Edited version of private advice

Authorisation Number: 1052035698065

Date of advice: 19 December 2022

Ruling

Subject: Living-away-from-home-allowance

Issue 1 - Employees on short-term assignment

Question 1

Is the allowance paid to the employees a living-away-from-home allowance (LAFHA) under section 30(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No

Question 2

Can the taxable value of the fringe benefits arising from the provision of the accommodation to employees be reduced to nil under section 52 of the FBTAA?

Answer

Yes

Issue 2 - Specialist travel to regional areas

Question 3

Is the travel allowance paid to the specialist a living-away-from-home allowance (LAFHA) under section 30(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

No

This private ruling applies for the following periods:

Year ended 31 March 20XX

Year ended 31 March 20XX

Year ended 31 March 20XX

Year ended 31 March 20XX

Year ended 31 March 20XX

The scheme commenced on:

1 April 20XX

Relevant facts and circumstances

Short term assignment

Every year employer sends some employees to another work location to undertake seasonal work.

While working on temporary transfer at the temporary work location, employer provides shared accommodation in a house or cottage with a number of rooms with kitchen facilities where employees can cook their own meals.

Employer pays the employees an allowance in the nature of compensation to the employee for the additional food expenses incurred because the employee is required to live away from his or her usual place of residence to perform the duties of employment.

The allowance is only paid for days when the employee is present at the temporary work location

The longest period of time an employee would be sent to the temporary work location is 21 days. However, this varies, and some employees may stay for a shorter period.

The employees maintain a home elsewhere in Australia for their immediate use and enjoyment at all times while required to stay at the temporary work location.

Only employees travel to the temporary work location as under the policy of the employer, the family of the employee is not allowed to stay in the accommodation provided.

An employee is allowed to visit their home if he or she has days off; however, the employee is not paid for the days off.

Specialist travel to regional areas

An employee with specialised skill is required to work in the regional towns 2 or 3 days per week.

The employer pays the employee travel allowance in accordance with the travel and transport policy.

Total number of days that an employee work in a regional town is 21 days.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 30

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 section 45

Fringe Benefits Tax Assessment Act 1986 section 47(5)

Fringe Benefits Tax Assessment Act 1986 section 52

Income Tax Assessment Act 1997 section 8

Income Tax Assessment Act 1997 subsection 900-30(2)

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

Income Tax Assessment Act 1997 section 900-50

Reasons for Decision

Issue 1 - Employees on short-term assignment

Question 1

Is the allowance paid to the employees a LAFHA under section 30(1) of the FBTAA?

Answer

No

Summary

The allowance paid to the 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.

Does the employer pay an allowance to the employees in respect of their 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.

The employees 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 required to refund any unexpended amounts to the employer. Accordingly, it is not intended that the payments compensate exactly for meal expenses that are incurred by the employees. Therefore, payment made by the employer to the employees 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.

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

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

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

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

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

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

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

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

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 130 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 analyse the difference between a travel allowance and a LAFHA.

130. The main difference between a travel allowance and a LAFHA is that a:

•                     travel allowance can only be paid to cover deductible accommodation and food and drink expenses and incidental expenses incurred by an employee when they are travelling on work

•                     LAFHA is paid to provide compensation to an employee for the additional living expenses incurred by an employee because their duties of employment require them live at location away from their usual residence.

Paragraph 42 of Taxation Ruling TR 2021/4 provides the following guidance for determining whether an employee is living at a location away from their usual residence.

42. 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.

Change in the employee's regular place of work

Paragraph 45 of TR 2021/4 outlines that where there is a change in the employee's regular place of work and the employee incurs accommodation and meal 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 this case, there is no change in the employees' regular place of work and the employees are to temporarily attend and provide support during the seasonal work.

The length of the period away

Paragraph 48 explains that 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.

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.

During the temporary relocation of the employees, the length of time the employees will be away from their usual residence is also relatively short, being no more than 21 days at a time continuously and to be away for an overall aggregate period of less than 90 days at the location. This indicates that the employees' stay is relatively short.

The nature of the accommodation

Paragraphs 56 and 58 explains that 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, apartment or caravan), this would support a view that they are living at a location away from their usual residence.

Paragraph 59 of TR 2021/4 notes that the use of short-term accommodation such as hotels and motels located close to the temporary work location is generally an indication that the employee is travelling on work.

When the employees are away working, they stay in a shared accommodation that the employer organised to rent. This indicates that the employees have been provided with short term shared accommodation.

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

Paragraph 60 provides that an employee who is living at a location away from their usual residence can generally be accompanied or visited by their family and friends. However, if an employee cannot be accompanied by family or visited by family and friends, this tends to indicate that the employer retains a degree of control over the employee outside their standard workday and which may contribute to an overall impression that the employee is travelling on work during this period.

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

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. 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 at a location.

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

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

The third condition requires that an allowance should have been paid to compensate for additional non-deductible expenses. 'Non-deductible' is a pre-requisite in the third condition, we therefore need to determine whether the allowance is a deductible expense to the employees.

Subsection 136(1) of the FBTAA provides the definition of deductible expenses as follows:

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

According to section 8-1 ITAA 1997, you can deduct a loss or outgoing if it is incurred in producing your assessable income except where the outgoing is of a capital, private or domestic nature.

Paragraph 7 of TR 2021/4 outlines that the term 'incurred in gaining or producing assessable income' means incurred 'in the course of gaining or producing assessable income'. For an expense to be incurred in gaining or producing assessable income it is both sufficient and necessary that the occasion of the expense should be found in whatever is productive of assessable income.

Paragraph 8 states that when determining what is productive of an employee's assessable income, consideration should be given to the scope of the employee's income-producing activities

Paragraphs 9 and 10 differentiate the 'living expenses' and expenses incurred while 'travelling on work'

9.            Accommodation and food and drink expenses are ordinarily private or domestic in nature and are generally not deductible under section 8-1. This includes the costs an employee incurs to maintain their usual residence and of consuming food and drink to go about their daily activities. For the purposes of this Ruling, such expenses will be referred to as 'living expenses.

10.          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. For the purposes of this Ruling, an employee who stays away from their usual residence overnight in the course of performing their income-producing activities will be referred to as 'travelling on work'.

Paragraph 24 further outlines the relevant factors for determining whether an employee is travelling on work versus living expenses

24.          If any of the following factors apply, the employee will not be travelling on work and the accommodation and food, and drink expenses incurred will be living expenses:

•                     The expenses are incurred because the employee's personal circumstances are such that they live far away from where they gain or produce their assessable income

•                     The employee incurs the expenses because they are living at a location

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

Personal circumstances

Paragraph 25 of TR 2021/4 explains that an employee cannot deduct accommodation and food and drink expenses they have incurred where, due to their personal circumstances, they live far away from where they gain or produce their assessable income.

The employees have been seconded to the regional location to carry out the employment duties rather than due to their personal circumstances. The expenses on food, fuel and other incidentals are incurred in the course of producing assessable income.

Living at a location

We have already discussed the requirements for living at a location and established that the employees are not 'living at a location'.

Relocation

Paragraph 80 of TR 2021/4 lists the factors that indicate whether an employee has relocated or not.

80. Whether an employee has relocated is a question of fact. Factors that indicate an employee has relocated include:

•                     they are at the new location for an extended period

•                     they are required to move to that location permanently or indefinitely in order to perform their duties

•                     their usual residence is no longer available for them to occupy because they have either sold it or because it has been leased or rented out long-term

•                     they are accompanied by their family and the family's belongings have been transferred to the new location

•                     their children attend school at the new location

•                     their spouse or partner obtains employment at the new location

•                     they change their postal address and electoral role details to their new place of residence

•                     they establish ties to the local community, for example, by taking up membership at local sporting and recreational clubs at the new location.

The employees are not required to stay for an extended period of time or move permanently, and the other factors listed above do not apply to their circumstances. Therefore, the employees do not have to relocate to the regional location.

As the employees do not undertake travel due to their personal circumstances, do not live at a location and have not relocated to the regional location, the expenses (on food, fuel and other incidentals) they incur cannot be living expenses rather they incur these expenses while travel on work. Therefore, these expenses are deductible expenses as they are necessarily incurred on gaining or producing assessable income.

As a result, the third condition is not satisfied.

Conclusion

Even though the employer pays the allowance to the employees as a result of their employment, the employees are not required to live away from home and the expenses they incur in relation the meal, fuel and other incidentals are deductible on the basis that they travel on work. Therefore, the allowance paid to employees is not a LAFHA pursuant to section 30(1) of FBTAA.

Is allowance a travel allowance?

Generally, an employee can only deduct a loss or outgoing incurred in producing salary or wages, including losses or outgoings incurred for food and drink while travelling on work that is covered by a travel allowance, when the expenditure is substantiated with written evidence: subsections 900-15(1) and 900-30(1) of the Income Tax Assessment Act 1997 (ITAA 1997).

Subsection 900-30(3) of ITAA 1997 provides that a travel allowance is an allowance paid by an employer to cover expenses for accommodation, food or drink, or expenses incidental to the travel, incurred by an employee for travel away from the employee's ordinary residence in the course of her or his employment duties.

The following paragraphs of the TR 2021/4 are relevant in determining whether the allowance is a travel allowance for the purpose of subsection 900-30(3) of ITAA 1997:

122. The name of an allowance does not determine the nature of that allowance. In order to determine whether an allowance is a travel allowance or a LAFHA, it is necessary to consider the purpose for which the allowance is paid.

123. 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.

124. A travel allowance is assessable income. However, there are some circumstances where the amount of the travel allowance does not have to be reported in an employee's tax return as assessable income.

125. The receipt of travel allowance, which is included in an employee's assessable income, does not give rise to an entitlement to claim a deduction for accommodation and food and drink expenses. The nature of the expense and its connection to the employee's income-producing activities determines whether it is deductible.

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

Question 2

Can the taxable value of the fringe benefits arising from the provision of the accommodation to employees be reduced to nil under section 52 of the FBTAA?

Answer

Yes

Summary

The otherwise deductible rule in section 52 of the FBTAA will operate to reduce the taxable value of the accommodation residual benefit to nil, subject to any applicable substantiation requirements.

Detailed reasoning

In considering whether you will incur a fringe benefits tax liability for the provision of accommodation to the employees it is necessary to consider the following questions:

1.            Did a fringe benefit arise from the provision of a benefit?

2.            If a fringe benefit did arise from the provision of a benefit, did the fringe benefit have a nil taxable value?

Is the provision of accommodation a fringe benefit?

A fringe benefit will arise where a benefit is provided by an employer in respect of the employment of the employee: subsection 136(1) of the FBTAA. However, an exempt benefit is not a fringe benefit.

'Benefit' is defined in subsection 136(1) of the FBTAA as follows:

Benefit includes 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;

(ii)           the provision of, or the use of facilities for, entertainment, recreation or instruction; or

(iii)         the conferring of rights, benefits or privileges for which remuneration is payable in the form of a royalty, tribute, levy or similar exaction;

(b) a contract of insurance; or

(c) an arrangement for or in relation to the lending of money.

The provision of the accommodation to the employees is a fringe benefit under the definition in subsection 136(1) of the FBTAA, unless it is an exempt benefit.

Type of benefit

There are a number of sections that deem a specific benefit type to have been provided when the relevant conditions are met.

Section 45 of the FBTAA provides that a benefit is a residual benefit if it is not a benefit by virtue of any provision of Subdivision A of Divisions 2 to 11 inclusive of the FBTAA. Therefore, in basic terms, a residual benefit is a benefit that does not fall within one of the other more specific benefit types contained in the FBTAA.

The provision of the accommodation to the employees is a benefit that does not fall within one of the more specific benefit types, and therefore, is a residual benefit under section 45 of the FBTAA.

Note: the provision of the accommodation is not a 'housing benefit' under section 25 of the FBTAA as it does not fall within the definition of 'housing right' in subsection 136(1) of the FBTAA.

Does the otherwise deductible rule apply to reduce the taxable value of the residual fringe benefits to nil?

The 'otherwise deductible' rule allows the employer to reduce the taxable value of fringe benefits by the amount for which the employee would be able to claim a once only deduction. To the extent that an expense is otherwise deductible, the taxable value of the benefit is reduced, which reduces the employer's potential liability to FBT.

Section 52 of the FBTAA relevantly provides:

(1)          Where:

(a)          the recipient of a residual fringe benefit in relation to an employer in relation to a year of tax is an employee of the employer; and

(b)          if the recipient had, at the comparison time, incurred and paid unreimbursed expenditure (in this subsection called the gross expenditure), in respect of the provision of the recipients benefit, equal to the amount that, but for this subsection and Division 14 and the recipients contribution, would be the taxable value of the residual fringe benefit in relation to the year of tax - a once-only deduction (in this subsection called the gross deduction) would, or would if not for section 82A of the Income Tax Assessment Act 1936, and Divisions 28 and 900 of the Income Tax Assessment Act 1997, have been allowable to the recipient under either of those Acts in respect of the gross expenditure; and

(ba) the amount (in this subsection called the notional deduction calculated in accordance with the formula

GD - RD

Where:

GD is the gross deduction; and

RD is:

(i)            if there is no recipient's contribution in relation to the residual fringe benefit - nil; or

(ii)           ...;

exceeds nil; and

(c) except where the fringe benefit is:

(i)            an exclusive employee residual benefit; or

(ii)           ...; or

(iii)         ...; or

(iv)         ...;

the recipient gives to the employer, before the declaration date, a declaration, in a form approved by the Commissioner, in respect of the recipients benefit; and

(d)          where the fringe benefit is an extended travel residual benefit (other than an international aircrew residual benefit) - the recipient gives to the employer, before the declaration date, a travel diary in relation to the travel undertaken by the recipient to which the fringe benefit relates; and

...

Consistent with similar provisions in other Divisions, section 52 of the FBTAA applies to reduce the taxable value of a residual fringe benefit to the extent to which any expenditure that has been, or would otherwise have been, incurred by the employee in acquiring the relevant benefit would have been immediately deductible for income tax purposes.

For the reasons given in relation to Issue 1 Question 1, if the employees had incurred and paid unreimbursed expenditure on the accommodation when residing at the remote location for work, it would have been deductible under section 8-1 of the ITAA 1997.

Therefore, the otherwise deductible rule in section 52 of the FBTAA will operate to reduce the taxable value of the accommodation residual fringe benefit to nil, subject to any applicable substantiation requirements, because:

•                     the recipient of the benefit, is an employee, the employer in respect of whom the benefit is provided;

•                     if the employee had incurred and paid unreimbursed expenditure in respect of accommodation (gross expenditure), equal to the amount of the taxable value of the benefit, a once-only deduction (gross deduction) ignoring Division 900 of the ITAA 1997 would have been allowable to the employee;

•                     as there is no recipient's contribution the notional deduction is equal to the gross deduction; and

•                     the taxable value reduced by the notional deduction, is nil.

Will substantiation for the otherwise deductible rule apply?

Paragraph 51(1)(c) of the FBTAA requires the employee to give the employer a Residual benefit declaration in respect of the recipient's benefit. However, an employee declaration is not required for an exclusive employee residual benefit under subparagraph 52(1)(c)(i).

Subsection 136(1) of the FBTAA defines exclusive employee residual benefit as a residual fringe benefit where, if the recipient had incurred expenditure in respect of the provision of the recipients benefit, that expenditure would have been exclusively incurred in gaining or producing salary or ages of the recipient in respect of the employment to which the fringe benefit relates.

The accommodation benefits provided to the employees are exclusive employee residual benefits because if they had incurred the expenditure themselves it would have been exclusively incurred in gaining or producing their salary.

Accordingly, the employees are not required to provide the employer an employee declaration in respect of the residual fringe benefits under paragraph 52(1)(c) of the FBTAA.

Issue 2 - Specialist travel to regional areas

Question 1

Is the travel allowance paid to a specialist a living-away-from-home allowance (LAFHA) under subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Summary

The travel allowance paid to the specialist, is not a LAFHA for the purposes of section 30(1) of the FBTAA.

Detailed reasoning

In question 1 under issue 1, we have discussed in detail about the three conditions required to determine whether the allowance is a LAFHA benefit or not. Additionally, we have applied the relevant guidance provided in TR 2021/4 to differentiate 'living at a location' versus 'travelling on work' and the effect on the deductibility of any allowances paid to the employees and how we concluded that the allowance is not a LAFHA benefit.

Conclusion

As all three of the conditions in subsection 30(1) are not satisfied, the 'travel allowance' paid to the specialist does not constitute a LAFHA benefit under subsection 30(1) of the FBTAA.

Is the 'travel allowance' paid to the specialist a travel allowance?

Generally, an employee can only deduct a loss or outgoing incurred in producing salary or wages, including losses or outgoings incurred for food and drink while travelling on work that is covered by a travel allowance, when the expenditure is substantiated with written evidence.

Subsection 900-30(3) of ITAA 1997 provides that a travel allowance is an allowance paid by an employer to cover expenses for accommodation, food or drink, or expenses incidental to the travel, incurred by an employee for travel away from the employee's ordinary residence in the course of her or his employment duties.

In the case of the specialist, when they are required to travel to a regional town, they are paid a fixed amount per night. This is a definite, pre-determined amount; the specialist is not required to refund any unexpended amounts to the employer. Accordingly, it is not intended that the payments compensate exactly for food and drink expenses that are incurred by the specialists. Therefore, payment made by the employer to the specialist per night is considered to constitute the payment of an allowance. These payments are not a reimbursement. The 'travel allowance' is therefore a travel allowance pursuant to Subsection 900-30(3) of ITAA 1997.