Edited version of private advice

Authorisation Number: 1052134741578

Date of advice: 21 August 2023

Ruling

Subject: Residency and PAYGW

Question 1

Is the Employee a resident for income tax purposes as defined by subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Answer

No.

Question 2

Does the Australian Employer have a Pay As You Go (PAYG) withholding obligation under section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA) in respect of the Employee?

Answer

Yes.

Question 3

Is the accommodation provided to the Employee by the Australian Employer considered to be a 'residual fringe benefit' as defined in subsection 136(1) of the FBTAA?

Answer

Yes.

This ruling applies for the following periods:

FBT year ended 31 March 20XX

FBT year ending 31 March 20XX

Income year ended 30 June 20XX

Income year ending 30 June 20XX

The scheme commenced on:

XX January 20XX

Relevant facts and circumstances

An employer based in the United States (U.S.) (the U.S. Employer), has seconded the Employee on a temporary assignment for one year to the Employer's Australian branch office (the Australian Employer).

The U.S. Employer transfers funds to pay the monthly payroll of its employees in Australia.

The Australian Employer pays the wages of the Employee.

The Employee was employed in the role in the U.S. and since his arrival has undertaken this role in Australia. He currently holds a Work and Holiday visa (subclass 462). On return to the U.S., the Employee will continue with his current role.

Prior to departing the U.S., the Employee cancelled his residential lease and furnished rental accommodation in Australia. This accommodation is paid by the Australian Employer.

Initial accommodation was booked until XX January 20XX, then final accommodation organised from XX January 20XX to XX November 20XX and is paid directly by the Australian Employer.

The Employee is a citizen of the U.S. who resided in XX for X years prior to his arrival in Australia. This is his first visit to Australia.

The purpose of the visit is solely for work purposes, with the intention to return to the U.S. and re-commence employment with the U.S. Employer prior to Christmas 20XX (airline ticket has not been scheduled as yet).

The Employee holds the following assets (in storage) in the U.S.:

•         Furniture

•         TV

•         Computer, and

•         bank account.

The Employee's Australian assets are limited to a bank account.

He has not received any income from non-Australian sources since his arrival into Australia.

The Employee has no spouse or children and does not hold any social and/or sporting club memberships in the U.S. or Australia.

The Employee still holds his U.S. citizenship.

Relevant legislative provisions

Income Tax Assessment Act 1936 subsection 6(1)

Income Tax Assessment Act 1936 subsection 6(5)

Income Tax Assessment Act 1997 subsection 6-20

Income Tax Assessment Act 1997 subsection 995-1(1)

Taxation Administration Act 1953 section12-1 of Schedule 1

Taxation Administration Act 1953 section12-35 of Schedule 1

Fringe Benefits Tax Assessment Act 1986 section 25

Fringe Benefits Tax Assessment Act section 31C

Fringe Benefits Tax Assessment Act 1986 section 45

Fringe Benefits Tax Assessment Act 1986 subsection 47(5)

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Fringe Benefits Tax Assessment Act 1986 subsection 148(1)

Reasons for decision

Question 1

Is the Employee an Australian resident for income tax purposes as defined by subsection 6(1) of the Income Tax Assessment Act 1936 (ITAA 1936)?

Summary

For the period XX January 20XX to 28 November 20XX inclusive, the Commissioner is satisfied that the Employee is not a resident of Australia for income tax purposes as defined by subsection 6(1) of the ITAA 1936.

Detailed reasoning

Section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that if you are an Australia resident, your assessable income includes income gained from all sources, whether in or out of Australia. However, subsection 6-5(3) of the ITAA 1997 states if you are a foreign resident, your assessable income includes only income derived from an Australian source.

Section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) defines an Australian resident for tax purposes as a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

The terms 'resident' and 'resident of Australia', as applied to an individual, are defined in subsection 6(1) of the ITAA 1936.

The definition offers four tests to ascertain whether each individual taxpayer is a resident of Australia for income tax purposes. These tests are:

•  the resides test (also referred to as the ordinary concepts test)

•  the domicile test

•  the 183-day test, and

•  the Commonwealth superannuation fund test.

The resides test is the primary test for deciding the residency status of an individual. This test considers whether an individual resides in Australia according to the ordinary meaning of the word 'resides'.

Where an individual does not reside in Australia according to ordinary concepts, they will still be an Australian resident if they meet the conditions of one of the other tests (the domicile test, 183-day test and Commonwealth superannuation fund test).

Our interpretation of the law in respect of residency is set out in Taxation Ruling TR 2023/1 Income tax: residency tests for individuals.

We have considered the statutory tests listed above in relation to your situation as follows:

The resides test

The ordinary meaning of the word 'reside' has been expressed as 'to dwell permanently or for a considerable time, to have one's settled or usual abode, to live, in or at a particular place': See Commissioner of Taxation v Miller (1946) 73 CLR 93 at 99 per Latham CJ, citing Viscount Cave LC in Levene v Inland Revenue Commissioners [1928] AC 217 at 222, citing the Oxford English Dictionary. Likewise, the Macquarie Dictionary defines 'reside' as 'to dwell permanently or for a considerable time; have one's abode for a time'.

The observations contained in the case of Hafza v Director-General of Social Security (1985) 6 FCR 444 are also important:

Physical presence and intention will coincide for most of the time. But few people are always at home. Once a person has established a home in a particular place - even involuntarily: see Commissioners of Inland Revenue v Lysaght [1928] AC 234 at 248; and Keil v Keil [1947] VLR 383 - a person does not necessarily cease to be resident there because he or she is physically absent. The test is whether the person has retained a continuity of association with the place - Levene v Inland Revenue Commissioners [1928] AC 217 at 225 and Judd v Judd (1957) 75 WN (NSW) 147 at 149 - together with an intention to return to that place and an attitude that that place remains "home": see Norman v Norman (No 3) (1969) 16 FLR 231 at 235... [W]here the general concept is applicable, it is obvious that, as residence of a place in which a person is not physically present depends upon an intention to return and to continue to treat that place as "home", a change of intention may be decisive of the question whether residence in a particular place has been maintained.

The Commissioner considers the following factors in relation to whether a taxpayer is a resident under the 'resides' test:

•  period of physical presence in Australia

•  intention or purpose of presence

•  behaviour while in Australia

•  family and business/employment ties

•  maintenance and location of assets

•  social and living arrangements.

It is important to note that no one single factor is decisive, and the weight given to each factor depends on each individual's circumstances.

Because the ordinary concepts test is whether an individual resides in Australia, the factors focus on the individual's connection to Australia. Having a connection with another country, or being a resident of another country, does not diminish any connection to Australia: Logan J in Pike v Commissioner of Taxation [2019] FCA 2185 at 57 reminds us that 'it is no part of the ordinary meaning of reside in the 1936 Act that there be a "principal" or even "usual" place of residence. ... It is important that ... "resident" not be construed and applied as if there were such adjectival qualifications.' For this reason, the test is not about dominance or exclusivity.

Application to your situation

We have taken the following into consideration when determining whether the Employee meets the resides test:

•         Physical presence - his physical presence in Australia is from X January 20XX to X November 20XX.

•         Intention - the Employee intends to return to the U.S. and re-commence employment with the U.S. Employer prior to Christmas 20XX.

•         Family and business/employment ties - the Employee has no dependents in Australia and there are no employment ties to suggest that he has shifted his life to Australia.

•         Maintenance of assets - the Employee's Australian assets are limited to one Australian bank account.

•         Social and living arrangements - the Employee does not hold any social and/or sporting club memberships in Australia.

The Employee is not a resident of Australia under the resides test for the period X January 20XX to X November 20XX.

The Employee may still be an Australian resident if he meets the conditions of one of the other tests (the domicile test, 183-day test and Commonwealth superannuation fund test).

Domicile test

Under the domicile test, you are a resident of Australia if your domicile is in Australia unless the Commissioner is satisfied that your permanent place of abode is outside Australia.

Domicile

Whether your domicile is in Australia is determined by the Domicile Act 1982 and the common law rules on domicile.

Your domicile is your domicile of origin (usually the domicile of your father at the time of your birth) unless you have a domicile of dependence or have acquired a domicile of choice elsewhere. To acquire a domicile of choice of a particular country you must be lawfully present there and hold the positive intention to make that country your home indefinitely. Your domicile continues until you acquire a different domicile. Whether your domicile has changed depends on an objective consideration of all relevant facts.

Application to your situation

In this case, the Employee is a citizen of the U.S. who resided in XXXX for X years prior to his arrival in Australia and this is his first visit to Australia. The Employee's domicile of origin is in the U.S.

The Employee is not entitled to reside in Australia, he only holds a work permit which is valid until XX XXXXX 20XX. The Employee's intention is to return to the U.S. and re-commence his employment in U.S. prior to Christmas 20XX. It is considered that the Employee did not abandon his domicile of origin in U.S. and acquired a domicile of choice in Australia.

Therefore, the Employee is not a resident of Australia under the domicile test.

183-day test

Where a person is present in Australia for 183 days or more during the year of income the person will be a resident, unless the Commissioner is satisfied that both:

•  the person's usual place of abode is outside Australia, and

•  the person does not intend to take up residence in Australia.

Application to your situation

The Employee has not been present in Australia for 183 days or more during the 20XX income year. The Employee will not be present in Australia for 183 days or more during the 20XX income year.

Therefore, the Employee is not a resident under this test.

Superannuation test

An individual is a resident of Australia if they are either a member of the superannuation scheme established by deed under the Superannuation Act 1990 or an eligible employee for the purposes of the Superannuation Act 1976, or they are the spouse, or the child under 16 of such a person.

Application to your situation

The Employee is not a member on behalf of whom contributions are being made to the Public Sector Superannuation Scheme (PSS) or the Commonwealth Superannuation Scheme (CSS) or a spouse of such a person, or a child under 16 of such a person.

Therefore, the Employee is not a resident under this test.

Conclusion

As the Employee does not satisfy any of the four tests of residency, he is not a resident of Australia for income tax purposes for the year ended 30 June 20XX and the year ending 30 June 20XX.

Question 2

Does the Australian Employer have a Pay As You Go (PAYG) withholding obligation under section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA) in respect of the Employee?

Summary

Pursuant to section 12-35 of Schedule 1 to the TAA, the Australian Employer is subject to PAYG withholding on the amount of employment income that is paid to the Employee whilst performing duties in Australia during the period XX January 20XX to XX November 20XX inclusive.

Consequently, the Australian Employer will need to withhold from the Employee's Australian-sourced earnings using the foreign resident tax rates, unless the Employee meets the criteria to be classified as a Working Holiday Maker (WHM) in addition to the Australian Employer being registered with the ATO as a WHM employer.

Detailed reasoning

Section 12-35 of Schedule 1 to the TAA provides that an entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee.

However, section 12-1 of Schedule 1 of the TAA provides general exceptions where PAYG withholding does not apply. Subsection 12-1(1) states that:

An entity need not withhold an amount under section 12-35, 12-40, 12-45, 12-47, 12-50, 12-55, 12-60, 12-80, 12-90, 12-120 or 12-190 from a payment if the whole of the payment is exempt income for the entity receiving the payment.

Section 6-20 of the Income Tax Assessment Act of 1997 (ITAA 1997) provides the following definition of 'exempt income':

An amount of ordinary income or statutory income is exempt income if it is made exempt from income tax by a provision of this Act or another Commonwealth law.

This section goes on to provide the following:

Ordinary income is also exempt income to the extent that this Act excludes it (expressly or by implication) from being assessable income.

Subsection 6-5(3) of the ITAA 1997 states that:

If you are a foreign resident, your assessable income includes:

(a) the ordinary income you derived directly or indirectly from all Australian sources during the income year; and

(b) other ordinary income that a provision includes in your assessable income for the income year on some basis other than having an Australian source.

A 'foreign resident' is defined in subsection 995-1(1) of the ITAA 1997 as follows:

foreign resident means a person who is not a resident of Australia for the purposes of the Income Tax Assessment Act 1936.

Employment income is ordinary income for the purposes of subsection 6-5(3) of the ITAA 1997.

In determining whether the salary being paid to the Employee (a foreign resident, as determined in the response to Question 1 is regarded as exempt income under Australian tax law, it is necessary to determine whether the employment income is regarded as Australian or foreign sourced. If the income is regarded as foreign sourced exempt income to a non-resident for Australian tax purposes, then there would be no requirement to withhold any amount from it.

The term 'Australian sourced' is defined in subsection 995-1(1) of the ITAA 1997 as being income that is 'derived from a source in Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).'

Generally, Australian courts have held that the source of employment income is where the employee performs their duties (C of T (NSW) v. Cam and Sons Ltd (1936) 36 SR (NSW) 544; 4 ATD 32 and FC of T v. French (1957) 98 CLR 398; (1957) 7 AITR 76; 11 ATD 288). The courts also confirmed that it is appropriate to apportion income earned to reflect the source of income.

Thus, any employment income earned while carrying out duties while physically present in Australia is sourced in Australia.

In the current circumstances, the Employee is a foreign resident who entered Australia on a Work and Holiday Visa subclass 462. He has been seconded to the Australian branch office. The Employee has earned employment income carrying out duties while physically present in Australia, and has not received any income from non-Australian sources since his arrival into Australia.

Therefore, pursuant to subsection 6-5(3) of the ITAA 1997, the assessable income of the Employee - a foreign resident - includes employment income (ordinary income) derived from an Australian source. As no amount of the Employee's employment income from the Australian Employer is exempt income under section 6-20 of the ITAA 1997, the PAYG withholding exception under subsection 12-1(1) of Schedule 1 to the TAA does not apply.

As such, pursuant to section 12-35 of Schedule 1 to the TAA, the Australian Employer is subject to PAYG withholding on the amount of employment income that is paid to the Employee whilst performing duties in Australia during the period X January 20XX to X November 20XX inclusive.

Consequently, the Australian Employer will need to withhold from the Employee's Australian-sourced earnings using the foreign resident tax rates, unless the Employee meets the criteria to be classified as a WHM in addition to the Australian Employer being registered with the ATO as a WHM employer[1].

Question 3

Is the accommodation provided to the Employee by the Australian Employer a 'residual fringe benefit' as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Summary

The provision of accommodation to the Employee constitutes a 'residual fringe benefit' as defined in subsection 136(1) of the FBTAA. As the provision of accommodation to the Employee is not a housing benefit, and the residual benefit exemption in subsection 47(5) of the FBTAA does not apply, the Australian Employer would not be entitled to any FBT concessions.

Detailed reasoning

A 'fringe benefit' is defined in subsection 136(1) of the FBTAA, which holds that the following conditions must be satisfied:

1. A benefit is provided at any time during the year of tax.

2. The benefit is provided to an employee or an associate of the employee.

3. The benefit is provided by:

a. their employer; or

b. an associate of the employer; or

c. a third party other than the employer or an associate under an arrangement

between the employer or associate of the employer and the third party; or

d. a third party other than the employer or an associate of the employer, if the

employer or an associate of the employer:

i. participates in or facilitates the provision or receipt of the benefit; or

ii. participates in, facilitates or promotes a scheme or plan involving the

provision of the benefit; and the employer or associate knows, or ought

reasonably to know, that the employer or associate is doing so;

4. The benefit is provided in respect of the employment of the employee.

5. The benefit is not one that is specifically excluded as per paragraphs (f) to (s) of the

definition of a fringe benefit in subsection 136(1) of the FBTAA.

In order to determine whether the provision of the accommodation) paid for by employer and provided to the Employee constitutes a 'fringe benefit' as defined in subsection 136(1) of the FBTAA, a discussion is provided below in respect of whether each element or condition of definition of a fringe benefit is satisfied.

A benefit is provided

Subsection 136(1) of the FBTAA provides a broad definition of a 'benefit' as including:

any right (including a right in relation to, and an interest in, real or personal property), privilege,

service or facility and, without limiting the generality of the foregoing, includes a right, benefit,

privilege, service or facility that is, or is to be, provided under:

(a) an arrangement for or in relation to:

(i) the performance of work (including work of a professional nature), whether with or

without the provision of property; ...

The Employee was provided accommodation in respect of his employment which was paid for by the Australian Employer as part of an arrangement in relation to the performance of work. Given this situation, the provision of accommodation falls within the definition of a 'benefit' in subsection 136(1) of the FBTAA.

As such, the first condition (i.e., the provision of a 'benefit') of the definition of a 'fringe benefit' - as defined in subsection 136(1) of the FBTAA - is satisfied.

The benefit is provided to an employee or an associate of the employee

An 'employee' is defined in subsection 136(1) of the FBTAA to mean a current, future or former employee.

As the benefit, (the provision of accommodation) is provided by the Australian Employer to the Employee, the second condition (i.e., a benefit is provided to an employee) of the definition of a 'fringe benefit' as defined in subsection 136(1) of the FBTAA is satisfied.

The benefit is provided by an employer, an associate of the employer or a third party

'Employer' is defined in subsection 136(1) of the FBTAA to mean a current, future or former employer.

As the accommodation is paid and provided by the Australian Employer, the third condition (i.e. a benefit is provided by an employer) of the definition of a 'fringe benefit' as defined in subsection 136(1) of the FBTAA is satisfied.

The benefit is provided in respect of the employment of the employee

Subsection 136(1) of the FBTAA defines the term 'in respect of' in relation to the employment of an employee, as including 'by reason of, by virtue of, or for or in relation directly or indirectly to, that employment'.

Subsection 148(1) of the FBTAA stipulates that:

the provision of a benefit to a person in respect of the employment of an employee is a reference to the provision of such a benefit:

(a) whether or not the benefit is also provided in respect of, by reason of, by virtue of, or for or in relation directly or indirectly to, any other matter or thing;

(b) whether the employment will occur, is occurring, or has occurred;

(c) whether or not the benefit is surplus to the needs or wants of the recipient;

(d) whether or not the benefit is also provided to another person;

(e) whether or not the benefit is, to any extent, offset by any inconvenience or disadvantage;

(f) whether or not the benefit is provided or used, or required to be provided or used, in connection with that employment;

(g) whether or not the provision of the benefit is, or is in the nature of, income; and

(h) whether or not the benefit is provided as a reward for services rendered, or to be rendered, by the employee.

In J & G Knowles & Associates Pty Ltd v Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22, the full Federal Court - in examining the meaning of 'in respect of' an employee's employment - held that the phrase required a 'nexus, some discernible and rational link, between the benefit and employment', though noted that 'what must be established is whether there is a sufficient or material, rather than a causal, connection or relationship between the benefit and the employment'.

Based on the facts, the benefit provided by the Australian Employer to the Employee (being the provision of accommodation), to enable the Employee to undertake his employment-related duties whilst in Australia, has a substantial connection to his employment.

As such, the fourth condition (i.e., a benefit is provided in respect of the employment of the employee) of the definition of a 'fringe benefit' as defined in subsection 136(1) of the FBTAA would be satisfied.

The benefit is not specifically excluded from the definition of a fringe benefit

With respect to paragraphs (f) to (s) of the definition of a 'fringe benefit' in subsection 136(1) of the

FBTAA, the relevant paragraph to consider is paragraph (g) which provides that a benefit does not include an exempt benefit.

In considering whether the accommodation provided by the employer to the Employee falls within any of the exempt benefits listed in Part III of the FBTAA, it is necessary to initially determine the type of fringe benefits that may be applicable under the FBTAA.

Housing fringe benefit

A 'housing fringe benefit' is defined in subsection 136(1) of the FBTAA as a fringe benefit that is a housing benefit. A 'housing benefit' is defined in subsection 136(1) as a benefit referred to in section 25 of the FBTAA.

Section 25 of the FBTAA defines a 'housing benefit' as being a housing right granted by a person to another person.

A 'housing right' is defined in subsection 136(1) of the FBTAA as:

in relation to a person, means a lease or licence granted to the person to occupy or use a unit of accommodation, insofar as that lease or licence subsists at a time when the unit of accommodation is the person's usual place of residence.

A 'unit of accommodation' is defined widely in subsection 136(1) of the FBTAA and includes:

(a)  a house, flat or home unit;

(b)  accommodation in a hotel, hostel, motel or guesthouse.

The FBTAA does not define 'usual place of residence'. However, in subsection 136(1) of the FBTAA, it does define a '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 on a shared basis.

In the absence of a legislative reference, it is relevant to refer to the ordinary meaning of 'usual'. The Macquarie Dictionary Online defines 'usual' to mean:

1. habitual or customary: his usual skill.

2. such as is commonly met with or observed in experience; ordinary: the usual January weather.

3. in common use; common: say the usual things.

As provided in the ATO's Fringe benefits tax - a guide for employers publication (the Guide), an employee is regarded as living away from their 'usual place of residence' if they are required to do so in order to perform their employment-related duties and could have continued to live at the former place if they did not have to work temporarily in a different locality.

The principles of determining whether an employee is living away from their usual place of residence have been established over the years by case law decisions. Whether or not an employee is living away from home will depend on the facts of each case. Similar principles can apply to determine if an employee is living away from their normal residence.

Factors such as the lifestyle of the employee and the type of profession and industry often need to be taken into consideration.

Other relevant factors may include whether personal details, such as the employee's driver's licence or electoral enrolment, have been changed; whether the former house was being looked after by relatives or friends for the time the employee was at the new locality; or whether the former residence was being rented out for the time they were at the new locality.

Examples of employees on appointments of finite duration who will generally be living away from their usual places of residence are foreign nationals employed in Australia (expatriate employees) and Australian residents stationed in foreign countries for a time - for example, export consultants, diplomats and immigration officials.

The same applies where an employee transfers to a new locality within Australia on an appointment of fixed duration, provided the permanent job location does not change. An example would be an arrangement where an employee transfers to a branch office of the employer in another state for a two-year or three-year term on the basis that they will return to the permanent position at the end of that time. The employee would be regarded as living away from their usual place of residence provided that they intend to return there at the end of the term of the transfer.

The general presumption is that a person's normal residence will be close to where they are permanently employed.

Various decisions of Taxation Boards of Review relating to the former section 51A of theITAA36 illustrate that the question whether an employee is living away from his or her usual place of residence normally involves a choice between two places of residence, i.e., the place where the employee is living at the time or some other place. A person is regarded as living away from a usual place of residence if, but for having to change residence in order to work temporarily for his or her employer at another locality, the employee would have continued to live at the former place. It would be relevant in reaching that view that there is an intention or expectation of the employee returning to live at the former place of residence on cessation of work at the temporary job locality. This would be relevant even if the employee is living in temporary quarters close to a temporary job site.

An underlying theme of the Taxation Boards of Review cases relating to the former section 51A of the ITAA36 is a general presumption that a person's usual place of residence will be close to the place where he or she is permanently employed. Correspondingly, an employee who changes his or her place of residence because of a change in the location of a permanent job, whether by reason of a transfer with the same employer or a change of employment, would not usually be living away from home on moving to a new place of residence close to the new job location. That would be the case notwithstanding that the new place of residence was a temporary one pending the obtaining of suitable long-term accommodation.

Employees who move to a new locality to take up a position of limited duration with an intention to return to the old locality at the end of the appointment would generally be treated as living away from their usual place of residence.

Further, the preamble to Miscellaneous Taxation Ruling MT 2025 Fringe Benefits Tax: Guidelines for Valuation of Housing Fringe Benefits (MT 2025) states:

Circumstances in which the provision of accommodation would not constitute a housing right, for example, would be where an employee is living away from his or her usual place of residence in order to carry out the duties of employment, or is travelling in the course of employment. In the former case, the benefit would be exempt under sub-section 47(5)...

A housing fringe benefit will therefore not arise unless the Employee is provided with the right to use or occupy a unit of accommodation and the accommodation is the Employee's usual place of residence. Whether a place is the Employee's usual place of residence is a question of fact, based on all the circumstances.

In this case, the Commissioner considers that the Employee's usual place of residence to be in the U.S. on the basis that the Employee:

•         is in Australia to perform employment-related duties for a fixed duration of less than one year (between X January 20XX and XX November 20XX)

•         has been provided furnished rental accommodation close to his place of employment in Australia, which is paid for by the Australian Employer

•         has furniture in storage in the U.S.

•         intends to return to the U.S. to resume working at the place of employment he was working at before his departure to Australia

•         holds a U.S. bank account

•         his only Australian asset is a bank account, and

•         holds U.S. citizenship.

For there to be a housing right as defined in subsection 136(1) of the FBTAA, and for the benefit to be a housing benefit as defined in section 25 of the FBTAA, the Employee's unit of accommodation when in Australia needs to be the Employee's usual place of residence. However, as the Employee's usual place of residence is in the U.S., a housing fringe benefit as defined in subsection 136(1) has not been provided. As such, the Australian Employer would not be entitled to any FBT concessions in respect of housing benefits.

As the provision of accommodation to the Employee is not a housing fringe benefit (and would not be a Living-Away-From-Home Allowance (LAFHA) fringe benefit under section 30 of the FBTAA on the basis that the Employee is not provided with an allowance), the benefit provided in this case would be a residual fringe benefit.

Residual fringe benefit

A 'residual fringe benefit' is defined in subsection 136(1) of the FBTAA as a benefit that is a residual benefit by virtue of section 45 of the FBTAA.

Section 45 of the FBTAA defines a 'residual benefit' as follows:

A benefit is a residual benefit for the purposes of this Act if the benefit is not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 (inclusive).

The provision of accommodation to the Employee whose usual place of residence is in the U.S. does not fit within any of the specific benefits in Subdivision A of Divisions 2 to 11 (inclusive) of the FBTAA.

Therefore, such a benefit constitutes a residual benefit pursuant to section 45 of the FBTAA, and a residual fringe benefit under subsection 136(1).

Exempt Residual Benefit

The relevant provision in respect of exempt residual benefits is subsection 47(5) of the FBTAA, which states:

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) subsection (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.

Having regard to subparagraph 47(5)(ba)(i) of the FBTAA, section 31C of the FBTAA states:

The employee satisfies this section if:

(a) the place in Australia where the employee usually resides when in Australia:

(i) is a unit of accommodation in which the employee or the employee's spouse has an ownership interest (within the meaning of the Income Tax Assessment Act 1997); and

(ii) continues to be available for the employee's immediate use and enjoyment during the period that the duties of that employment require the employee to live away from it; and

(b) it is reasonable to expect that the employee will resume living at that place when that period ends.

Hence, for subsection 47(5) of the FBTAA to apply, the following conditions must be satisfied:

(a)  accommodation is leased or licensed to an employee

(b)  accommodation is required solely because the duties of employment require the employee to live away from home

(c)   the employee maintains a home in Australia or works on a fly-in fly-out (FIFO)/drive-in drive-out (DIDO) basis (this element applies from 1 October 2012)

(d)  accommodation is not provided while the employee is undertaking business travel, and

(e)  the employee provides the employer with a declaration unless provided in connection with a FIFO transport arrangement.

As the Employee does not have an ownership interest in the unit of accommodation he is staying in whilst working in Australia, section 31C of the FBTAA is not satisfied, such that subparagraph 47(5)(ba)(i) of the FBTAA is also not satisfied. Therefore, given all paragraphs in subsection 47(5) of the FBTAA are not satisfied, the accommodation provided to the Employee whilst he is working in Australia is not an exempt residual benefit under subsection 47(5) of the FBTAA. As such, the Australian Employer would not be entitled to any FBT concessions in respect of residual benefits.

As no exempt benefits apply in the current circumstances, paragraph (g) of the definition of a 'fringe benefit' in subsection 136(1) of the FBTAA is not satisfied such that the fifth condition (i.e. the benefit provided is not specifically excluded) of the definition of a 'fringe benefit' as defined in subsection 136(1) of the FBTAA would be satisfied.

Therefore, the provision of accommodation to the Employee satisfies the definition of a 'fringe benefit' in subsection 136(1) of the FBTAA, and as explained above, specifically constitutes a 'residual fringe benefit' as also defined in subsection 136(1). As the provision of accommodation to the Employee is not a housing benefit, and the residual benefit exemption in subsection 47(5) of the FBTAA does not apply, the Australian Employer would not be entitled to any FBT concessions.

[1] For information on how to determine the Employee's eligibility to be classified as a WHM, and the associated tax withholding rates that may apply if eligible, please visit ato.gov.au and search for 'QC 50742'.