from their home to somewhere other than the employee's regular place of work[5] (alternative work location), for example to attend a client's premises or another office of their employer, then the costs of such travel may be deductible. The cost of travel from home to such a work location can be characterised as being incurred in the course of gaining or producing the employee's assessable income.

It is considered that travel to Country A and/or Country C is required by the employees' duties of employment. It is contemplated within the Employment Agreement and the nature of the assignment requires the employees to travel to the relevant countries to perform the specific work activities that they also perform in Australia.

The travel is relevant to the practical demands of carrying out the work duties

In comparing the circumstances in John Holland with those in Cooper[6], Pagone J states at paragraph 59 that:

The conclusion in [Cooper] that the consumption of food was not part of the income producing activities of playing football and training was not based upon a narrow view of the income producing activity but upon the fact that the income producing activity did not include eating, however essential that might be as a prerequisite to playing football or training or to perform those activities. In this case, in contrast, the employment necessitated that travel be part of the activities productive of assessable income. It was the remoteness of the project location that caused there to be a need for travel to be part of that for which employees were employed. There is no suggestion of the obligation to travel being created other than by the demands of the nature of the employment, or as device to clothe what would be a private journey before the derivation of income with the appearance of a journey as part of the employment.

The employees are undertaking travel in the course of their employment duties when they travel to Country A and/or Country C. travel to Country A and/or Country C to carry out their employment duties. This is an essential part of their role in undertaking an international assignment. The travel also clearly forms part of their current employment duties contemplated within their Employment Agreement and is not a separate and distinct role undertaken as an employee.

The employer asks for the travel to be undertaken

The travel to Country A and/or Country C is clearly undertaken at the request of the Employer and not at the discretion of the employee.

Conclusion - deductibility of travel expenses

The Employer's employees are undertaking travel in the course of their employment duties when they travel to Country A and/or Country C. Having regard to the relevant law and to the principles encapsulated in TR 2019/D7, the employees would be able to claim a deduction under section 8-1 of the ITAA 1997 if they had incurred and paid the unreimbursed travel expenditure on the basis that the expense was necessarily incurred in gaining or producing their assessable income.

Therefore, the 'otherwise deductible rule' in subsection 52(1) of the FBTAA will apply to reduce the taxable value of the benefit to nil where the total number of days spent in Country A and/or Country C during an income year is less than 30 days.

Question 5(c)

If the provision of travel to and from Country A and Country C is a fringe benefit, does the 'otherwise deductible rule' in section 52 of the FBTAA reduce the taxable value of the benefit to nil where the total number of days spent in Country A and Country C during an income year is less than 60 days?

Summary

The 'otherwise deductible rule' in subsection 52(1) of the FBTAA will apply to reduce the taxable value of the benefit to nil where the total number of days spent in Country A and/or Country C during an income year is less than 60 days.

Detailed reasoning

The relevant law and associated reasoning as per the response to Question 5(b) above is equally applicable to this question. Only the time spent working away from home in Country A and/or Country C is longer for these employees, the nature of their trips remains the same. The Employer's employees are in Country A and/or Country C to carry out their employment duties, which is to train and transfer knowledge and supervise local employees. Therefore, the employees would be able to claim a deduction under section 8-1 of the ITAA 1997 if they had incurred and paid the unreimbursed travel expenditure on the basis that the expense was incurred in gaining or producing their assessable income.

Therefore, the 'otherwise deductible rule' in subsection 52(1) of the FBTAA will apply to reduce the taxable value of the benefit to nil where the total number of days spent in Country A and/or Country C during an income year is less than 60 days.

Question 5(d)

If the provision of travel to and from Country A and Country C is a fringe benefit, does the 'otherwise deductible rule' in section 52 of the FBTAA reduce the taxable value of the benefit to nil where the total number of days spent in Country A and Country C during an income year is less than 90 days?

Summary

The 'otherwise deductible rule' in subsection 52(1) of the FBTAA will apply to reduce the taxable value of the benefit to nil where the total number of days spent in Country A and/or Country C during an income year is less than 90 days.

Detailed reasoning

The relevant law and associated reasoning as per the response to Question 5(b) above is equally applicable to this question. Only the time spent working away from home in Country A and/or Country C is longer for these employees, the nature of their trips remains the same. The Employer's employees are in Country A and/or Country C to carry out their employment duties, which is to train and transfer knowledge and supervise local employees. Therefore, the employees would be able to claim a deduction under section 8-1 of the ITAA 1997 if they had incurred and paid the unreimbursed travel expenditure on the basis that the expense was incurred in gaining or producing their assessable income.

Therefore, the 'otherwise deductible rule' in subsection 52(1) of the FBTAA will apply to reduce the taxable value of the benefit to nil where the total number of days spent in Country A and/or Country C during an income year is less than 90 days.

Issue 6: Travel - Country B

Question 6(a)

Is the provision of travel to and from Country B a 'fringe benefit' as per the definition of that term in subsection 136(1) of the FBTAA?

Summary

The provision of travel to and from Country B will constitute a 'fringe benefit' as per the definition of that term in subsection 136(1) of the FBTAA.

Detailed reasoning

The relevant law and associated reasoning as per the response to Question 5(a) above is equally applicable to this question.

Question 6(b)

If the provision of travel to and from Country B is a fringe benefit, does the 'otherwise deductible rule' in section 52 of the FBTAA reduce the taxable value of the benefit to nil?

Summary

The 'otherwise deductible rule' in subsection 52(1) of the FBTAA would apply to reduce the taxable value of the fringe benefit (being the provision of travel to the Employer's employees travelling to Country B) to nil.

Detailed reasoning

The relevant law and associated reasoning as per the response to Question 5(b) above is equally applicable to this question. The Employer's employees would be able to claim a deduction under section 8-1 of the ITAA 1997 if they had incurred and paid the unreimbursed travel expenditure to and from Country B on the basis that the expense was incurred in gaining or producing their assessable income. Therefore, the 'otherwise deductible rule' in subsection 52(1) of the FBTAA will apply.

[1] J & G Knowles & Associates v. Federal Commissioner of Taxation [2000] FCA 196; (2000) 96 FCR 402; 2000 ATC 4151; (2000) 45 ATR 1101 (Knowles Case).

[2] Subsection 136(1) of the FBTAA (definition of 'exclusive employee residual benefit').

[3] Subsection 136(1) of the FBTAA (definition of 'extended travel residual benefit').

[4] TR 2017/D6, [73].

[5] If the employee has more than one regular place of work, this includes all of their regular places of work.

[6] Commissioner of Taxation v. Cooper (1991) 29 FCR 177