Edited version of private advice

Authorisation Number: 1052173896321

Date of advice: 20 November 2023

Ruling

Subject: FBT - living-away-from-home-allowance

Question 1

Are the allowances paid to two employees living-away-from-home allowance (LAFHA) benefits under subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes.

Question 2

Is the provision of accommodation to two employees exempt from fringe benefits tax under subsection 47(5) of the FBTAA?

Answer

Yes, subject to the applicable substantiation requirements being met.

This ruling applies for the following period:

Year ending 1 April 2023 to 31 March 2024

The scheme commenced on:

1 April 2023

Relevant facts and circumstances

Background

You pay allowances and provide accommodation to two of your employees who are acting in different positions at different locations than their usual substantive positions' work locations.

Allowances

You pay both the employees allowances for reasonable additional expenses incurred each day for working at an alternate location on a long-term basis.

You pay both employees a dinner allowance and an incidental expense allowance each working day. These allowances are not paid to the two employees when they are not working.

The dinner allowance and the incidental expense allowance rates are in line with X Award 20XX, which are updated annually.

Duration of the employees' arrangements

Employee A's duration in their acting position commenced on a month-to-month basis on X X 2023 and ceased on date Y 2023. This is a total period of around 6 months.

Employee B's duration in their acting position commenced on a month-to-month basis on X X 2023 and is expected to cease on date Z 2023 (the date the outcome of a recruitment process to fill the position for a further period of up to X months is expected). This is a total period of around 6 months expected.

While Employee A continued working in their acting position after date Y 2023 under a different arrangement, the period beyond date Y 2023 is not the subject of this private ruling request. Similarly, it is possible that Employee B continues working in their acting position beyond the expected cessation date on date Z 2023, the period after the expected cessation date is not the subject of this private ruling request.

Accommodation

Each of the employees has a unit of accommodation that they have an ownership interest in Australia, near their substantive position, and this continues to be available for their immediate use while they are temporarily working in their acting positions at different work locations from their usual substantive position's locations.

You provide both the employees with free accommodation while they work in their acting positions away from their regular places of work.

The accommodation you provide to each employee is a leased motel room that is located near the work location of their acting positions.

Each of the motel rooms that you provide to the employees has only basic kitchenette facilities.

The motel rooms remain leased and available for the employees' use when they are not there (for example, when they return to their normal residences).

Both employees are allowed to leave their personal belongings in the motel room when they return to their normal residences.

As their employer, you do not prevent family accompanying the employees or family or friends from visiting them. However, both employees are not accompanied by their family or have family or friends visit.

Additional facts

The two employees that receive the allowances meet the definition of current employee because they receive salary or wages from you as their employer.

Both employees were expected to resume living at the unit of accommodation where they usually reside once their acting periods end.

The accommodation arrangements relate to the first 12 months that the duties of the employees' employment require them to live away from their respective normal residence.

Assumption

In order to meet the substantiation requirements, you will obtain Living-away-from-home declaration - employees who maintain an Australian home - section 31 (NAT 74716) from the two employees by the relevant declaration due date.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 subsection 30(1)

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Schedule 1 to the Taxation Administration Act 1953 section 12-35

Income Tax Assessment Act 1997 section 8-1

Fringe Benefits Tax Assessment Act 1986 subsection 47(5)

Fringe Benefits Tax Assessment Act 1986 section 45

Fringe Benefits Tax Assessment Act 1986 section 25

Fringe Benefits Tax Assessment Act 1986 section 31C

Fringe Benefits Tax Assessment Act 1986 section 31D

Reasons for decision

Question 1

Are the allowances paid to two employees living-away-from-home allowance (LAFHA) benefits under subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Summary

Yes. The Allowances are considered LAFHA benefits under subsection 30(1) of the FBTAA.

Detailed reasoning

When an allowance is paid by an employer to cover accommodation and food and drink expenses, it is necessary to determine whether that allowance is a travel allowance or a living-away-from-home allowance (LAFHA) as each is subject to a different tax treatment.

A travel allowance is included in an employee's assessable income, whereas a LAFHA is a fringe benefit which is non-assessable non-exempt income in the hands of an employee and may give rise to FBT which is paid by the employer.

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

Where:

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

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

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

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

by reason that the duties of that employment require the employee to live away from their normal residence;

the payment of the whole, or of the part, as the case may be, of the allowance constitutes a benefit provided by the employer to the employee at that time.

In summary, there are three conditions that must be met for a payment to an employee to be considered a LAFHA benefit:

1.    The payment is an allowance an employer pays an employee in respect of the employment of that employee.

2.    The duties of their employment require the employee to live away from their normal residence.

3.    The whole or part of the allowance is in the nature of compensation to the employee for:

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

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

Each of these conditions is considered further below.

1.    Is the payment an allowance you make to the two employees in respect of their employment?

A payment is an allowance when a person is paid a definite predetermined amount to cover an estimated expense. It is paid regardless of whether the recipient incurs the expected expense. The recipient has the discretion whether or not to expend the allowance[1].

In your situation, the payments you make to the two employees are allowances because:

•         the payments you make are definite predetermined amounts to cover estimated expenses regardless of whether the employees incur the expected expense;

•         the employees have the discretion whether or not to expend the amount paid to them; and

•         you describe the payments being made as allowances.

An 'employee' is defined in subsection 136(1) of the FBTAA to include a current, future and former employee. Subsection 136(1) of the FBTAA defines a 'current employee' to mean 'a person who receives, or is entitled to receive, salary or wages'.

'Salary or wages', as defined in subsection 136(1) of the FBTAA, means payments from which an amount must be withheld under section 12-35 of Schedule 1 to the Taxation Administration Act 1953.

Based on the information provided, the two employees meet the definition of current employee because they receive salary or wages from you from which an amount must be withheld.

In considering whether a benefit is provided to an employee in respect of their employment, subsection 136(1) of the FBTAA defines 'in respect of', in relation to the employment of an employee, to include 'by reason of, by virtue of, or for or in relation directly or indirectly to, that employment'.

In J & G Knowles v Commissioner of Taxation [2000] FCA 196, 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 casual connection or relationship between the benefit and the employment'.

In this situation, payment of the allowances to the employees is sufficiently and materially connected to the employment of the respective employees, and as such, would be considered to have been provided 'in respect of' their employment'

Therefore, payment of the allowances to the employees was made in respect of their employment, thus satisfying the first condition (paragraph (a) of subsection 30(1) of the FBTAA).

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

'Normal residece'

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

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

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

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

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

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

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

'Living away from usual residence'

The FBTAA does not provide a definition of the term 'living away from usual residence'.

However, the Commissioner's view on the term 'living away from usual residence' is outlined at paragraphs 38-61 of Taxation Ruling TR 2021/4: Income tax and fringe benefits tax: employees: accommodation and food and drink expenses travel allowances and living-away-from-home allowances.

Paragraph 42 of TR 2021/4 provides guidance for determining whether an employee is living at a location away from their usual residence and states:

The following factors would support a characterisation of an employee as living at a location away from their usual residence:

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

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

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

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

Each of these factors is considered in further detail below.

Change in the employee's regular place of work

Paragraph 45 of TR 2021/4 outlines that where there is a change in the employee's regular place of work and the employee incurs accommodation and meal expenses to be closer to their new regular place of work, the employee is more likely to be living at that new location away from their usual residence.

Conversely, where there is no change in the employee's regular place of work and the employee incurs accommodation and food and drink expenses when they temporarily attend and stay overnight at another location in the course of carrying out their income-producing activities, the employee will not be living at the location they visit and work at temporarily (paragraph 46 of TR 2021/4).

The Commissioner's view of the concept of 'regular place of work' is outlined in paragraphs 24 - 38 of TR 2021/1: Income tax: when are deductions allowed for employees' transport expenses? which states:

25.  Most employees have a regular place of work, being a usual or normal place where the employee starts and finishes their work duties with a particular employer.

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

32.  ...In situations where it is difficult to conclude whether a second or subsequent place of work is also a regular place of work, an actual or anticipated duration of three months or more at the location would usually be sufficient for the location to amount to a regular place of work.

In this case, the employees' acting positions are being performed at a different work location than their substantive positions. Both employees start and finish their work duties at the new work location and the actual duration at the different work location exceeded three months.

As such, a change in the employees' regular place of work has occurred; the employees' regular place of work has become the work location where their acting positions are being performed.

The length of the period away

Paragraph 49 of TR 2021/4 explains that the longer an employee spends away from their usual residence for work, the more likely the employee is living at the location.

While the Commissioner accepts that an employee is travelling on work when the length of stay is no more than 90 calendar days in total for travel to the same work location in an FBT year (paragraphs 12-13 of Practical Compliance Guideline PCG 2021/3: Determining if allowances or benefits provided to an employee relate to travelling on work or living at a location), this does not necessarily mean that if the length of stay exceeds 90 days an employee is living at a location.

All the factors set out in TR 2021/4 still need to be considered to reach such a conclusion (paragraph 4 of PCG 2021/3).

In this instance, the period the employee has been or is expected to be away from their usual residence is around 6 months and up to around 6 months respectively. As such, both these periods are considered lengthy.

The nature of the accommodation

Paragraphs 56 and 58 of TR 2021/4 explains that the nature of an employee's accommodation is relevant but does not determine whether the employee is living at a location away from their usual residence.

Although paragraph 59 of TR 2021/4 notes that the use of short-term accommodation such as hotels and motels located close to the acting position's location is generally an indication that the employee is travelling on work, in this situation the motel rooms are leased on a long-term basis and remain readily available for the employees' use even when they are not staying there. Both employees are allowed to leave some of their personal belongings in the motel rooms whilst not staying there.

This indicates that while motels are normally used as short-term accommodation, the manner in which the motel rooms are being used in this case is more akin to long-term accommodation arrangements.

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

Paragraph 60 of TR 2021/4 provides that an employee who is living at a location away from their usual residence can generally be accompanied or visited by their family and friends. However, if an employee cannot be accompanied by family or visited by family and friends, this tends to indicate that the employer retains a degree of control over the employee outside their standard workday and which may contribute to an overall impression that the employee is travelling on work during this period.

In this case, family members do not accompany the employees while they are working in their acting positions. However, employees are not prevented by you as their employer from having their family or friends accompany or visit them; family members or friends just choose not to visit the employees while they are working away from their normal residences.

Conclusion

In weighing up the various factors outlined at paragraph 42 of TR 2021/4, we have concluded that the duties of the employees' employment require them to live away from their normal residence. As such, the second condition in subsection 30(1) of the FBTAA is satisfied.

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

The third condition requires that an allowance should be paid to compensate for additional non-deductible expenses. 'Therefore, we need to determine whether the allowances paid to the employees are tax deductible expenses.

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

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

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

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

Paragraph 8 of TR 2021/4 states that when determining what is productive of an employee's assessable income, consideration should be given to the scope of the employee's income-producing activities.

Paragraphs 9 and 10 of TR 2021/4 differentiate 'living expenses' and expenses incurred while 'travelling on work'

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

10.  However, where an employee travels and stays away from their usual residence overnight in the course of performing their income-producing activities and incurs accommodation and food and drink expenses, these expenses will generally be deductible under section 8-1. For the purposes of this Ruling, an employee who stays away from their usual residence overnight in the course of performing their income-producing activities will be referred to as 'travelling on work'.

Paragraph 24 of TR 2021/4 further outlines the relevant factors for determining whether an employee is travelling on work versus living expenses

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

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

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

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

In this case, the expenses the employees incur because they are living at a location that is away from their usual residence for work purposes are considered living expenses and are therefore not tax deductible.

As a result, it is concluded that the allowances are paid to compensate for additional 'non-deductible' expenses and therefore the third condition in subsection 30(1) of the FBTAA is satisfied.

Conclusion

As all three conditions outlined in subsection 30(1) of the FBTAA have been met, the allowances that you are paying to the two employees are considered LAFHA benefits.

Question 2

Is the provision of accommodation to two employees exempt from fringe benefits tax under subsection 47(5) of the FBTAA?

Summary

Yes. Subsection 47(5) of the FBTAA exempts the accommodation residual benefits, subject to any applicable substantiation requirements being met.

Detailed reasoning

In considering whether a fringe benefits tax liability is incurred for the provision of accommodation to two employees it is firstly necessary to consider the following questions:

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

2.    If a fringe benefit did arise from the provision of a benefit, are any exemptions applicable?

Is the provision of accommodation a fringe benefit?

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

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

Benefit includes any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under:

(a)  an arrangement for or in relation to:

(i)    the performance of work (including work of a professional nature), whether with or without the provision of property;

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

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

(b)  a contract of insurance; or

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

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

Type of benefit

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

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

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

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

Are any exemptions applicable?

Subsection 47(5) of the FBTAA provides that accommodation provided by an employer to an employee can be an exempt benefit where the following conditions are met:

(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

(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);

Each of these conditions is considered in further detail below.

Paragraph 47(5)(a)

As outlined above, the provision of the accommodation is a residual benefit, being a lease in respect of a unit of accommodation provided to the two employees in respect of their employment.

Paragraph 47(5)(b)

Based on section 136 of the FBTAA, where accommodation is being provided in relation to an employee whose duties of employment require the employee to live away, for a period, from his or her normal residence, the term 'eligible family members' includes the employee.

We accept that the accommodation is provided solely because the duties of the employment require the two employees to live away from their normal residence.

Paragraph 47(5)(ba)

Paragraph 47(5)(ba) states that the employee must satisfy section 31C and 31D, or section 31E of the FBTAA. In this case, section 31C and 31D are the relevant sections that need to be satisfied.

In relation to section 31C, we accept that each of the two employees has a unit of accommodation that they have an ownership interest in Australia, near their substantive position, and this continues to be available for their immediate use. Both employees are expected to resume living at that unit of accommodation once their acting periods end.

In relation to section 31D, the accommodation arrangements relate to their first 12 months that the duties of their employment require them to live away from their respective normal residence.

This paragraph is therefore satisfied.

Paragraph 47(5)(c)

As discussed earlier in this Ruling, the two employees are considered to be living away from home as opposed to travelling in the course of employment duties. Paragraph 47(5)(c) is therefore satisfied.

Paragraph 47(5)(d)

Paragraph 47(5)(d)(ii) requires a declaration to be given to the employer before the declaration date.

Declaration date is defined in subsection 136(1) of the FBTAA to mean:

... the date of lodgement of the return of the fringe benefits taxable amount of the employer of the year of tax, or such later date as the Commissioner allows.

Based on the assumption that you will obtain the relevant declarations (NAT 74716) from the two employees by the relevant declaration date, paragraph 47(5)(d) will be satisfied.

Conclusion

On the basis that all of the requirements have been met, including declarations being obtained from the employees by the relevant declaration due date, the provision of accommodation to the two employees will be an exempt benefit under subsection 47(5) of the FBTAA.

[1] Taxation Ruling TR 1992/15 (Paragraph 2).