Edited version of private advice

Authorisation Number: 1051854409965

Date of advice: 23 June 2021

Ruling

Subject: FBT - travel expenses - otherwise deductible rule

Question 1

Is temporary accommodation provided to relocate employees and their associates out of COVID-19 'hot spots' prior to travelling to a Facility exempt from Fringe Benefits Tax under section 58N of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

Question 2

Are accommodation and associated hotel incidental expenses paid for in respect to employees 'otherwise deductible' under section 52 of the FBTAA?

Answer

Yes.

Question 3

Are accommodation expenses paid or reimbursed for in respect of associates accompanying employees 'otherwise deductible' under section 52 or section 24 of the FBTAA where the associate utilised the same accommodation as the employee?

Answer

Yes.

Question 4

Are hotel incidental expenses paid or reimbursed for in respect of associates accompanying employees 'otherwise deductible' under section 52 or section 24 of the FBTAA?

Answer

No.

Question 5

Are travel expenses such as flights paid for in respect of employees 'otherwise deductible' under section 52 of the FBTAA?

Answer

Yes.

Question 6

Are travel expenses such as flights paid for in respect of associates accompanying employees 'otherwise deductible' under section 52 of the FBTAA?

Answer

No.

Question 7

Are meals and incidental expenses paid for in respect of employees 'otherwise deductible' under section 44 or section 52 of the FBTAA?

Answer

Yes.

Question 8

Are meals and incidental expenses paid for in respect of associates accompanying employees 'otherwise deductible' under section 44 or section 52 of the FBTAA?

Answer

No.

Question 9

Are daily travel expenses paid for in respect of employees 'otherwise deductible' under section 52 of the FBTAA?

Answer

Yes.

This ruling applies for the following periods:

Fringe Benefits Tax Year ended 31 March 20XX

Fringe Benefits Tax Year ended 31 March 20XX

Fringe Benefits Tax Year ended 31 March 20XX

The scheme commenced on:

1 April 20XX

Relevant facts and circumstances

•                    You participated in a competition in 20XX ('the 20XX Competition').

•                    The COVID-19 pandemic disrupted the 20XX Competition.

•                    The COVID-19 pandemic and resulting quarantine restrictions implemented across Australia, meant the administrating body ('Administration') of the competition adjusted the operation of the 20XX Competition in order to minimise disruption to the competition.

•                    Your employees are bound by the competition's Protocol and the terms of their individual contracts.

Arrangements for the 20XX Competition

•                    The Administration required your employees to stay in accommodation ('Facility') as a safeguard in response to COVID-19.

•                    Some employees based in a particular state were required to temporarily relocate within that state (away from a designated 'COVID-19 hot spot') and were provided with temporary accommodation (which was not a Facility).

•                    The Administration agreed to allow your employees' spouses and families ('associates of employees') to travel with them.

•                    You entered into an arrangement with the Administration whereby they would reimburse you or pay for certain travel costs incurred by your employees and their associates.

•                    Costs paid or reimbursed included all reasonable accommodation, domestic flights, meals, transport and incidental expenses associated with performing their employment duties at the Facilities.

•                    Most costs were incurred directly by the Administration with only a small portion of costs (approximately 1%) incurred by employees or their associates and subsequently reimbursed.

Travel

•                    Employees are required to travel under the terms of their employment contracts.

•                    All employees were expected to comply with your direction to travel to the Facilities for the remainder of the 20XX Competition.

•                    All transport between accommodation and work locations occurred via bus travel under strict quarantine protocols. Employees and associates were not permitted to travel in taxis, use ride sharing services or public transport for the duration of their travel to the Facility.

•                    Employees were required to travel between their usual residences and Facilities in accordance with quarantine restrictions and in response to border closures.

•                    The majority of employees travelled to one Facility for the duration of the period.

•                    Some employees were required to travel between multiple Facilities. When this occurred, such employees were away from their primary Facility for an extended period due to quarantine restrictions.

Facilities

•                    The Facilities were located in different states.

•                    The accommodation at the Facilities was procured such that large groups of employees could collectively isolate near work locations and did not interact with the general community.

•                    The accommodation comprised a range of hotels, serviced apartments, and two-or three-bedroom apartments.

•                    Where employees and their associates travelled to the Facility, they utilised the existing accommodation secured for the employee with no additional accommodation expenditure incurred specifically to accommodate the associate wherever possible.

•                    Where this was not possible (in extremely limited cases), the associate was provided separate accommodation.

•                    Employees and their associates did not take nor have the ability to take substantial or significant possessions or personal effects to the Facility.

•                    Luggage was transported in suitcases and was generally limited to clothing, toiletries and other typical travel items.

•                    Employees and their associates were provided with three meals per day in a group dining setting such that they would not have to self-cater.

•                    Each employee and their associates had the intention of returning to their usual residence (homes) when they were no longer required to remain within the Facility.

•                    After the conclusion of 20XX Competition, employees and their associates were required to leave the Facilities.

Employees

•                    Employees are remunerated to perform their duties under the terms of their contract.

•                    The contract requires the employees to comply with and observe the Administration's Rules and any reasonable restrictions contained in those Rules.

Administration Rules

•                    The Rules provide powers to impose sanctions (such as suspension or a monetary sanction) in circumstances where a person is in breach of those Rules.

The Protocol

•                    All employees and associates were bound by strict policies (documented in the Protocol) that prevented them from leaving the Facilities, engaging with members of the general public and participating in recreational activities (such as visiting tourist attractions) in their spare time. These requirements were imposed irrespective of the liberties afforded to local communities under quarantine restrictions.

•                    When not performing their duties, all employees and associates were required to stay at home (or in their accommodation at the Facilities) whenever possible and only leave for essential reasons.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 20

Fringe Benefits Tax Assessment Act 1986 section 23

Fringe Benefits Tax Assessment Act 1986 section 24

Fringe Benefits Tax Assessment Act 1986 section 44

Fringe Benefits Tax Assessment Act 1986 section 52

Fringe Benefits Tax Assessment Act 1986 section 58N

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 subsection 138(13)

Income Tax Assessment Act 1997 section 8-1

Reasons for Decision

General principles

A 'fringe benefit' is defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA). Broadly, a 'fringe benefit' arises when the following conditions are satisfied:

(a)          A benefit is provided at any time during the year of tax.

(b)          The benefit is provided to an employee or an associate of the employee.

(c)          The benefit is provided by:

(i)            their employer; or

(ii)           an associate of the employer; or

(iii)         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

(iv)         a third party other than the employer or an associate of the employer, if the employer or an associate of the employer:

(A)participates in or facilitates the provision or receipt of the benefit; or

(B)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;

(d)          The benefit is provided in respect of the employment of the employee.

(e)          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).

Is a benefit provided?

Subsection 136(1) of the FBTAA provides the 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:

•                    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; ...

You or the Administration for the 20XX Competition provided a range of benefits (transport, accommodation, meals and incidentals) to your employees and their associates. Each is a 'benefit' as defined in subsection 136(1) in the FBTAA. Therefore, this condition in the definition of 'fringe benefit' in subsection 136(1) is 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), means payments from which an amount must be withheld under section 12-35 of Schedule 1 to the Taxation Administration Act 1953.

You pay your employees, payments which are 'salary or wages' as defined in the FBTAA. Your employees are therefore your current employees.

An employee's spouse and family members are their associates as defined in subsection 136(1) of the FBTAA by reference to section 318 of the Income Tax Assessment Act 1936 (ITAA 1936).

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

Paragraphs (e) and (ea) of the definition of 'fringe benefit' in subsection 136(1) of the FBTAA provide:

(e)          a person (in this paragraph referred to as the arranger) other than the employer or an associate of the employer under an arrangement covered by paragraph (a) of the definition of arrangement between:

(i) the employer or an associate of the employer; and

(ii) the arranger or another person; or

(ea) a person 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;

Furthermore, 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.

You provided benefits to your employees and their associates, and your employees and their associates received benefits from the Administration under an arrangement you had with the them.

Therefore, 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.'

In this case, there is no evidence that your employees were dealing with you in any other capacity than as employees and employer. It is considered that the provision of benefits to your employees was sufficiently and materially connected to their employment, and as such, any benefit would be considered to have been provided 'in respect of' their employment. It follows that any benefit provided to associates of employees was also provided 'in respect of' the employees' 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.

Paragraph (g) of the definition of 'fringe benefit' excludes 'a benefit that is an exempt benefit'.

When relevant, this condition will be discussed below in relation to a specific question.

Expense payment fringe benefits

Under section 20 of the FBTAA, an expense payment benefit arises where a provider:

•                    makes a payment in discharge, in whole or in part, of an obligation of a recipient to pay an amount to a third person in respect of expenditure incurred by the recipient; or

•                    reimburses a recipient in whole or in part, in respect of an amount of expenditure incurred by the recipient.

Residual fringe benefits

A benefit provided by an employer (or associate or third party, in certain circumstances) to an employee, in respect of the employment of the employee that is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 of the FBTAA is called a 'residual benefit'.

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 in subsection 136(1) as a residual fringe benefit that is provided during a period. Under subsection 149(1), 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.

You do not provide the benefit of travel (transport, accommodation, meals and incidental expenses) to members of the public as part of your business activities. Furthermore, the benefits of accommodation are provided in relation to a period exceeding one day. Therefore, those benefits provided are each an 'external period residual fringe benefit'. The other benefits (being transport, meals and incidentals) would be 'external non-period residual fringe benefits'.

Otherwise deductible rule

The 'otherwise deductible' rule in section 24 of the FBTAA operates to reduce the taxable value of an expense payment fringe benefit where the recipient of the benefit is an employee and the employee would have been entitled to a once-only deduction under either the ITAA 1936 or the Income Tax Assessment Act 1997 (ITAA 1997) for the expense had they personally incurred it.

The 'otherwise deductible rule in section 52 of the FBTAA operates to reduce the taxable value of a residual fringe benefit in an analogous way.

The relevant ATO view on whether an employee would be able to claim a once-only deduction if they had incurred the unreimbursed travel expenditure themselves is contained in:

•                    for transport expenses: Taxation Ruling TR 2021/1 Income tax: when are deductions allowed for employees' transport expenses? (TR 2021/1)

•                    for accommodation and food and drink expenses: Draft Taxation Ruling TR 2021/D1 Income tax and fringe benefits tax: employees: accommodation and food and drink expenses, travel allowances, and living-away-from-home allowances (TR 2021/D1).

Section 8-1 of the ITAA 1997

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

An employee can only deduct an expense under section 8-1 to the extent that:

•                    it is incurred in gaining or producing assessable income (positive test)

and also meets the 'negative tests' that:

•                    the expense is not a loss or outgoing of capital

•                    the expense is not private or domestic in nature

•                    the expense is not incurred in relation to gaining or producing exempt or non-assessable non-exempt income, and

•                    another provision of the tax law does not prevent deduction of the expense.

Question 1: Is temporary accommodation provided to relocate employees and their associates out of COVID-19 'hot spots' prior to travelling to a Facility exempt from Fringe Benefits Tax under section 58N of the FBTAA?

Summary

Temporary accommodation provided to relocate employees and their associates out of COVID-19 'hot spots' prior to travelling to a Facility is an exempt benefit under section 58N of the FBTAA.

Detailed reasoning

Section 58N of the FBTAA provides an exemption in respect of emergency assistance where:

(a)          a benefit is provided in respect of the employment of an employee of an employer;

(b)          the benefit is provided solely by way of the grant of emergency assistance to the recipient...

Subsection 136(1) of the FBTAA contains the following relevant definitions:

emergency means an emergency involving any of the following matters:

(a)          a natural disaster;

(b)          a conflict involving an armed force;

(c)          a civil disturbance;

(d)          an accident;

(e)          a serious illness;

(f)           any similar matter.

emergency assistance, in relation to a person, means assistance granted to the person where:

(a)          the person is, or is at immediate risk of becoming, the victim of an emergency;

(b)          the assistance is granted to the person solely in order to provide immediate relief;

(c)          the assistance is in respect of all or any of the following matters:

(i)            first aid or other emergency health care;

(ii)           emergency meals or food supplies;

(iii)         emergency clothing;

(iv)         emergency transport;

(v)          emergency accommodation;

(vi)         emergency use of household goods;

(vii)        temporary repairs;

(viii)       any similar matter.

Some employees were provided with the benefit of temporary accommodation in order to facilitate their removal from COVID-19 'hot spots' prior to travelling to a Facility.

The COVID-19 pandemic is an 'emergency' within the definition of that term in subsection 136(1) of the FBTAA.

The temporary accommodation provided to some employees is within the definition of 'emergency assistance' as defined in subsection 136(1) of the FBTAA because:

•                    it was assistance in respect of emergency accommodation

•                    it was granted to employees and their associates who were a victim of, or at immediate risk of becoming the victim of, COVID-19, and

•                    there is nothing to suggest the accommodation was provided for any other reason than solely in order to provide immediate relief (that is, their removal from a COVID-19 'hot spot').

The relevant conditions in section 58N of the FBTAA are satisfied as follows:

•                    the benefit was provided to the employees and their associates in respect of the employee's employment. It enabled each employee to continue their duties of employment, and

•                    the benefit of the provision of temporary accommodation to employees and their associates was provided solely by way of grant of emergency assistance.

Therefore, the benefit of temporary accommodation is an exempt benefit under section 58N of the FBTAA.

It is noted this outcome is consistent with the following question and answer published in the COVID-19 - frequently asked questions guide. That guide, relevantly, provided:

FBT on accommodation, food and transport

Question: Will I need to pay FBT if I provide an employee adversely affected by COVID-19 with emergency accommodation, food, transport or other assistance?

Answer: No, so long as both of the following apply:

•                    The benefit given to your employee is emergency assistance to provide immediate relief.

•                    That employee is, or is at risk of being adversely affected by COVID-19.

In the context of COVID-19, we will accept that the FBT emergency assistance exemption applies if you, as an employer, have provided emergency accommodation, food, transport or other assistance to an affected employee.

Exempt assistance would cover, for example:

•                    expenses incurred relocating an affected employee due to COVID-19, including paying for flights for overseas to return to Australia

•                    expenses incurred providing food and temporary accommodation if an affected employee is unable to travel due to travel restrictions (including domestic, interstate or intrastate travel)

•                    benefits provided that allow the affected employee to self-isolate or be quarantined

•                    transporting or paying for an affected employee's transport expenses including car hire and transport to temporary accommodation.

Conclusion

As the provision of temporary accommodation in these circumstances is an exempt benefit, it is not a 'fringe benefit' per the definition of that term in subsection 136(1).

Question 2: Are accommodation and associated hotel incidental expenses paid for in respect of employees 'otherwise deductible' under section 52 of the FBTAA?

Summary

The otherwise deductible rule applies to the extent the expense would be deductible to an employee under section 8-1 of the ITAA 1997.

Detailed reasoning

The benefit of accommodation and associated hotel incidental expenses are residual fringe benefits under section 45 and subsection 136(1) of the FBTAA.

As outlined above, the benefits related to accommodation are external period residual fringe benefits. The taxable value of these benefits is calculated in accordance with section 51 of the FBTAA. Those related to incidental expenses are external non-period residual fringe benefits. The taxable value of these benefits is calculated in accordance with section 50 of the FBTAA. This taxable value is reduced where the 'otherwise deductible rule' in subsection 52(1) of the FBTAA applies.

The relevant conditions in subsection 52(1) of the FBTAA are considered below.

Paragraph 52(1)(a)

For the 'otherwise deductible' rule to apply, the recipient of the benefit of accommodation and hotel incidental expenses must be an employee of the employer.

That condition is satisfied in the circumstances covered by this question.

Paragraph 52(1)(b)

For the 'otherwise deductible' rule to apply, a once-only deduction must have been allowable to the employee under either the ITAA 1936 or ITAA 1997.

Application of section 8-1 of the ITAA 1997

To be deductible under section 8-1 of the ITAA 1997, the expense must have a sufficiently close connection to the performance of the employment duties and activities through which the employee earns income. It will not be enough to show some general link or causal connection between the expenditure and the production of income. The occasion of the outgoing on accommodation and food and drink must be found in the employee's income producing activities, rather than because the employee:

•                    lives far away from where they gain or produce their assessable income (i.e. due to their personal circumstances)

•                    is living at a location away from their usual residence

•                    incurs the expenses as a result of relocating from their usual residence.

Such expenses are 'living expenses' and are not deductible under section 8-1 of the ITAA 1997 because they are not incurred in performing an employee's income-producing activities and are also private or domestic in nature.

Similarly, costs incurred by an employee to maintain their normal residence and in consuming food and drink to go about their daily activities are not deductible. They are living expenses. They are 'preliminary to the work' and are not incurred in performing the work activities. They are also of a private or domestic nature.

However, where an employee travels and stays away from their usual residence overnight in the course of performing their income producing activities and incurs accommodation and food and drink expenses, these expenses will generally be deductible under section 8-1 of the ITAA 1997.

Connection to employment duties and activities

The scope of an employee's income producing activities is a question of fact and degree and is not confined to the day-to-day activities performed by the employee. It requires consideration of the employment contract along with:

•                    the duties to be observed, and

•                    the tasks to be performed by the employee (which may extend beyond what is contained in the employment contract).

Application

In this case, the following factors support a conclusion that overnight travel is an incident of the employee's employment:

•                    Employees are bound by the terms of their individual employment contracts or terms with you and the Administration.

•                    These contracts require employees to perform their employment duties, obey all directions from you and the Administration for the 20XX Competition and comply with the Administration Rules:

•                    The 20XX Competition, having been disrupted by the COVID-19 pandemic, was conducted under the Protocol, which was deemed to form part of the Administration Rules, with breaches dealt with in accordance with the Rules.

•                    That Protocol (with reference to the Administration Rules) provided powers of sanction.

•                    The Protocol provided for employees to travel to and be accommodated in Facilities.

•                    While in the Facilities, employees were bound by strict policies that prevented them from leaving the Facility, engaging with members of the general public and participating in recreational activities in their spare time.

•                    Moreover, during periods not affected by the COVID-19 pandemic, employees are required to travel and sleep away overnight as part of their employment duties.

The employee does not incur the expenses due to their personal circumstances

Living expenses include expenses incurred by an employee where, due to their personal circumstances, they live far away from where they gain or produce their assessable income.

Such expenses are incurred because the employee's personal circumstances are such that they keep their usual residence, rather than relocate. The occasion of the outgoing for accommodation and food and drink is not found in the employee's income-producing activities, meaning that these expenses are not incurred in the course of gaining or producing the employee's assessable income. They are private and domestic in nature.

In this case, the employees' expenses would not be incurred because of their personal circumstances. The employees did not choose to be based in Facilities. Their presence in a Facility was the product of the 20XX Competition being conducted subject to the Protocol which required employees to be based in a Facility in order to undertake their duties of employment. Therefore, their expenses would be an incident of their employment, incurred in the course of producing or gaining their assessable income and would not be private or domestic in nature.

The employee does not incur the expenses because they are living at a location or have relocated

Where an employee is living at a location away from their usual residence or has relocated, their accommodation and food and drink expenses are living expenses and will not be deductible even if the employee is living at that location due to their employment.

This is because the location at which the employee works has become their new regular place of work and the accommodation and food and drink expenses are not an incident of their income-earning activity. Rather, the employee's personal circumstances are such that their usual residence is not located near their new workplace. Consequently, the employee is living at a location away from their usual residence and their accommodation and food and drink expenses will not be deductible.

Paragraphs 38 to 72 of TR 2021/D1 further explain when an employee will not be 'travelling on work' but 'living at a location' away from their usual residence (including when they have relocated). Where an employee is living at a location away from their usual residence, their accommodation and food and drink expenses are living expenses and will not be deductible even if the employee is living at that location due to their employment.

The 'length of period away' means the overall period of time the employee spends living at a particular location for work. Where an employee is living at one location for work for an extended period, that period is not broken by short trips they take from that location, for example travelling back to their usual residence on weekends or when 'travelling on work' from that location. Generally, the longer an employee spends away from their usual residence for work, the more likely the employee is living at the location.

Paragraph 41 of TR 2021/D1 provides that the following factors would support a characterisation of an employee as living at a location away from their usual residence:

•                    there is a change in the employee's regular place of work

•                    the length of the overall period the employee will be away from their usual residence is a relatively long one

•                    the nature of the accommodation is such that it becomes their usual residence

•                    whether the employee is, or can be, accompanied by family or visited by family and friends.

Paragraph 43 of TR 2021/D1 provides, 'all of the[se] factors ... should be considered and no single factor is necessarily decisive. The weight given to each factor will vary depending on the individual circumstances.'

(a) Change in regular place of work

Where there is a change in the employee's regular place of work and the employee incurs accommodation and food and drink expenses to be closer to their new regular place of work, the employee will be living at that new location away from their usual residence. In these circumstances, the expenses incurred are living expenses and are not deductible.

In this case, the employees' regular place of work did not change. A Facility was the employee's alternative place of work. Therefore, this factor tends against a conclusion the employees were living at a location away from their usual residence.

(b) Length of period away from their residence

The 'length of period away' means the overall period of time the employee spends living at a particular location for work. Where an employee is living at one location for work for an extended period, that period is not broken by short trips they take from that location, for example travelling back to their usual residence on weekends or when travelling on work from that location. Generally, the longer an employee spends away from their usual residence for work, the more likely the employee is living at the location.

In this case, employees were away from their usual residences for a period of up to XX weeks. The actual length of time an employee was away from their usual residence depended on quarantine restrictions, border closures and ultimately their participation in the 20XX Competition. While a period of XX weeks is relatively long, and such a period of time may ordinarily suggest an employee is living away from their residence, the length of time must be considered in light of the other circumstances surrounding an employee's travel. In this regard, we note that when employees stayed in Facilities for longer durations, this was the product of COVID-19 restrictions. Employees who were not subject to COVID-19 restrictions returned to their usual residences and commenced regular travelling on work arrangements.

This factor tends against a conclusion the employees were living at a location away from their usual residence.

(c) The nature of the accommodation

The nature of an employee's accommodation is relevant but does not determine whether the employee is living at a location away from their usual residence. Generally, where an employee works away from home for a considerable period and, for that period, stays in accommodation generally used for longer term accommodation (such as a house, unit or apartment or caravan), this would support a view that they are living at a location away from their usual residence.

Paragraph 55 of TR 2021/D1 says the nature of the accommodation is relevant but does not determine whether an employee is living at a location away from their usual residence.

As such, it is noted the accommodation at the Facilities was procured such that large groups of employees could collectively isolate in Facilities and did not interact with the general community. Accordingly, there was a level of flexibility that was required with respect to the specific accommodation secured. This involved booking a range of available accommodation that was sufficient to house all employees in a particular Facility. Furthermore, a Facility needed to have enough space for temporary employment duties to effectively operate in restricted areas. While some of the accommodation had kitchen facilities, employees were not expected to self-cater and had no need to utilise kitchen facilities where available.

In conclusion, it is accepted that the nature of the accommodation was a product of availability and cost rather than because it had additional amenities and facilities for employees. Therefore, this factor is neutral.

(d) Whether the employee is or can be accompanied by family or visited by family or friends

An employee who is living at a location away from their usual residence can generally be accompanied or visited by their family and friends.

In this case, employees were (or had the option to be) accompanied by their family. However, as acknowledged in paragraph 60 of TR 2021/D1, 'an accompanied employee should not always be treated as living at a location away from their usual residence. They can be travelling on work.'

Such is the case here. While employees' associates were allowed to accompany the employee to a Facility, any associates who chose to do so were subject to the same Protocol controls as the employees. As such, their freedom of movement, to participate freely in leisure activities or interact with members of the general public, was controlled. Therefore, this factor is neutral.

Whether the employees relocated

There is no information to suggest the employees have relocated to a Facility. The Facilities were only a temporary arrangement to facilitate the 20XX Competition.

Conclusion - accommodation

Having regard to the elements of section 8-1 of the ITAA 1997, the employees' accommodation would have been incurred by them, had they incurred these expenses themselves, in the course of their gaining or producing their assessable income. They were 'travelling on work'. Furthermore, in considering the factors outlined in TR 2021/D1, the employees would not have incurred the accommodation expense because of their personal circumstances or due to living at a location away from their residence or having relocated from their usual residence.

Therefore, the accommodation expense would be a deductible to the employees under section 8-1 of the ITAA 1997 had they incurred the expense themselves. Therefore, the otherwise deductible rule would apply to reduce the taxable value of the benefit of accommodation provided to employees.

Conclusion - hotel incidental expenses

In general, the otherwise deductible rule would also apply to reduce the taxable value of the hotel incidental expenses for the same reasons as for accommodation expenses. That is, the employees would have incurred the expense while 'travelling on work', and not because of their personal circumstances or because they were living at a location away from their residence or due to having relocated from their usual residence.

To the extent an employee would not be entitled to deduct the expense under section 8-1 of the ITAA 1997, because it is not incurred in gaining or producing their assessable income and/or of a private or domestic nature, the otherwise deductible rule would not apply to reduce the taxable value of the benefit of the payment of an employee's hotel incidental expenses.

Question 3: Are accommodation expenses paid or reimbursed for in respect of associates accompanying employees 'otherwise deductible' under section 52 or section 24 of the FBTAA where the associate utilised the same accommodation as the employee?

Summary

The otherwise deductible rule in section 52 or section 24 of the FBTAA applies where the associate utilised the same accommodation as the employee.

Detailed reasoning

The payment of accommodation for an employee and their associates, in respect of the employee's employment, is a residual fringe benefit under section 45 and subsection 136(1) of the FBTAA.

These benefits are external period residual fringe benefits. The taxable value of these benefits is calculated in accordance with section 51 of the FBTAA. This taxable value is reduced where the 'otherwise deductible rule' in subsection 52(1) of the FBTAA applies.

The reimbursement of an employee's accommodation expense, in respect of their employee's employment, is an expense payment fringe benefit under section 20 and subsection 136(1) of the FBTAA.

The taxable value of these benefits is calculated in accordance with section 23 of the FBTAA because they are external expense payment fringe benefits. This taxable value is reduced where the 'otherwise deductible rule' in subsection 24(1) of the FBTAA applies.

For simplicity, and because it was more common for you to pay for an expense, with reimbursement being less common, we will only consider the relevant conditions in subsection 52(1) of the FBTAA below. The otherwise deductible rule in section 24 would apply in an analogous way.

Where a benefit in respect of the employment of an employee is provided jointly to the employee and one or more associates of the employee, subsection 138(3) of the FBTAA provides, for the purposes of the FBTAA, the benefit shall be deemed to have been provided to the employee only.

Based on the reasoning outlined for Question 2, the otherwise deductible rule would apply to reduce the taxable value of the benefit of accommodation provided to employees.

The amount of the reduction in the taxable value is determined in accordance with subsection 52(5) of the FBTAA which provides:

For the purposes of paragraph (1)(k) (which applies to a residual fringe benefit that, under subsection 138(3), is deemed to have been provided to an employee only), the amount is calculated in accordance with the formula:

Unadjusted ND × Employee's percentage of interest

where:

employee's percentage of interest:

(a)          is the percentage of the interest held by the employee, during a period (in this subsection called the holding period) in the year of tax, in the asset or other thing:

(i)            to which the residual fringe benefit relates; and

(ii)           that is applied or used for the purpose of producing assessable income of the employee; and

(b)          does not include the percentage of the interest held in that asset or other thing by the employee ' s associate or associates during the holding period.

unadjusted ND is the amount that would be ascertained as representing the component ND in the formula in subsection (1) if paragraph (1)(k) did not apply in relation to the residual fringe benefit.

Therefore, the otherwise deductible rule would not apply to the extent the benefit was provided to the associate rather than the employee.

In this case, an employee's accommodation was, generally, not influenced by whether they were or would be accompanied by their associates. Rather, the accommodation was chosen because it could accommodate a large number of travelling employees in close proximity to work locations and there were a limited number of suitable facilities available.

As a result, the Facilities included a variety of one, two and three-bedroom hotel rooms and serviced apartments. The larger units of accommodation were not specifically obtained to accommodate employees and their associates and there were instances of individual employees being allocated a two or three-bedroom apartment. Accordingly, had an employee who was accompanied by their associates incurred the accommodation expense themselves, they would have incurred the same expense irrespective of whether they were accompanied by their associates. Therefore, no apportionment of the expense would be required and the whole amount would be otherwise deductible.

Where accommodation was specifically chosen for an employee because they were accompanied by their associates and/or additional accommodation costs were incurred for associates, only that portion of the accommodation expense relating to the employee would be deductible to them, and otherwise deductible under section 52 of the FBTAA.

Question 4: Are hotel incidental expenses paid or reimbursed for in respect of associates accompanying employees 'otherwise deductible' under section 52 or section 24 of the FBTAA?

Summary

The otherwise deductible rule in section 52 or section 24 of the FBTAA does not apply to hotel incidental expenses paid or reimbursed for in respect of associates accompanying employees.

Detailed reasoning

The benefit of hotel incidental expenses is either a residual fringe benefit under section 45 of the FBTAA or an expense payment fringe benefit under section 20 of the FBTAA.

For simplicity, and because it was more common for you to pay for an expense, with reimbursement being less common, we will only consider the relevant conditions in subsection 52(1) of the FBTAA below. The otherwise deductible rule in section 24 would apply in an analogous way.

For the otherwise deductible rule to apply, paragraph 52(1)(a) of the FBTAA requires the recipient of the residual fringe benefit to be an employee of the employer.

As the recipients of these benefits are associates of employees, the condition in paragraph 52(1)(a) of the FBTAA is not satisfied. Therefore, the otherwise deductible rule does not apply.

Question 5: Are travel expenses such as flights paid for in respect of employees 'otherwise deductible' under section 52 of the FBTAA?

Summary

The otherwise deductible rule in section 52 of the FBTAA applies to travel expenses such as flights paid for in respect of employees.

Detailed reasoning

The benefit of travel expenses such as flights and other transport expenses ('transport expenses') is a residual fringe benefit under section 45 and subsection 136(1) of the FBTAA.

These benefits are external non-period residual fringe benefits. The taxable value of these benefits is calculated in accordance with section 50 of the FBTAA. This taxable value will be reduced where the 'otherwise deductible rule' in subsection 52(1) of the FBTAA applies.

The relevant conditions in subsection 52(1) of the FBTAA are considered below.

Paragraph 52(1)(a)

For the 'otherwise deductible' rule to apply, the recipient of the benefit of transport expenses must be an employee of the employer.

That condition is satisfied in the circumstances covered by this question.

Paragraph 52(1)(b)

For the 'otherwise deductible' rule to apply, a once-only deduction must have been allowable to the employee under either the ITAA 1936 or ITAA 1997.

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

Application of section 8-1 of the ITAA 1997

TR 2021/1 considers the deductibility of employee transport expenses in a range of common circumstances.

Where the occasion of transport expenses can be found in the employee's employment duties, the expenses will be incurred in gaining or producing the employee's assessable income.

Where there is 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. For example, with limited exceptions, an employee's costs of travelling between home and a regular place of work are not deductible. This expenditure is regarded as a prerequisite to earning an employee's assessable income and is private in nature.

Conversely, if the duties of employment require that the employee travels from their home to somewhere other than the employee's regular place of work (known as an 'alternative work location'), the costs of such travel may be deductible. This is because the costs of such travel can be characterised as being incurred in the course of gaining or producing the employee's assessable income.

It is therefore necessary to determine whether travel by the employees to the Facilities was travel to an alternative work location, rather than from home to a regular place of work.

Are the Facilities an alternative work location other than a regular place of work?

Most employees have a regular place of work, being a usual or normal place where the employee starts and finishes their work duties with a particular employer. As outlined above, where the duties of employment require that the employee travel from their home to somewhere other than the employee's regular place of work, that location other than the regular place of work will be an alternative work location.

In some employment arrangements there may be more than one regular workplace established. A second or subsequent place of work would be a regular place of work if it is also a normal or routine place where the employee works, such that travelling between there and the employee's home is better characterised merely as part of the necessity of travelling to and from work.

In most cases, identifying an employee's regular place of work is clear. In circumstances where it is not clear, it may be necessary to consider in more depth the contract of employment, customary practice, the nature of the work duties, where these duties commence and at what point in time the employee is under the direction and control of their employer in order to determine where the employee's regular place of work is.

Contract of employment

Employees are bound by the terms of their individual contracts with you and/or the Administration. The contract does not state where the employee's regular place of work is, although, it is considered under normal circumstances the employee's regular place of work would be your or the Administration's work premises on days where they were not travelling for work.

The contract requires an employee to perform their employment duties, obey all directions from you and the Administration for the 20XX Competition and to comply with the Administration Rules.

The 20XX Competition, having been disrupted by the COVID-19 pandemic, was conducted under the Protocol, which was deemed to form part of the Administration Rules, with breaches dealt with in accordance with the Rules. The Protocol provided for employees to travel to Facilities which were a temporary arrangement to facilitate the 20XX Competition. While in Facilities, employees were bound by strict policies that prevented them from leaving the Facility, engaging with members of the general public and participating in recreational activities in their spare time.

Due to the unprecedented nature of the COVID-19 pandemic, there is no information to suggest that the Facilities were a normal or routine place where the employees worked, such that they would be a regular place of work. Rather, the Facilities were established as a temporary measure designed to enable employees to undertake their duties of employment whilst observing and complying with the contract, Protocol and COVID-19 restrictions.

Customary practice

Due to the unprecedented nature of the COVID-19 pandemic, there is no information to suggest that there were customary practices which would indicate that the Facilities were the employees' regular places of work.

Nature of the work duties

Where the nature of the employment requires an employee to travel away from home overnight, for purposes explained by their employment and not because of where they have chosen to live, the transport expenses incurred in travelling to the alternative work location will be incurred in the course of gaining or producing the employee's assessable income.

This is explained by Example 6 of TR 2021/1. In that example, Duy has a regular place of work in Rockhampton and in the performance of his duties, travel is undertaken to an alternative destination in Brisbane which is not a regular place of work. Duy is required by the specific requirements of his role to carry out his duties of employment both in Rockhampton and Brisbane. The travel to Brisbane is not attributable to Duy's choice to live in Rockhampton or do part of his job in Brisbane. As a result, the transport expenses are incurred in gaining or producing Duy's assessable income and are deductible.

In this case, travel is a regular component of the employees' duties. In normal circumstances, the employees' duties require them to travel and sleep away from home overnight.

Due to the COVID-19 pandemic and quarantine restrictions which were implemented across Australia, employees were required to travel to the Facilities for the 20XX Competition. Their presence in a Facility was not attributable to their choice. Rather, it was the product of their employment contracts and the 20XX Competition being conducted subject to the Protocol. That Protocol required employees to be based in a Facility in order to undertake their duties of employment. In the case of employees, their employment contract requires them to comply with reasonable directions and the Administration Rules and the Protocol was deemed to be part of the Administration Rules.

Like Duy in Example 6 of TR 2021/1, the employees have a regular place of work, for example, at your work premises. In the performance of their duties, the employees travelled to the Facilities which are alternative destinations that were not established as secondary work locations of any permanence. Absent the COVID-19 pandemic, travel to the Facility would not have been required.

Where employment duties commence

Travel is a regular component of the employee's duties.

Prior to travelling to the Facilities, the employees were required to meet at your work premises. On arrival employees were required to travel to the Facilities in groups.

Level of direction and control of the employer

The employees are bound by the terms of their individual contracts with their club and the Administration. In addition, the employees are subject to the Protocol and the Administration Rules which imposed strict requirements at all times an employee was travelling to a Facility.

All transport to the Facilities occurred on work time, as a group and under strict quarantine protocols that were negotiated between the Administration and you and the relevant State health departments. When not performing their duties within the Facility, all employees were required to stay at home whenever possible and only leave for essential reasons. On this basis, the employees remained under the direction and control of their employers at all times whilst travelling to and from the Facilities.

Conclusion - alternative place of work

In circumstances where identifying an employee's regular place of work is not clear, it is necessary to consider the factors detailed above to determine where the employee's regular place of work is. Having regard to these factors, it is evident that the Facilities were established as a temporary measure and not as secondary work locations of any permanence.

The presence of employees in the Facilities was not attributable to their choice. Rather, they were a temporary measure designed to enable employees to conduct their work duties whilst under the level of direction and control of their employers during the COVID-19 pandemic. As such, the Facilities are not the employees' regular place of work, but rather are alternative work locations.

Are the transport expenses incurred in gaining or producing assessable income?

It is now necessary to determine whether the transport expenses are incurred in gaining or producing assessable income.

While transport expenses will only be deductible if they satisfy the requirements of section 8-1, the following factors would be relevant in determining whether the transport expenses are incurred in gaining or producing assessable income:

•                    the travel fits within the duties of employment, that is, the obligation to incur transport expenses arises out of the employment itself and not the employee's personal circumstances

•                    the travel is relevant to the practical demands of carrying out the work duties, that is, the transport expenses are a necessary consequence of the employee's income-producing activity

•                    the employer asks for the travel to be undertaken

•                    the travel occurs on work time

•                    the travel occurs when the employee is under the direction and control of the employer.

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

The travel fits within the duties of employment

Travel to the Facilities was a regular component of the employees' employment duties as a result of the COVID-19 pandemic. The employees were directed and required to fly to the Facilities as part of their employment duties, that travel occurred on work time and employees were required to act in accordance with directions from their employers during the travel. These factors all support a conclusion that the employees' travel occurred in the course of their employment.

The travel was a matter of necessity and was required in order for employees to work and compete in the 20XX Competition. The Facilities were established as a temporary measure designed to enable employees to undertake their duties of employment whilst observing and complying with the employment contract, Protocol and COVID-19 restrictions. As such, the obligation to incur transport expenses arose out of the employment itself and not the employees' personal circumstances.

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

In this case, it was the COVID-19 pandemic and the 20XX Competition which necessitated that travel to Facilities be a part of the employees work duties.

Employees were required to be away from their residences for a period of up to XX weeks - with the actual length of time an employee was away from their usual residence dependent on quarantine restrictions, border closures and ultimately your success in the 20XX Competition. There is no evidence to suggest that the obligation to travel to the Facilities was created other than by the demands of the nature of the employees' employment.

The employer asks for the travel to be undertaken

It is accepted that the employees were asked to undertake the travel to the Facilities, being travel to an alternative work location, in the course of their employment.

The travel occurs on work time or when employee is under the direction of the employer

In John Holland Pty Ltd v Commissioner of Taxation [2015] FCAFC 82 (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.

In this case, the employees are bound by the terms of their individual contracts with you and the Administration. In addition, the employees were also subject to the Protocol and the Administration Rules which imposed strict requirements at all times an employee was travelling to a Facility.

All transport to the Facilities occurred on work time and the employees were paid for their travel time. When not performing their duties within the Facility, all employees were required to stay at home whenever possible and only leave for essential reasons. On this basis, the employees remained under the direction and control of their employers at all times whilst travelling to and from the Facilities.

Conclusion - transport expenses

Having regard to these factors from TR 2021/1 and the requirements of section 8-1, it is evident they would support a characterisation of the transport expenses as having been incurred by the employees in gaining or producing their assessable income had they incurred the expense themselves. The employees are undertaking travel in the course of their employment duties when they travel to the Facilities, such that they will be 'travelling on work' and the transport expenses would be deductible to them under section 8-1.

As a result, the otherwise deductible rule in section 52 of the FBTAA would apply to reduce the taxable value of the benefit of the transport expenses provided to employees.

Question 6: Are travel expenses such as flights paid for in respect of associates accompanying employees 'otherwise deductible' under section 52 of the FBTAA?

Summary

The otherwise deductible rule in section 52 of the FBTAA does not apply to travel expenses such as flights paid for in respect of associates accompanying employees.

Detailed reasoning

For the otherwise deductible rule in section 52 of the FBTAA to apply, the recipient of the benefit must be an employee and not an associate of an employee.

In the circumstances covered by this question, the benefit of transport expenses was paid for in respect of an employees' associates such that the recipient of the benefit was not an employee. Furthermore, transport expenses of an employee's associate are inherently private in nature and would not be deductible to an employee, had the employee incurred the expense themselves.

Therefore, the taxable value of this benefit would not be reduced by the otherwise deductible rule in section 52 of the FBTAA.

Question 7: Are meals and incidental expenses paid for in respect of employees 'otherwise deductible' under section 44 or section 52 of the FBTAA?

Summary

The otherwise deductible rule in section 44 or section 52 of the FBTAA applies to meals and incidental expenses paid for in respect of employees.

The reasoning outlined at Question 2 in relation to the application of the otherwise deductible rule to the benefit of accommodation and hotel incidental expenses would apply in an analogous way to the employees' meals and incidental expenses covered by this question. Therefore, the otherwise deductible rule in sections 44 or 52 of the FBTAA would apply and reduce the taxable value of the benefit to nil.

Question 8: Are meals and incidental expenses paid for in respect of associates accompanying employees 'otherwise deductible' under section 44 or section 52 of the FBTAA?

Summary

The otherwise deductible rule in section 44 or section 52 of the FBTAA does not apply to meals and incidental expenses paid for in respect of associates accompanying employees.

Detailed reasoning

For the otherwise deductible rule in sections 44 or 52 of the FBTAA to apply, the recipient of the benefit must be an employee not an associate of an employee.

In the circumstances covered by this question, the recipients of the benefit of meals and incidental expenses are associates of employees. Furthermore, meals and incidental expenses of an employee's associate are inherently private in nature and would not be deductible to an employee, had the employee incurred the expense themselves.

Therefore, the taxable value of this benefit in respect of associates would not be reduced by the otherwise deductible rule in sections 44 or 52 of the FBTAA.

Question 9: Are daily travel expenses paid for in respect of employees 'otherwise deductible' under section 52 of the FBTAA?

Summary

The otherwise deductible rule in section 52 of the FBTAA applies to daily travel expenses paid for in respect of employees.

Detailed reasoning

The reasoning outlined at Question 5 in relation to the application of the otherwise deductible rule to the benefit of transport expenses would apply in an analogous way to the employees' daily travel expenses covered by this question. Therefore, the otherwise deductible rule in section 52 of the FBTAA would apply and reduce the taxable value of the benefit to nil.