Edited version of private advice

Authorisation Number: 1051902291417

Date of advice: 5 October 2021

Ruling

Subject: Living-away-from-home-allowance or travelling allowance for tax purposes

Question 1

Does the amount of $XX per night that the employer pays to its employees for meals when they are required to travel constitute a living-away-from-home-allowance (LAFHA) for the purposes of subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No

Question 2

If the answer to Question 1 is 'No', does the amount of $XX per night that the employer pays to its employees for meals when they are required to travel constitute a travel allowance for the purposes of subsection 900-30(3) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes

This ruling applies for the following periods:

Income Year ending 30 June 20XX

Income Year ending 30 June 20XX

Income Year ending 30 June 20XX

Income Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

The employer operates a business in Australia. Due to the nature of its business, the employee must travel to perform their working duties. The employee does not have a regular place of work. They work at various locations and for various lengths of time.

All employees have permanent and settled principal places of residence. When the employees travel for work, they maintain their residences and their families do not accompany them.

Employees will work a Monday to Friday five-day roster in the local region and return on a Friday afternoon to have the weekend at their principal places of residence.

Accommodation is booked close to where the employees are working.

The employees' roster changes for locations further away where they commence work on a Monday and return the following Friday (a 12-day roster).

During break periods, the employees return to their principal place of residence and families.

Under both rosters, if the job is in the one location, they may stay in the one location. However, if the jobs are at multiple places, they may shift up to six to seven times.

All travel plans and accommodation are done through the employer. Employees do not book their accommodation. The types of accommodation the employees reside in when they are travelling on work are motel rooms and caravan park cabins.

There are also times employees will work in the local area for an extended duration of time and will not be required to travel.

When the employees are required to travel, the employer pays for all accommodation costs. The employees are also paid a fixed amount per night for meals. They are not required to refund any unexpended amounts.

Relevant legislative provisions

Income Tax Assessment Act 1997 Subsection 900-30(3)

Fringe Benefits Tax Assessment Act 1986 Section 30

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Reasons for decision

Question 1

Does the amount of $XX per night that the employer pays to its employees for meals when they are required to travel constitute a living-away-from-home allowance (LAFHA) for the purposes of subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Summary

The amount of $XX per night that the employer pays to its employees when they are required to travel, is not a LAFHA for the purposes of subsection 30(1) of the FBTAA.

Detailed reasoning

Subsection 30(1) of the FBTAA sets out the circumstances in which an allowance paid by an employer to an employee will qualify as a LAFHA, and states:

Where:

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

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

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

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

by reason that the duties of that employment require the employee to live away from his or her normal residence; the payment of the whole, or of the part, as the case may be, of the allowance constitutes a benefit provided by the employer to the employee at that time.

As summarised in the ATO's publication entitled Fringe benefits tax - a guide for employers ('the Employer's Guide'): there are three conditions that must be met for a payment to an employee to be considered a LAFHA fringe benefit:

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

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

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

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

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

Did the employer pay an allowance to the employee in respect of their employment?

Chapter 1 of the Employer's Guide provides guidance on what is meant by the term 'in respect of employment'.

According to the FBTAA, a fringe benefit is a benefit provided in respect of employment. This effectively means a benefit is provided to somebody because they are an employee. The 'employee' may be a current, former or future employee.

Due to the nature of the employer's business, employees must travel to perform their working duties. When employees are required to travel, the employer pays for all their accommodation costs. The employees are also paid a fixed amount per night for meals.

The Commissioner accepts that the payment per night made by the employer to the employees in respect of their meal expenses incurred whilst travelling for work was provided because they are employees of the employer.

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

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

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

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

'Reimbursement' is described at paragraph 3 of TR 92/15, which provides that:

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

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

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

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

In the current circumstances, when the employee are required to travel for work, they are paid a fixed amount per night for meals. This is a definite, pre-determined amount; the employees are not be required to refund any unexpended amounts to their employer. Accordingly, it is not intended that the payments compensate exactly for meal expenses that are incurred by the employees. Therefore, a payment by the employer to the employee of per night is considered to constitute the payment of an allowance. The payments are not a reimbursement.

As such, the first condition in subsection 30(1) of the FBTAA is satisfied.

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

'Normal residence'

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

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

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

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

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

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

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

It is accepted that, in the current circumstances, an employee's permanent and settled principal place of residence is the employee's usual place of residence.

'Living away from usual residence'

Paragraph 42 of Taxation Ruling TR 2021/4 Income tax and fringe benefits tax: employees: accommodation and food and drink expenses, travel allowances, and living-away-from-home allowances (TR 2021/4) provides the following guidance for determining whether an employee is living at a location away from their usual residence.

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.

In the current circumstances, travel is an essential aspect of the work done by the employees. The work is carried out at various locations and for various lengths of time, depending on the job. There is no time frame for the jobs. Each job varies depending on the time it would take to complete. On average, the employees go to six or seven different work locations during a roster period.

The length of the overall period the employees will be away from their usual residence is also relatively short, being five days or 12 days depending on the roster. The time the employees spends away from their usual place of residence does not exceed twenty-one days. Chapter 11.11 of the Employer's Guide states that as a practical general rule, where the period away does not exceed 21 days the allowance will be treated as a travelling allowance rather than a LAFHA.

When the employees are away working, they stay in motel rooms and caravan park cabins. Paragraph 59 of TR 2021/4 notes that motel rooms are generally considered short-term accommodation. As such, the nature of the accommodation is also such that is does not become their usual residence.

The employees may have family members who also reside at their principal place of residence. Family members do not accompany employees while they are away working. The employees go back to their principal place of residence (and family members) during break periods.

'Require'

Chapter 11.2 of the Employer's Guide provides that whether an employee's job requires them to live away from their normal residence, and where the employee's normal residence is located, is a question of fact and will depend on each employee's circumstances.

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

While the employees are working away from home, they continue to maintain their usual place of residence; and they are not accompanied by family members. The roster periods ensure that the amount of time the employees spend working away from home does not exceed 21 days. Due to the nature of the work being carried out, the employees could potentially occupy multiple units of temporary accommodation during a roster period. It is considered that the employees do not take up settled accommodation or temporary residence elsewhere when they are working away from home. Accordingly, it is considered that the duties of the employee's employment do not require them to live away from their normal residence.

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

3. Was the allowance paid wholly or partly to compensate the employee for additional, non-deductible expenses incurred because of the requirement to live away from their normal residence?

When the employees are required to travel, the employer pays for all of their accommodation costs. The employees are also paid a fixed amount per night for meals. Meals are a living expense. The employees will not be able to claim an income tax deduction for their meal expenses as these types of expenses are private in nature; that is, they are non-deductible expenses.

It was concluded above that the payment to cover meal expenses constitutes an 'allowance'. It was also concluded above that the employee's duties of employment do not require them to live away from their normal residence.

While the amount per night that is paid to the employee is an allowance to compensate for additional non-deductible expenses that are incurred; the amount was not paid because they were required to live away from their normal residence.

Therefore, the third condition in subsection 30(1) of the FBTAA is not satisfied.

As all three of the conditions in subsection 30(1) of the FBTAA are not satisfied, the meal allowances paid to the employees do not constitute a LAFHA fringe benefit under subsection 30(1) of the FBTAA.

Question 2

If the answer to Question 1 is 'No', does the amount of $XX per night that the employer pays to its employees for meals when they are required to travel constitute a travel allowance for the purposes of subsection 900-30(3) of the Income Tax Assessment Act 1997 (ITAA 1997)?

Summary

The amount per night payment by the employer to its employees when they are required to travel, is a travel allowance for the purposes of subsection 900-30(3) of the ITAA 1997.

Detailed reasoning

A travel allowance is defined in subsection 900-30(3) of the ITAA 1997 as:

A travel allowance is an allowance your employer pays or is to pay to you to cover losses or outgoings:

(a) that you incur for travel away from your ordinary residence that you undertake in the course of your duties as an employee; and

(b) that are losses or outgoings for accommodation or for food or drink, or are incidental to the travel.

The travel may be within or outside Australia.

Taxation Ruling TR 2004/6 Income Tax: substantiation exception for reasonable travel and overtime meal allowance expenses (TR 2004/6) provides that, for a payment to be a travel allowance, the following requirements must be met:

1)    The payment paid by the employer to the employees is an allowance.

2)    The allowance is paid to cover the cost of accommodation, for food or drink, or expenses incidental to the travel.

3)    The employee is required to travel in the course of their duties as an employee.

4)    The travel requires that the employee has to sleep away from their ordinary residence.

Paragraph 123 of TR 2021/4 also states that:

A travel allowance is an allowance an employer pays (or is to pay) to an employee to cover losses or outgoings that:

•         an employee incurred for travel away from their ordinary residence, either within or outside Australia, that they undertake in the course of their duties as an employee, and

•         are incurred for accommodation or for food or drink expenses, or expenses that are incidental to the travel.

1.    Is the payment paid by the employer to the employees an allowance?

As concluded in the response to Question 1, the employer pays an allowance to the employees, being a fixed amount per night to cover meal expenses.

Therefore, the first requirement is satisfied.

2.    Did the employer pay an allowance to the employee to cover the cost of accommodation, food or drink, or incidental expenses?

Travel is an essential aspect of the work done by the employees. The work is carried out at various locations and for various lengths of time, depending on the job. When they away working, the employees stay in temporary short-term accommodation such as motel rooms as well as in caravan park cabins. The employer pays for all the accommodation costs that are incurred. The employees are also paid a fixed amount per night for meals.

It is accepted that the reason this allowance is paid, is to cover the food or drink expenses incurred. Therefore, the second requirement is satisfied.

3.    Was the employee required to travel in the course of their duties as an employee?

Having regard to the current circumstances, it is accepted that due to the nature of the industry, travel is an essential feature of the work. It is considered that the employees are required to travel in the course of their duties as an employee, and therefore the third requirement is satisfied.

Therefore, the third requirement is satisfied.

4.    Did the travel require the employee to sleep away from their ordinary residence?

As per paragraph 53 of TR 2004/6 and paragraphs 11 to 13 of TR 2021/4,the Commissioner takes the view that the term 'travel away from the employee's ordinary residence' means that the employee must sleep away from their home.

The employees have a permanent and settled principal place of residence that is their usual residence. It is accepted that this residence is the employee's ordinary place of residence, or home.

The work done by the employees is carried out at various locations and for various lengths of time, depending on the job. The employees must travel in order to perform their duties. On average the employees go to six or seven different work locations during a roster period; they stay away overnight in short-term temporary accommodation such as motel rooms and caravan park cabins; and family members do not accompany them. After completing their roster periods, the employees return to their ordinary place of residence.

On this basis, it is accepted that due to the nature of the work employees are required to sleep away from their home.

As all the requirements in TR 2004/6 and TR 2021/4 for a payment to constitute a 'travel allowance' are satisfied, it is considered that the meal allowances paid by the employer paid to employees constitutes a 'travel allowance' pursuant to subsection 900-30(3) of the ITAA 1997.