Edited version of private advice

Authorisation Number: 1052042940694

Date of advice: 23 February 2023

Ruling

Subject: Fringe benefits tax

Question 1

Are the relocation flights a residual benefit pursuant to section 45 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

Question 2

Are the relocation flights provided to the employees, exempt relocation transport benefits for the purposes of section 58F of the FBTAA 1986?

Answer

Yes

Question 3

Is the taxable value of camp accommodation benefits provided to employees reduced to nil under the otherwise deductible rule (ODR) under section 52 of the FBTAA 1986?

Answer

Yes.

Question 4

Is the taxable value of camp meals/board meals provided to employees reduced to nil under the ODR under section 37 of the FBTAA 1986?

Answer

Yes.

This private ruling applies for the following periods:

Fringe Benefits Tax (FBT) year ending 31 March 20XX

FBT year ending 31 March 20XX

FBT year ending 31 March 20XX

FBT year ending 31 March 20XX

FBT year ending 31 March 20XX

The scheme commences on:

1 April 20XX

Relevant facts and circumstances

The employer is based in X.

The employer provides contract road repair and maintenance services in remote areas.

As the employer is based in X all work assignments usually involve a minimum of a full day's travel from X and similar distances from other towns in the region. Due to the distances involved it is impractical for employees to drive between X and the work location daily.

This work is undertaken on a seasonal basis (April to October).

The duration of each work assignment can range from several days to several weeks, however none of the projects are permanent or for an indefinite period of time. The duration of each assignment is dependent on the amount of work involved and the distance from X.

The employees usually return to X at the completion of each work assignment.

The employer is required to provide its own accommodation for employees as there is rarely any nearby alternative accommodation available for employees.

In this regard the employer has X fully mobile accommodation setups which include individual air-conditioned rooms, generator power, kitchen, ablution block, laundry, and fuel. The camps are mounted on semi-trailers in a road train configuration.

Groceries and supplies are mobilised with the camp for each work assignment. Meals are prepared on-site by the Camp Cook. Again, due to the remote location of the work assignments there is rarely any nearby alternative eating places available for employees.

The employees do not pay any contributions towards the cost of the accommodation or meals.

There can be between 25 to 30 employees contracted during the season.

Employees are contracted to work for the employer for the season or part thereof, with their base of employment being in X and not at any of the subsequent work assignment locations.

Employees are paid and subject to the direction of the employer from the time of departure from X to the time of return to X.

Employees are usually sourced from X, Y, and Z

For employees sourced from Y and Z the employer usually arranges and pays for their relocation flights to X at the commencement of their contract and their return flights at the end of their contract.

The employer does not fly the employees' home between work assignments.

Employees are not accompanied by family members.

Employees are responsible for sourcing and paying for their own accommodation and meals in X.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 section 20

Fringe Benefits Tax Assessment Act 1986 section 40

Fringe Benefits Tax Assessment Act 1986 section 45

Fringe Benefits Tax Assessment Act 1986 section 58F

Fringe Benefits Tax Assessment Act 1986 section 47

Fringe Benefits Tax Assessment Act 1986 section 52

Fringe Benefits Tax Assessment Act 1986 section 35

Fringe Benefits Tax Assessment Act 1986 section 37

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Question 1

Are the relocation flights a residual benefit pursuant to section 45 of the FBTAA 1986?

Summary

Yes, the airfares paid for to relocate employees from Y and Z constitute a residual fringe benefit under Division 12 of the FBTAA 1986.

Detailed reasoning

The term benefit is very broadly defined in subsection 136 (1) of the FBTAA. It includes any right, privilege, services, or facility. The relocation flights give rise to a benefit as defined in subsection 136(1) as it is provided for in relation to the performance of work.

The term fringe benefit in subsection 136(1) of the FBTAA goes on to say that the benefit is provided to an employee by the employer of the employee in respect of the employment of the employee. The relocation flights will be a fringe benefit as it meets the definition of 'fringe benefit' as defined in subsection 136(1) and is not an excluded benefit under that definition.

To calculate the taxable value of a fringe benefit it is necessary to initially consider the type of benefit that is provided. The FBTAA is divided into 13 types of benefits and each type has its own valuation rules.

There are several benefits types the provision of the airfares may fall under being an expense payment benefit, a property benefit (being the airline ticket) or a residual benefit.

Expense payment benefit

An expense payment benefit arises under section 20 of the FBTAA 1986, within Division 5, concerning expense payment fringe benefits, where the requirements of that provision are satisfied. Section 20 states:

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

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

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

the making of the payment referred to in paragraph (a), or the reimbursement referred to in paragraph (b), shall be taken to constitute the provision of a benefit by the provider to the recipient.

In the circumstances under consideration, the employer, who is the provider of the relevant benefit, being the purchase of the airfares, states that they arrange and pay for the relocation flights from Y and Z.

Accordingly, an expense payment benefit does not arise under section 20 of the FBTAA 1986.

Property benefit

Division 11 applies to property fringe benefits. Section 40 states:

Where, at a particular time, a person (in this section referred to as the 'provider') provides property to another person (in this section referred to as the 'recipient'), the provision of the property shall be taken to constitute a benefit provided by the provider to the recipient at that time.

Subsection 136(1) provides the following definitions relevant to property benefits:

'property' means:

(a)  intangible property; and

(b)  tangible property.

'tangible property' means goods and includes:

(a)  animals, including fish; and

(b)  gas and electricity.'

'intangible property' means:

(a)  real property;

(b)  a chose in action; and

(c)   any other kind of property other than tangible property;

but does not include:

(a)  a right arising under a contract of insurance; or

(b)  a lease or licence in respect of real property or tangible property.

'property benefit' means a benefit referred to in section 40 but does not include a benefit that is a benefit by virtue of a provision of Subdivision A or Divisions 2 to 10 (inclusive) of Part III.

The term 'goods' is not defined in the FBTAA and therefore takes its ordinary meaning. The Macquarie Dictionary Online defines the term 'goods' relevantly at paragraphs 1 and 2 as:

1.    (plural) possessions, especially movable effects, or personal belongings.

2.    (plural) articles of trade; wares; merchandise, especially that which is transported by land.

The airfare and associated airline ticket therefore do not meet the definition of 'goods' and is therefore not tangible property.

Paragraph 136(1)(e) relevantly excludes from the definition of intangible property leases or licences in respect of real property or tangible property.

Licence is not defined in the FBTAA, the Income Tax Assessment Act 1936 or the Income Tax Assessment Act 1997. It therefore takes on its ordinary meaning.

The Macquarie Dictionary online defines the term 'licence' (as relevant here) as:

licence

noun

1.    formal permission or leave to do or not to do something.

2.    formal permission from a constituted authority to do something, as to carry on some business or profession, to be released from jail for part of one's sentence under specific restrictions, etc.

3.    a certificate of such permission; an official permit....

The ticket provided the employee with the formal permission to receive transport on the aeroplane and is therefore not intangible property.

As the airline ticket is neither tangible nor intangible property, the provision of the ticket is not a property benefit.

Residual benefit

Section 45, within Division 12 of the FBTAA 1986, provides that a benefit is a residual benefit for the purposes of the FBTAA 1986 if the benefit is not a benefit under any of the preceding Divisions of the FBTAA 1986.

The provision of the airfares does not fall under any of the other benefit types, so a residual benefit arises under section 45 of the FBTAA 1986.

Question 2

Are the relocation flights provided to the employees, exempt relocation transport benefits for the purposes of section 58F of the FBTAA 1986?

Summary

The provision of relocation flights is considered to be exempt relocation transport benefits for the purposes of section 58F of the FBTAA 1986.

Detailed reasoning

The Commissioner concluded in question 1 that the provision of flights to employees outlined in the facts and circumstances is a residual benefit by virtue of section 45 in Division 12 of the FBTAA as it does not fall within the meaning of any other benefit contained in Divisions 2 to 11 (inclusive) of the FBTAA.

Section 58F provides that:

"Where:

(a)  a car benefit, an expense payment benefit, a property benefit, or a residual benefit is provided in, or in respect of, a year of tax in respect of the employment of an employee of an employer;

(b)  the benefit is in respect of relocation transport; and

(c)   in the case of an expense payment benefit:

                      i.        the benefit is not constituted by the reimbursement of the recipient, in whole or in part, in respect of an amount of a Division 28 car expense incurred by the recipient in relation to a car owned by, or leased to, the recipient, being a reimbursement calculated by reference to the distance travelled by the car; and

                     ii.        documentary evidence of the recipient's expenditure is obtained by the recipient and that documentary evidence, or a copy, is given to the employer before the declaration date; the benefit is an exempt benefit in relation to the year of tax."

Paragraph 58F(a) will be satisfied as the employer will be providing a residual benefit by providing the transport for its employees.

Paragraph 58F(b) will be satisfied if the residual benefit is in respect of relocation transport. The circumstances in which a benefit will be treated as a benefit in respect of relocation transport are specified in Section 143A:

For the purposes of this Act, where:

(a) any of the following benefits is provided in, or in respect of, a year of tax to an employee, or to an associate of the employee, in respect of the employment of the employee:

(i) a car benefit relating to a particular car where the application or availability of the car is in respect of the provision of transport;

(ii) an expense payment benefit where the recipient's expenditure is in respect of the provision of transport, or meals or accommodation in connection with transport;

(iii) a property benefit where the recipient's property consists of meals in connection with transport;

(iv) a residual benefit where the recipients benefit consists of the provision of transport or accommodation in connection with transport;

(b) the transport, meals or accommodation is for a family member;

(c) the transport is required solely because:

(i) the employee is required to live away from his or her usual place of residence in order to perform the duties of that employment;

(ii) the employee, having lived away from his or her usual place of residence in order to perform the duties of that employment, is required to return to his or her usual place of residence:

(A) in order to perform those duties; or

(B) because the employee has ceased to perform those duties; or

(iii) the employee is required to change his or her usual place of residence in order to perform the duties of that employment;

(d) the transport is provided to enable a family member to:

(i) if subparagraph (c)(i) applies - take up residence at or near the place where the employee performs the duties of that employment while living away from his or her usual place of residence;

(ii) if subparagraph (c)(ii) applies - take up residence at the employee's usual place of residence; or

(iii) if subparagraph (c)(iii) applies - take up residence at the employee's new usual place of residence;

(e) if the transport is for the spouse, or a child, of the employee - the transport is not provided to enable the spouse or child to accompany the employee:

(i) while the employee is undertaking travel in the course of performing the duties of that employment; and

(ii) where the circumstances referred to in Section 26-30(2) of the Income Tax Assessment Act 1997 do not apply; and

(f) if the transport is for the employee - the transport is not provided while the employee is undertaking travel in the course of performing the duties of that employment; and

(g) if subparagraph (c)(iii) applies - the benefit is not provided under a non-arm's length arrangement;

the benefit shall be taken to be in respect of relocation transport.

The flights provided by the employer to its employees are to facilitate their relocation from their usual place of residence (Y and Z) to X to undertake their employment with the employer and then to return them from X to their usual place of residence (Y and Z) at the conclusion of their employment contract.

The residual benefits that the employer has provided will be in respect of relocation transport on the basis that:

•         the employer provided flights for its employees solely because its employees were required to live away from their usual place of residence (Y and Z) in order to undertake the duties of their employment.

This is because the:

•         employees cannot perform the duties of their employment from their usual place of residence;

•         distance between the employees' usual place of residence and their new place of employment makes it impossible to travel between home and work on a daily basis;

•         seasonal nature of the work only requires the employees to be located in X for temporary period of time usually not exceeding 7 or 8 months;

•         employees return to their usual place of residence at the conclusion of their period of employment; and

•         employees' families do not accompany them and remain at their usual place of residence.

Paragraph 58F(b) will be satisfied as the benefit is in relation to relocation transport as defined in Section 143A, therefore the requirements of Section 58F will be met and the provision of flights to the employees will be an exempt benefit.

Question 3

Is the taxable value of camp accommodation benefits provided to employees reduced to nil under the ODR under section 52 of the FBTAA 1986?

Summary

For employees who resided in the base of employment location, the accommodation would be exempt under section 47(5) of the FBTAA subject to the conditions set out in section 31C and 31D of the FBTAA 1986. For employees who resided elsewhere the camp accommodation is considered to be a residual benefit under section 45 of the FBTAA 1986 and will be reduced to nil by applying the ODR under section 52 of the FBTAA.

Detailed reasoning

In determining if the employer has a liability to pay FBT on the provision of such accommodation, it is necessary to determine if a benefit has been provided and if so, what type of benefit has been provided.

FBT is payable by an employer for certain benefits given to employees in respect of employment. FBT is calculated on the taxable value of the fringe benefit.

Under section 136(1) of the FBTAA, a fringe benefit will arise where:

•         the benefit is provided

•         to an employee or an associate of an employee

•         by the employer's employer, by an associate of the employer, or by a third party under an arrangement with the employer or with an associate of the employer; and

•         the benefit is provided in respect of the employment of the employee.

The term 'benefit' is widely defined to include any right (including a right in relation to, and an interest in, real or personal property), privilege, service, or facility.

The employees were in receipt of 'benefits' These are prima facie 'fringe benefits', as defined under subsection 136(1) of the FBTAA when they are provided with accommodation when working on the relevant work assignments in remote areas.

It can be concluded that accommodation provided to employees is in respect of their employment and would fall within the meaning of a benefit.

The John Holland decision

In the John Holland Group Pty Ltd & Anor v FCT [2015] FCAFC 82 case, FIFO employees were required by their employer, as part of their employment duties, to travel each way between Perth airport and the project accommodation at a remote location, Geraldton. The case concerned both 'workforce' employees (who were paid on an hourly rate) and 'staff' employees (who were salaried workers) who had undertaken this journey as FIFO employees.

It was found that in relation to both workforce and staff employees:

•         most lived in Perth

•         they personally paid for their travel expenses from their home to their '"point of hire" (Perth Airport)' and vice versa

•         travel each way between Perth airport and the project accommodation occurred during working time for which the employees were rostered-on and paid

•         flights returning from Geraldton to Perth occurred while the employee was rostered on. That is the flight was undertaken on the time of the employer

•         travelled on the employer's time (as they were), [and] were bound to comply with all directives and policies

•         they travelled from Perth airport and Geraldton (and vice versa) was controlled, arranged, and paid for by John Holland.

The Full Federal Court (FFC) held that from the time both workforce and staff employees checked in at Perth airport as directed by their employer, they were travelling in the course of their employment, subject to the directions of the employer and being paid for it.As such, they would be able to claim a deduction under section 8-1 of the ITAA 1997 for the travel expenditure incurred, had they had to do so. However, because the employer paid for these travel expenses, the ODR contained in subsection 52(1) of the FBTAA applied, so that the taxable value of the residual fringe benefits was nil.

Although this case related to travel costs and not accommodation costs it did determine that the employees were required to travel as part of their employment to remote locations.

Furthermore, it was determined that the employees' duties and remuneration for those duties commenced on their departure from Perth airport and ceased on their return to Perth airport.

The circumstances in this case are almost identical to those in the John Holland case except that the transport is by vehicle rather than by plane. The relevant circumstances in this case are as follows:

•         the employees base of employment was in X

•         as part of their employment, they were required to travel to various remote locations in order to undertake the duties of their employment

•         the employees were subject to the directions of the employer and are being paid from the time they left X until the time that they returned to X.

The ATO states in its Decision impact statement for theJohn Holland Group Pty Ltd & Anor v Commissioner of Taxationthat where similar factual situations to the John Holland case arise, the decision of the Court would obviously apply. Based on the similarity of the factual situations the decision in the John Holland case would apply to this case such that the employees were travelling in the course of their employment from the time they left X until the time they returned to X.

Section 45

The facts tell us that the employees have a usual place of residence in X, and other locations. It needs to be considered whether the accommodation provided constitutes a residual benefit.

Section 45 of the FBTAA provides that a residual benefit is one that does not fall within one of the prescribed categories of fringe benefit. Accommodation provided to employees is in respect of the employment of these individuals and would fall within this category of benefit.

We can now determine if the taxable value of the residual benefit can be reduced or considered exempt.

Section 47

Section 47 contains details of several exempt residual benefits. Section 47(5) provides an exemption where:

"(a) a residual benefit consisting of the subsistence, during a year of tax, of a lease or licence in respect of a unit of accommodation is provided to an employee of an employer in respect of his or her employment; and

(b) the unit of accommodation is for the accommodation of eligible family members and is provided solely because the duties of that employment require the employee to live away from his or her normal residence; and

(ba) the employee satisfies:

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

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

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

(d) any of the following conditions is satisfied:

(i) Section (7) applies in relation to the provision of transport for the employee in connection with travel in the period in the year of tax when the lease or licence subsisted, being travel between the employee's usual place of residence and the employee's usual place of employment;

(ii) if the employee satisfies sections 31C and 31D--the employee gives to the employer, before the declaration date, a declaration, in a form approved by the Commissioner, purporting to set out the matters in subparagraphs 31F(1)(a)(i) to (iii);

(iii) if the employee satisfies section 31E--the employee gives to the employer, before the declaration date, a declaration, in a form approved by the Commissioner, purporting to set out the matters in subparagraphs 31F(1)(b)(i) to (iii); the benefit is an exempt benefit in relation to the year of tax."

Section 47(5) only provides an exemption where the employee is either living away from home or working on a fly-in-fly-out or drive-in-drive-out basis.

In the consideration of Question 1, the facts tell us that the employees were receiving relocation flights and are therefore not regarded as working on a fly-in-fly-out or drive-in-drive-out basis.

It has also been stated in the facts that the employees from some areas are living away from home for the period of their employment with the employer when they are in X, with their normal or usual place of residence being in the other areas. Therefore, as their employment is based in X the exemption in Section 47(5) would only apply in relation to the employees' accommodation in X if that accommodation were provided by the employer which is not the case.

For employees from other areas the exemption under Section 47(5) does not apply in relation to the accommodation provided at the work assignment locations in the remote areas on the basis that the employees:

•         are not working on a fly-in fly-out or drive-in drive-out basis as they do not satisfy all of the criteria set out in Section 47(7); and

•         cannot be living away from home when they travel from their residence in X to the work assignment locations as their accommodation in X is not their usual place of residence.

For employees already living in X the exemption under Section 47(5) could apply in relation to the accommodation provided at the work assignment locations on the basis that the employees:

•         could be treated as living away from home when they travel from their usual place of residence in X to the work assignment locations - subject to satisfying the conditions in Sections 31C and 31D and the provision of a declaration.

If this is the case, then the accommodation provided at the work assignment locations would be exempt under Section 47(5).

However, if the employees were undertaking travel in the course of performing the duties of their employment, then the exemption under Section 47(5) does not apply. The Commissioner has determined based on the John Holland case that the employees were considered to be travelling in the course of their employment.

The 'otherwise deductible' rule

As the accommodation provided by the employer has been determined to be a residual benefit, the ODR may apply to reduce the taxable value of the fringe benefit. This rule requires a conclusion be reached about whether the hypothetical expenditure of money would have been allowable as a deduction to the employee if the employee had incurred the expense. It requires the making of the assumption that the expenditure actually incurred by the employer had been incurred by the employee.

The relevant 'otherwise deductible' rule is section 52 of the FBTAA 1986, regarding residual fringe benefits.

The determination of whether the ODR applies requires consideration of an employee's entitlement to claim a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) had the employee incurred the expenses in question.

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)

TR 2021/4 provides the ATO view on when an employee can deduct accommodation and food and drink expenses under section 8-1 of the ITAA 1997 when they are 'travelling on work', the FBT implications (including the application of the 'otherwise deductible rule') where the employer provides or pays for these expenses.

General principles relating to the deductibility of accommodation and food and drink expenses under section 8-1

An employee can only deduct accommodation and food and drink expenses under section 8-1 of the ITAA 1997 (and the 'otherwise deductible' rule will apply to reduce the taxable value of the relevant fringe benefit provided) to the extent that:

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

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

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

•         a provision of the Tax Acts does not prevent it from being deducted.

It is a question of fact whether an expense for accommodation is incurred in gaining or producing assessable income or is of a private or domestic nature. Accommodation and food and drink expenses are ordinarily private or domestic in nature and are generally not deductible under section 8-1 of the ITAA 1997. TR 2021/4 at paragraph 9 states this includes the costs an employee incurs to maintain their usual (or normal) residenceand of consuming food and drink to go about their daily activities. TR 2021/4 adopts the phrase 'living expenses' to describe these types of expenses.

TR 2021/4 at paragraph 14 states that 'Living expenses' are a prerequisite to gaining or producing an employee's assessable income and are not incurred in performing an employee's income-producing activities. Living expenses are also private or domestic in nature.Paragraph 15 of TR 2021/4 goes on to say that a person must eat and sleep somewhere, whether or not they engage in employment. Thus, 'living expenses' are not deductible under section 8-1 of the ITAA 1997.

An accommodation expense is not deductible to the extent that it is incurred in order to enable the employee's income-producing activity to start or after it ends.

Accommodation expenses incurred because an employee has chosen to live at a distance from their main workplace are also not incurred in the course of the employee's income-producing activity and are of a private or domestic nature.

The same conclusion applies to accommodation expenses incurred because an employee is relocating in order to be closer to their main workplace.

On the other hand, accommodation expenses may be deductible where they are incurred because an employee has more than one place of work or is required to attend a workplace for relatively short periods of time, provided their stay away is explicable by the nature of the work.

TR 2021/4 at paragraph 10 states the following:

However, where an employee travels and stays away from their usual residence overnightin 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. 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 as an employee 'travelling on work.

The Commissioners view in respect of accommodation and food being provided in remote locations is based on the decision in Roads and Traffic Authority of NSW v FC of T 93 ATC 4508; 26 ATR 76 (Road and Traffic Authority).

The equivalent provision of subsection 51(1) of the ITAA 1936 is section 8-1 of the ITAA 1997. After analysing judgements in FC of T v Cooper (1991) 29 FCR 177 and FC of T v Toms 89 ATC 4373; (1988-89) 20 ATR 466, Hill J. set down a general rule (at 43 FCR 240) by which deductibility of such expenditure is to be determined:

Where a taxpayer is required by his employer, and for the purposes of his employer, to reside, for periods of time, away from home and at the work site, and that employee incurs expenditure for the cost of sustenance, or indeed other necessary expenditure which, if the taxpayer had been living at home, would clearly be private expenditure, the circumstances in which the expenditure is incurred, that is to say, the occasion of the outgoing operates to stamp that outgoing as having a business or employment related character.

For accommodation and food and drink expenses to be regarded as incurred by an employee 'travelling on work', they 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 Federal Court in Clough v Federal Commissioner of Taxation [2021] FCA 108 at [10] and [13] per Colvin J held that in working out whether an expense was incurred in gaining or producing assessable income:

10. The test is not to be couched in 'but for' terms. Rather, in undertaking the search for the necessary relationship which must exist between the outgoing and the activities which more directly produce the assessable income, it is necessary to look at the "essential character of the expenditure.

....

13. In the first limb of s8-1 the proposition 'in' is used to describe a form of involvement or connection as between the incurrence of the outgoing on the one hand and the activity of gaining or producing assessable income on the other hand....The preposition 'in' focuses attention upon whether the expenditure happened as part of an activity that may be described as "gaining or producing assessable income"...the question is whether the outgoing was incurred in the course of activities the nature of which might properly be characterised as gaining or producing assessable income.

The occasion of the outgoing on accommodation and food and drink must be found in the employee's income-producing activities, rather than in the personal circumstances of where the employee lives.

Paragraph 18 of TR 2021/4 says that 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).

The facts indicate that when employees travel to and stay at the remote locations:

•         they did so in the course of carrying out their duties of employment, and

•         this is explicable by the practical demands of the work.

Other special circumstances of this case, such as the environmental factors causing the work to be seasonal and the remote employment conditions, support this conclusion. In the present case, having regard to the relevant facts including:

•         remoteness of the sites

•         living conditions at these sites

•         a general requirement for employees to leave the sites when the contract is over

•         an inability to have family or friends present

•         fixed period contracts of employment; and

•         the seasonal nature of the work.

These facts indicate that the employees were acting in the course of their employment throughout the duration of each assignment to the remote areas. If the employees had incurred expenses on accommodation these would have been deductible under section 8-1 of the ITAA 1997.

Is the ODR applicable in this case

The otherwise deductible rule under section 52 of the FBTAA 1986 operates to reduce the taxable value of the residual fringe benefits provided to the employees. The following paragraphs provide the reasoning to this conclusion.

Employees were provided accommodation at camp. The employees were required to leave that camp accommodation at the end of the assignment where they returned to X.

There are factors in this case which make them more analogous to the arrangements that existed in the Roads and Traffic Authority decision. These include:

•         employees were travelling as an incident of their employment, as the inherent nature of their employment required them to travel to various remote locations in order to undertake the duties of their employment;

•         employees were subjected to the directions of the employer and were being paid by the employer from the time they left X until the time that they returned to X;

•         work assignment locations were in extremely remote areas and alternative places to eat were rarely available, such that the employees did not have any choice in relation to their meals;

•         employees were travelling for relatively short periods of time ranging from several days to several weeks but never for an indefinite period of time;

•         travel period for each work assignment was determined by the amount of work involved and the physical distance from X, neither of which the employee had any control over; and

•         employees returned to X after the completion of each work assignment.

The taxable value of residual fringe benefits provided to the employees can be reduced to nil under the otherwise deductible rule.

Question 4

Is the taxable value of camp meals/board meals provided to employees reduced to nil under the otherwise deductible rule under section 37 of the FBTAA?

Summary

The meals provided to the employees while on work assignments in the remote areas would be considered board fringe benefits. The taxable value of the board fringe benefits is reduced by the ODR under section 37 of the FBTAA 1986.

Detailed reasoning

FBT is payable by an employer for certain benefits given to employees in respect of employment. FBT is calculated on the taxable value of the fringe benefit.

Under section 136(1) of the FBTAA, a fringe benefit will arise where:

•         the benefit is provided

•         to an employee or an associate of an employee

•         by the employer's employer, by an associate of the employer, or by a third party under an arrangement with the employer or with an associate of the employer; and

•         the benefit is provided in respect of the employment of the employee.

The term 'benefit' is widely defined to include any right (including a right in relation to, and an interest in, real or personal property), privilege, service, or facility.

The employees were in receipt of 'benefits'. These are prima facie 'fringe benefits', as defined under subsection 136(1) of the FBTAA when they are provided with meals when working at the relevant worksite.

The John Holland decision

In the John Holland Group Pty Ltd & Anor v FCT [2015] FCAFC 82 case, FIFO employees were required by their employer, as part of their employment duties, to travel each way between Perth airport and the project accommodation at a remote location, Geraldton. The case concerned both 'workforce' employees (who were paid on an hourly rate) and 'staff' employees (who were salaried workers) who had undertaken this journey as FIFO employees.

It was found that in relation to both workforce and staff employees:

•         most lived in Perth

•         they personally paid for their travel expenses from their home to their '"point of hire" (Perth Airport)' and vice versa

•         travel each way between Perth airport and the project accommodation occurred during working time for which the employees were rostered-on and paid

•         'flights returning from Geraldton to Perth occurred while the employee was rostered on. That is the flight was undertaken on the time of the employer

•         travelled on the employer's time (as they were), [and] were bound to comply with all' directives and policies

•         they travelled from Perth airport and Geraldton (and vice versa) was controlled, arranged, and paid for by John Holland.

The Full Federal Court (FFC) held that from the time both workforce and staff employees checked in at Perth airport as directed by their employer, they were travelling in the course of their employment, subject to the directions of the employer and being paid for it.As such, they would be able to claim a deduction under section 8-1 of the ITAA 1997 for the travel expenditure incurred, had they had to do so. However, because the employer paid for these travel expenses, the 'otherwise deductible rule' contained in subsection 52(1) of the FBTAA applied, so that the taxable value of the residual fringe benefits was nil.

Although this case related to travel costs and not food costs it did determine that the employees were required to travel as part of their employment to remote locations.

Furthermore, it was determined that the employees' duties and remuneration for those duties commenced on their departure from Perth airport and ceased on their return to Perth airport.

The circumstances in this case are almost identical to those in the John Holland case except that the transport is by vehicle rather than by plane. The relevant circumstances in this case are as follows:

•         the employees base of employment is in X

•         as part of their employment, they are required to travel to various remote locations in order to undertake the duties of their employment

•         the employees are subject to the directions of the employer and are being paid from the time they leave X until the time that they return to X.

The ATO states in its Decision impact statement for theJohn Holland Group Pty Ltd & Anor v Commissioner of Taxationthat where similar factual situations to the John Holland case arise, the decision of the Court would obviously apply. Based on the similarity of the factual situations the decision in the John Holland case would apply to this case such that the employees were travelling in the course of their employment from the time they left X until the time they returned to X.

Board Fringe Benefit

The provision of camp meals to employees outlined in the facts and circumstances meets the definition of a fringe benefit and will be considered a board fringe benefit under Division 9 of the FBTAA 1986.

A board fringe benefit arises under section 35 of the FBTAA 1986 where a board meal is provided to an employee and a board meal is defined in subsection 136(1) of the FBTAA, being:

board meal means a meal provided, in respect of the employment of an employee of an employer, to a person (in this definition referred to as the recipient), being the employee or an associate of the employee, where:

(a) the meal is provided on a meal entitlement day;

(b) the meal is provided by the employer or, if the employer is a company, by the employer or by a company that is related to the employer;

(c) either of the following subparagraphs applies:

(i) the meal is cooked or otherwise prepared on eligible premises of the employer and is provided to the recipient on eligible premises of the employer (not being a dining facility that, at any time, is open to the public);

(ii) the following conditions are satisfied:

(A) the duties of employment of the employee consist principally of duties to be performed in, or in connection with, an eligible dining facility of the employer or a facility for the provision of accommodation, recreation, or travel of which the eligible dining facility forms part;

(B) the meal is cooked or otherwise prepared in the cooking facility of the eligible dining facility;

(C) the meal is provided to the recipient in the eligible dining facility;

(d) the facility in which the meal is cooked or otherwise prepared is not for use wholly or principally for the cooking or other preparation of meals solely for the employee or associates of the employee or for the employee and associates of the employee; and

(e) the meal is not provided at a party, reception, or other social function.

A meal entitlement day is also defined in subsection 136(1) of the FBTAA as:

meal entitlement day, in relation to a meal provided in a year of tax, in respect of the employment of an employee, to a person (in this definition referred to as the recipient) being the employee or an associate of the employee, means a day in respect of which:

(a) in respect of the employment of the employee, the recipient was entitled to be provided (whether without charge or otherwise) with residential accommodation; and

(b) either of the following subparagraphs applies:

(i) the recipient was entitled, pursuant to the provisions of an industrial instrument in respect of the employment of the employee, to be provided (whether without charge or otherwise) with not fewer than 2 meals on that day;

(ii) the following conditions are satisfied:

(A) under an arrangement that was in force during the whole or a part of the year of tax (which whole or part is in this subparagraph referred to as the arrangement period) in respect of the employment of the employee, the recipient was entitled to be provided (whether without charge or otherwise) with not fewer than 2 meals on that day;

(B) during the arrangement period, the recipient was also entitled under the arrangement to be provided (whether without charge or otherwise) with not fewer than 2 meals on each day during the arrangement period that was a working day in relation to the employee;

(C) pursuant to the arrangement, the recipient was ordinarily provided (whether without charge or otherwise) with not fewer than 2 meals on the days referred to in sub-subparagraph (B).

These two sections are summarised in chapter 13 of the publication Fringe benefit tax - a guide for employers which states:

Providing a meal to an employee is a board fringe benefit if the employee is entitled to have accommodation provided and all of the following conditions are satisfied:

•         there is an entitlement under an industrial award to be provided with at least two meals a day, or under an employment arrangement at least two meals a day are ordinarily provided

•         the meal is supplied by you (the employer) - if you are a company, the meal may be supplied by a related company in a wholly owned group

•         the meal is cooked or prepared on your (or a related company's) premises or on a worksite or place adjacent to a worksite

•         the meal is supplied on your premises (or the worksite) or on the premises of a related company.

Some common examples of meals that may be a board fringe benefit are:

•         meals provided in a dining facility located on a remote construction site, oil rig or ship

•         meals provided to a live-in housekeeper or to a resident teacher in a boarding school.

The taxable value of a board fringe benefit is set in section 36 of the FBTAA at $2 or $1 depending on the recipients age at the beginning of a FBT year.

As the employer provided all meals each day to employees in the dining facility, it is accepted that meals were provided on a 'meal entitlement day'. The employer provided meals to their employees in respect of their employment while working on different work assignments in different locations.

The 'otherwise deductible' rule

As the meals provided by the employer has been determined to be a board fringe benefit, the ODR may apply to reduce the taxable value of the fringe benefit.This rule requires a conclusion be reached about whether the hypothetical expenditure of money would have been allowable as a deduction to the employee if the employee had incurred the expense. It requires the making of the assumption that the expenditure actually incurred by the employer had been incurred by the employee.

The relevant 'otherwise deductible' rule is section 37 of the FBTAA 1986, regarding board fringe benefits.

The determination of whether the ODR applies requires consideration of an employee's entitlement to claim a deduction under section 8-1 of the ITAA 1997 had the employee incurred the expenses in question.

TR 2021/4

TR 2021/4 provides the ATO view on when an employee can deduct accommodation and food and drink expenses under section 8-1 of the ITAA 1997 when they are 'travelling on work', the FBT implications (including the application of the 'otherwise deductible rule') where the employer provides or pays for these expenses.

General principles relating to the deductibility of accommodation and food and drink expenses under section 8-1

An employee can only deduct accommodation and food and drink expenses under section 8-1 of the ITAA 1997 (and the ODR will apply to reduce the taxable value of the relevant fringe benefit provided) to the extent that:

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

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

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

•         a provision of the Tax Acts does not prevent it from being deducted.

It is a question of fact whether an expense for accommodation is incurred in gaining or producing assessable income or is of a private or domestic nature. Accommodation and food and drink expenses are ordinarily private or domestic in nature and are generally not deductible under section 8-1 of the ITAA 1997. TR 2021/4 at paragraph 9 states this includes the costs an employee incurs to maintain their usual (or normal) residenceand of consuming food and drink to go about their daily activities. TR 2021/4 adopts the phrase 'living expenses' to describe these types of expenses.

TR 2021/4 at paragraph 14 states that 'living expenses' are a prerequisite to gaining or producing an employee's assessable income and are not incurred in performing an employee's income-producing activities. Living expenses are also private or domestic in nature.Paragraph 15 of TR 2021/4 goes on to say that a person must eat and sleep somewhere, whether or not they engage in employment. Thus, 'living expenses are not deductible under section 8-1 of the ITAA 1997.

An accommodation expense is not deductible to the extent that it is incurred in order to enable the employee's income-producing activity to start or after it ends.

Accommodation expenses incurred because an employee has chosen to live at a distance from their main workplace are also not incurred in the course of the employee's income-producing activity and are of a private or domestic nature.

The same conclusion applies to accommodation expenses incurred because an employee is relocating in order to be closer to their main workplace.

On the other hand, accommodation expenses may be deductible where they are incurred because an employee has more than one place of work or is required to attend a workplace for relatively short periods of time, provided their stay away is explicable by the nature of the work.

TR 2021/4 at paragraph 10 states the following:

However, where an employee travels and stays away from their usual residence overnightin 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. 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 as an employee 'travelling on work.

The Commissioners view in respect of food being provided in remote locations is based on the decision in Road and Traffic Authority.

The equivalent provision of subsection 51(1) of the ITAA 1936 is section 8-1 of the ITAA 1997. After analysing judgements in FC of T v Cooper (1991) 29 FCR 177 and FC of T v Toms 89 ATC 4373; (1988-89) 20 ATR 466, Hill J. set down a general rule (at 43 FCR 240) by which deductibility of such expenditure is to be determined:

Where a taxpayer is required by his employer, and for the purposes of his employer, to reside, for periods of time, away from home and at the work site, and that employee incurs expenditure for the cost of sustenance, or indeed other necessary expenditure which, if the taxpayer had been living at home, would clearly be private expenditure, the circumstances in which the expenditure is incurred, that is to say, the occasion of the outgoing operates to stamp that outgoing as having a business or employment related character.

For accommodation and food and drink expenses to be regarded as incurred by an employee 'travelling on work', they 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 Federal Court in Clough v Federal Commissioner of Taxation [2021] FCA 108 at [10] and [13] per Colvin J held that in working out whether an expense was incurred in gaining or producing assessable income:

10. The test is not to be couched in 'but for' terms. Rather, in undertaking the search for the necessary relationship which must exist between the outgoing and the activities which more directly produce the assessable income, it is necessary to look at the "essential character of the expenditure.

....

13. In the first limb of s8-1 the proposition 'in' is used to describe a form of involvement or connection as between the incurrence of the outgoing on the one hand and the activity of gaining or producing assessable income on the other hand....The preposition 'in' focuses attention upon whether the expenditure happened as part of an activity that may be described as "gaining or producing assessable income"...the question is whether the outgoing was incurred in the course of activities the nature of which might properly be characterised as gaining or producing assessable income.

The occasion of the outgoing on accommodation and food and drink must be found in the employee's income-producing activities, rather than in the personal circumstances of where the employee lives.

Paragraph 18 of TR 2021/4 says that 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).

The facts indicate that when employees travel to and stay at the remote locations:

•         they did so in the course of carrying out their duties of employment, and

•         this is explicable by the practical demands of the work.

Other special circumstances of this case, such as the environmental factors causing the work to be seasonal and the remote employment conditions, support this conclusion. In the present case, having regard to the relevant facts including:

•         remoteness of the sites

•         living conditions at these sites

•         a general requirement for employees to leave the sites when the contract is over

•         an inability to have family or friends present

•         fixed period contracts of employment; and

•         the seasonal nature of the work.

These facts indicate that the employees were acting in the course of their employment throughout the duration of each work assignment in the remote areas. If the employees had incurred expenses on accommodation these would have been deductible under section 8-1 of the ITAA 1997.

Is the ODR applicable in this case

The otherwise deductible rule under section 37 of the FBTAA will operate to reduce the taxable value of the board fringe benefits provided to the employees. The following paragraphs provide the reasoning to this conclusion.

Employees were provided meals at camp. The employees were required to leave that camp accommodation at the end of the assignment where they returned to X.

There are factors in this case which make them more analogous to the arrangements that existed in the Roads and traffic decision. These include:

•         employees were travelling as an incident of their employment, as the inherent nature of their employment required them to travel to various remote locations in order to undertake the duties of their employment;

•         employees were subjected to the directions of the employer and were being paid by the employer from the time they left X until the time that they returned to X;

•         work assignment locations were in extremely remote areas and alternative places to eat were rarely available, such that the employees did not have any choice in relation to their meals;

•         employees were travelling for relatively short periods of time ranging from several days to several weeks but never for an indefinite period of time;

•         travel period for each work assignment was determined by the amount of work involved and the physical distance from X, neither of which the employee had any control over; and

•         employees returned to X after the completion of each work assignment.

The taxable value of board fringe benefits provided to the employees can be reduced to nil under the otherwise deductible rule.