Edited version of private advice

Authorisation Number: 1052253406616

Date of advice: 7 June 2024

Ruling

Subject: FBT - living-away-from-home-allowance and residual benefit

Question 1

Is the provision of the per diem allowance by the Employer to its Travelling Overseas Employees (TOEs) to cover food and incidentals a living-away-from-home allowance (LAFHA) benefit pursuant to subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) where the TOEs are on assignment for a period of 3 months?

Answer

Yes.

Question 2

Would the answer to Question 1 be different, if due to the Employer's requirements, the initial 3-month assignment period was extended an additional month?

Answer

No.

Question 3

If the per diem allowance is not subject to section 30 of the FBTAA and the allowance is equivalent or less than, the reasonable amounts for travel allowance expenses under the relevant Taxation Determination in relation to income tax and reasonable travel and overtime meal allowance expense amounts for an income tax year, would the Employer be subject to Pay As You Go Withholding (PAYGW) and report the per diems allowance on the TOE's Income Statement via a Single Touch Payroll (STP) pay event?

Answer

The per diem allowance is subject to section 30 of the FBTAA and as such is exempt from PAYGW under subsection 12-1(2) of Schedule 1 to the Taxation Administration Act 1953 (TAA).

Question 4

Is the provision of accommodation by the Employer to TOEs a fringe benefit as defined in subsection 136(1) of the FBTAA?

Answer

No, where the requirements under subsection 47(5) of the FBTAA are met the benefit will be exempt and therefore excluded.

Yes, where the requirements for an exemption under subsection 47(5) of the FBTAA cannot be met the benefit provided will be an external period residual fringe benefit.

Question 5

If the answer to Question 4 is yes, does the 'otherwise deductible rule' in section 52 of the FBTAA apply to reduce the taxable value of the accommodation to nil?

Answer

Where the requirements under subsection 47(5) of the FBTAA are met and benefit is excluded, and the 'otherwise deductible rule'.

Where the requirements under subsection 47(5) of the FBTAA are not met and the benefit is an external period residual benefit, the 'otherwise deductible rule' does not apply.

Question 6

Is the provision by the Employer to TOEs of return flights to the overseas location and back again at the end of their assignment a 'fringe benefit' as defined in subsection 136(1) of the FBTAA?

Answer

No, the flights are exempt benefits under section 58F of the FBTAA and therefore excluded.

Question 7

If the answer to Question 6 is yes, does the otherwise deductible rule in section 52 of the FBTAA apply to reduce the taxable value of the transport to nil?

Answer

Not Applicable.

Question 8

Where travel expenditure, being the per diem allowance, accommodation and return flights to the overseas location and back again at the end of their assignment incurred by a TOE is reimbursed, such that an expense payment fringe benefit arises (rather than a residual fringe benefit), would the Fringe Benefits Tax (FBT) principles discussed at Questions 1-7 equally apply?

Answer

The return flights to and from the assignment (subject to the substantiation requirements being met) would continue to be excluded.

Accommodation, where the requirements are met, would be exempt under section 21 of the FBTAA instead of subsection 47(5).

The 'otherwise deductible rule' would not apply to the travel expenditure and the per diems allowance would be exempt from PAYG withholding under subsection 12-1(3) of Schedule 1 to the TAA instead of subsection 12-1(2).

This ruling applies for the following periods:

FBT year ending 31 March 2025

FBT year ending 31 March 2026

FBT year ending 31 March 2027

FBT year ending 31 March 2028

The scheme commenced on:

1 April 2024

Relevant facts and circumstances

1.    The Employer and its member firms provide services.

2.    The Employer and its member firms are separate legal entities.

3.    For the purposes of the ruling application, a non-Australian member firm is referred to as the "An Overseas Firm".

4.    Given the need for experienced trained staff and the specialisation of the skills required in the Employer's business, it is not always possible to source the employees required from a location close to the project location (...) in a timely manner.

5.    The Employer's projects therefore typically require Australian employees to travel from their home base to the project location for the duration of the project. If the length of time the employees are required to be in the project locations is anticipated to exceed X months (around 1 year), the employees will generally be placed on an assignment, and will relocate to the project location for a period of time.

6.    Where an employee of the Employer is expected to be at a project location either in or out of Australia for three months or less, they will be covered by the Employer's Travel Policy.

Category - Travelling Overseas Employees (TOEs)

7.    A TOE is an employee of the Employer that is expected to be at an overseas project location for up to 3 months, with a possible extension to 4 months.

8.    In relation to Question 1, the TOEs assignment period is 3 months.

9.    In relation to Question 2, the TOEs assignment period is extended to 4 months.

10.  In addition to the Travel Policy, all TOEs:

•         Are subject to the terms and conditions of their employment with the Employer, which includes a requirement to travel for the purposes of employment if needed;

•         Are subject to the ultimate control of the Employer - the Employer has the right to terminate the employment relationship with the TOEs;

•         Continue to have their salary paid by the Employer

•         Accrue leave and other employment benefits (e.g. superannuation contributions) with the Employer's home office; and

•         Are subject to the performance review procedures of the Employer.

11.  While the TOE is on the project they will:

•         Be provided with accommodation by the Employer. The Employer advised that the accommodation will either be in a hotel or serviced apartment. However, the Travel Policy provided by the Employer indicates that where an employee stays at a location for 10 or more nights in a row a serviced apartment should be booked and the employee will be provided with a choice of available preferred options.

•         Be paid a per diem allowance by the Employer to cover food and incidentals while they are on the project, or otherwise seek reimbursement for actual expenditure;

•         The Travel Policy states that a per diem expense can be claimed for reimbursement at a rate of either $X per day or an approved specific rate. The policy also states that reasonable amounts for meal, beverage and incidentals can also be claimed.

•         Be provided with transport - flight to and from the assignment/project location.

•         Not be accompanied by their family. However, the Travel Policy provided by the Employer indicates that spouse and dependents may travel with employees and be covered under the Employer's travel insurance if approval is obtained;

•         Be subject to the Employer's code of conduct and Travel Policy during the project including on flights to and from the project location.

•         At the conclusion of a project, the TOEs will either return to their Employer's Australian office location or another project location.

•         Generally have a unit of accommodation in Australia that they have an ownership interest in, and that continues to be available for their immediate use while on assignment. However, for some TOEs, for example ones who live with their parent or guardian, this will not be the case.

Assumptions

12.  For the purposes of the private ruling, the Commissioner makes the following assumptions:

•         The Employer will be the TOEs' 'employer' as defined in subsection 136(1) of the FBTAA

•         The TOEs will remain tax residents of Australia.

•         The TOEs will be subject to Australian tax on the salary paid by the Employer.

•         The amount of the per diem allowance will be equivalent to or less than the reasonable amount specified in the relevant Taxation Determination for the relevant year.

•         If a travel diary must be provided to the Employer by the TOEs by a declaration date, that travel diary will be provided by the TOEs.

•         In accordance with section 20A and 47A of the FBTAA, the Employer will make a no-private-use declaration in respect of transport benefits provided to the TOEs.

•         The TOEs will not make a contribution to the cost of the accommodation.

•         If the accommodation is not an exclusive employee residual benefit as defined in section 136 of the FBTAA, the TOEs will provide to the Employer, before the declaration date, declarations in a form approved by the Commissioner in relation to the provision of the accommodation.

•         TOEs will maintain their usual place of residence and living arrangement in their home location and, where applicable, provide the Employer, before the declaration date, declarations in a form approved by the Commissioner in accordance with section 31F of the FBTAA.

•         Accommodation arrangements considered as part of the ruling relate to the TOEs first 12 months that the duties of their employment require them to live away from their normal residence at their assigned project location.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986, section 20

Fringe Benefits Tax Assessment Act 1986, section 21

Fringe Benefits Tax Assessment Act 1986, section 23

Fringe Benefits Tax Assessment Act 1986, section 24

Fringe Benefits Tax Assessment Act 1986, section 30

Fringe Benefits Tax Assessment Act 1986, section 45

Fringe Benefits Tax Assessment Act 1986, subsection 47(5)

Fringe Benefits Tax Assessment Act 1986, section 51

Fringe Benefits Tax Assessment Act 1986, section 52

Fringe Benefits Tax Assessment Act 1986, section 58F

Fringe Benefits Tax Assessment Act 1986, section 136

Fringe Benefits Tax Assessment Act 1986, section 143A

Income Tax Assessment Act 1997, section 6-5

Income Tax Assessment Act 1997, section 8-1

Taxation Administration Act 1953, section 12-1 of Schedule 1

Taxation Administration Act 1953, section 12-35 of Schedule 1

Reasons for decision

Question 1

Is the provision of the per diem allowance by the Employer to its Travelling Overseas Employees (TOEs) to cover food and incidentals a living-away-from-home allowance (LAFHA) benefit pursuant to subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) where the TOEs are on assignment for a period of 3 months?

Summary

The provision of the per diem allowance to cover food and incidentals is a LAFHA benefit.

Detailed reasoning

A 'fringe benefit' is defined in subsection 136(1) of the FBTAA, which requires, inter alia, the following conditions to 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:

(i)    their employer; or

(ii)   an associate of the employer; or

(iii)  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

(iv)  a third party other than the employer or an associate of the employer, if the employer or an associate of the employer:

                                      (A)    participates in or facilitates the provision or receipt of the benefit; or

                                      (B)    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).

Is a benefit provided?

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

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 of the use of facilities for, entertainment, recreation, or instructions; 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

The definition of 'provide' and 'provider' in subsection 136(1) of FBTAA are as follows:

provide:

(a)  in relation to a benefit - includes allow, confer, give, grant or perform; and

(b)  ...

provider, in relation to a benefit, means the person who provides the benefit.

The Employer provides TOEs with a benefit of a per diem allowance. Therefore, this condition is satisfied.

Is a benefit provided to an employee or an associate of an employee?

An employee is defined in subsection 136(1) of the FBTAA to include a current, future and former employee. Subsection 136(1) 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 TAA.

TOEs are employees of the Employer therefore this condition is satisfied.

Is it provided in respect of employment?

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

In this case TOEs are 'employees' of the Employer, because they receive 'salary or wages' from the Employer.

There is no evidence that the TOEs and the Employer are dealing with each other in any other capacity than employees and employer. Therefore, it is considered that the provision of per diems allowance to TOEs is sufficiently and materially connected, to their employment, and as such, would be considered to be 'in respect of' their employment. Therefore, this condition is satisfied.

Is it a living-away-from-home allowance and whether the benefit is excluded from the definition of a fringe benefit?

Subsection 136(1) of the FBTAA defines a LAFHA benefit as a benefit referred to in section 30 of the FBTAA.

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 to an employee and states:

Where:

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

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

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

or

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

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

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

As previously discussed, the first condition of subsection 30(1) of the FBTAA is satisfied.

However, in order to determine whether the benefit is a fringe benefit and more specifically a LAFHA benefit it needs to be determined whether the benefit is an excluded benefit - that is, salary and wages (travel allowance) and thus addressing the second condition of subsection 30(1) of the FBTAA as to whether the expenses are non-deductible.

LAFHA versus Travel Allowance

A LAFHA exists where it is reasonable to conclude from all the surrounding circumstances that some or all of the allowance is in the nature of compensation to the employee for additional expenses incurred, or additional expenses incurred and other disadvantages suffered, because the employee is required to live away from his or her usual place of residence in order to perform the duties of employment. Additional expenses do not include expenses for which the employee would be entitled to an income tax deduction.

The whole or such part of the allowance as satisfies these tests is a LAFHA fringe benefit, the taxable value of which is calculated in accordance with the rules contained in section 31 of the FBTAA.

Taxation Ruling 2021/4 Income tax and fringe benefits tax: employees: accommodation and food and drink expenses travel allowances, and living-away-from-home allowances (TR 2021/4) provides guidelines on travel allowances and LAFHA.

Paragraph 130 of TR 2021/4 states, the main difference between a travel allowance and a LAFHA is that a:

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

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

Paragraph 133 of TR 2021/4 further provides, to determine whether an allowance is a travel allowance or a LAFHA, it is first necessary to determine what expenditure the allowance is designed to cover or compensate the employee for and whether those expenses are deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997).

Usual residence

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

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

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

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

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

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

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

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

Relevant factors - travelling on work versus living expenses

To be deductible under section 8-1 of the ITAA 1997, the expense 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.

Paragraph 24 of TR 2021/4 provides, 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 and therefore not deductible:

                                          i.    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. (personal circumstances - see paragraphs 25 to 37 of this Ruling).

                                         ii.    The employee incurs the expenses because they are living at a location (living at a location - see paragraphs 38 to 78 of this Ruling).

                                        iii.    The employee incurs the expenses as a result of relocating from their usual residence (relocation - see paragraphs 79 to 86 of this Ruling).

Personal circumstances

An employee cannot deduct accommodation and food and drink expenses they have incurred where, due to their personal circumstances, they live far away from where they gain or produce their assessable income.

The Employer has provided an employment contract that applies to TOEs. The contract stipulates that:

... you may be required to work in other locations (elsewhere in Australia or overseas)...This may be on a long or short term basis...

Therefore, it is TOEs' work requirements and not their personal circumstances that require them to stay away from their usual residence and it is not only the fact they must stay overnight away from their usual residence to earn their assessable income, it is their 'income-producing activities' or 'work activities' which require them to do so.

Relocation

Where an employee has relocated for work, the cost of accommodation and food and drink will be living expenses; regardless of whether moving to the new location is required by the employer or the work.

There is no suggestion that any TOEs have relocated based on the information provided by the Employer. It is assumed that TOEs will maintain their usual residence during the period of their assignment and return to that home or another location at the end of their assignment.

Living at a location

Paragraph 42 provides, 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.

All the above factors should be considered, and no single factor is necessarily decisive. The weight given to each factor will vary depending on the employee's individual circumstances and is not a mathematical process. Reaching a conclusion as to whether an employee is living at a location away from their usual residence is a matter of judgment which requires a holistic assessment based on a consideration of all the factors.

Change in regular place of work

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.

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.

Where there is a change in the employee's regular place of work and the employee incurs accommodation and food and drink expenses to be closer to their new regular place of work, the employee will be living at that new location away from their usual residence. In these circumstances, the expenses incurred are living expenses and are not deductible.

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. However, consideration should also be given to matters including:

                                          i.    The nature of the employment. A briefer period may be sufficient in the context of a short-term contract rather than ongoing employment.

                                         ii.    The frequency at which the employee attends the workplace. Attending a location once a fortnight for four months would not usually be sufficient to establish a location as a regular place of work

                                        iii.    Whether any element of choice on the part of the employee is influential such as the choice of where to live, and

                                       iv.    Whether the travel to a new workplace occur when the employee is on work time, or substantively under the direction or control of the employer. This would tend to support the characterisation of the travel to the location as being part of the employment rather than a prerequisite to travel to another regular place of work.

The employment contract stipulates a "home office" as the regular place of work with a requirement from time-to-time work at other locations.

In this case, the TOEs are required to attend at their assigned office regularly for a continuous period of 3 months. It is therefore considered that an additional regular place of work arises.

As a result, the TOEs would incur accommodation and food and drink expenses due to being close to their new regular place of work.

Length of period away from their residence

The 'length of period away' means the overall period of time the employee spends living at a particular location for work. Where an employee is living at one location for work for an extended period, that period is not broken by short trips they take from that location, for example travelling back to their usual residence on weekends or when travelling on work from that location. Generally, the longer an employee spends away from their usual residence for work, the more likely the employee is living at the location.

TOEs are expected to live at the overseas project location for around 90 calendar days in total in an FBT year. They will be at the same work location for more than 21 calendar days at a time continuously which suggests that the TOEs are living away from their residence.

The nature of the accommodation

The nature of an employee's accommodation is relevant but does not determine whether the employee is living at a location away from their usual residence. Generally, where an employee works away from home for a considerable period and, for that period, stays in accommodation generally used for longer term accommodation (such as a house, unit or apartment or caravan), this would support a view that they are living at a location away from their usual residence.

In this instance the Employer has advised that the accommodation will either be in a hotel or serviced apartment. However, the Travel Policy provided by the Employer indicates that where an employee stays at a location for 10 or more nights in a row a serviced apartment should be booked, and the employee will be provided with a choice of available preferred options.

Having regard to the above, the nature of the accommodation tends towards a conclusion the TOEs are living away from home.

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

An employee who is living at a location away from their usual residence can generally be accompanied or visited by their family and friends.

In this case the Employer has advised that TOEs would not be accompanied by their family. There is also no indication that family or friends are 'not allowed' to accompany or visit.

Therefore, this factor may tend towards a conclusion the TOEs are travelling on work.

Conclusion on whether the TOEs are living at the location

Having had regard to the analysis above, TOEs' regular place of work has changed, and they are living away from their usual residence.

It is considered that the circumstances are similar to that in Example 7 of TR 2021/4, except in reverse (i.e. secondment is to overseas project instead of an overseas employee to Australia) because they:

a.    Stay for a relatively long period, being 90 days

b.    Continue to be employees of the Employer while working in the overseas location

c.     Do not bring their family with them

d.    Evidence suggests they will likely stay in apartment-style accommodation.

Therefore, in the circumstances it is considered the TOEs are living away from their usual residence due to:

a.    There being a change in the TOEs' regular place of work from the Employer to "An Overseas Firm" office

b.    The length of time the TOEs will be away from their usual residence in Australia.

c.     The fact that evidence suggests they will stay in apartment-style accommodation while they are working overseas.

Conclusion on whether the TOEs' 'additional expenses' are deductible expenses

Having had regard to the analysis above while TOEs work necessarily requires them to undertake the travel the additional expenses would not be deductible expenses because they are living away from their usual residence, and thus the expenses are living expenses and not deductible.

Is the benefit excluded from the definition of a fringe benefit?

A benefit which comes within paragraphs (f) to (s) of the definition of a 'fringe benefit' in subsection 136(1) of the FBTAA is excluded from being a fringe benefit.

Paragraph (g) of the definition of 'fringe benefit' excludes 'a benefit that is an exempt benefit'.

There is no evidence to suggest the benefit is an exempt benefit.

Conclusion on whether the employees are provided with a LAFHA 'fringe benefit'

The benefit of the per diem allowance is provided to them in respect of their employment and is in the nature of compensation for additional expenses they might incur by reason that the duties of their employment require them to live away from their normal residence while they are on assignment.

TOE's additional expenses are not deductible expenses. Therefore, the per diem allowance paid to them by the Employer while on assignment in the nature of compensation for these additional expenses is a living-away-from-home allowance fringe benefit under section 30 of the FBTAA. The taxable value of which is calculated according to the principles set out in section 31 of the FBTAA.

The concessional tax treatment of a LAFHA fringe benefit is dependent on the requirements under section 31 of the FBTAA being met:

a.    The employee maintains a home in Australia.

b.    The allowance relates to the first 12 months of LAFH

c.     Accommodation and food expenses are substantiated, and

d.    A declaration that (a) and (b) are satisfied and given to the employer.

If the TOE does not meet the above circumstances to qualify for concessional taxation treatment the whole of the allowance is subject to FBT.

Question 2

Would the answer to Question 1 be different, if due to project requirements, the initial 3-month assignment period was extended an additional month?

Conclusion

The answer to Question 1 would not change if the assignment period was extended.

Question 3

If the per diem allowance is not subject to section 30 of the FBTAA and the allowance is equivalent or less than, the reasonable amounts for travel allowance expenses under the relevant Taxation Determination in relation to income tax and reasonable travel and overtime meal allowance expense amounts for an income tax year, would the Employer be subject to PAYGW and need to report the per diems allowance on the TOE's Income Statement via a STP pay event?

Conclusion

The per diem allowance is a LAFHA pursuant to section 30 of the FBTAA as concluded under Question 1. As such it is not subject to PAYGW under subsection 12-1(2) of Schedule 1 to the TAA.

Question 4

Is the provision of accommodation by the Employer to TOEs a 'fringe benefit' as defined in subsection 136(1) of the FBTAA?

Summary

Where the requirements under subsection 47(5) of the FBTAA are met, the benefit will be exempt and therefore excluded as a fringe benefit.

Where the requirements for an exemption under subsection 47(5) of the FBTAA cannot be met, the benefit provided will be an external period residual fringe benefit.

Detailed reasoning

Is a benefit provided?

The Employer pays for TOEs accommodation directly which constitutes a 'benefit'. Therefore, this condition in the definition of a 'fringe benefit' in subsection 136(1) of the FBTAA is satisfied.

Is the benefit provided to an employee or an associate of an employee?

As mentioned earlier, the TOEs are employees of the Employer as defined under subsection 136(1) of the FBTAA.

Is the benefit provided by the employer, or an associate of the employer or a third party in a situation that comes within either paragraph (e) or (ea) of the 'fringe benefit' definition?

The benefit, being the provision of accommodation to the TOEs is provided by the Employer. As such this condition in the definition of 'fringe benefit' in subsection 136(1) of the FBTAA is satisfied for the reasons outlined above under Question 1.

Is the provision of accommodation a Housing Benefit?

A housing benefit arises where an employee or an associate is granted a lease or licence to occupy employer provided premises as their usual place of residence.

The Commissioner considers that generally an employee is living away from their usual place of residence where, if the employee would have continued to live in a particular place, but for having to change residence in order to work temporarily for the employer at another locality and expects to return to that place when the temporary period is over.

Therefore, in this instance as the TOEs maintain their usual place of residence, being their customary or habitual place of residence in Australia, the benefit cannot be a housing benefit. The benefit provided is therefore a residual fringe benefit under section 45 of the FBTAA as it does not fit within the other specific categories contained in Divisions 2 to 11 of the FBTAA.

Is the benefit excluded from the definition of a fringe benefit?

A benefit which comes within paragraphs (f) to (s) of the definition of a 'fringe benefit' in subsection 136(1) of the FBTAA is excluded from being a fringe benefit. Paragraph (g) of the definition of 'fringe benefit' excludes 'a benefit that is an exempt benefit'.

Subsection 47(5) of the FBTAA provides that accommodation provided by an employer to an employee can be an exempt benefit 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

(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);

Paragraph 47(5)(a)

As discussed above, as the TOEs maintain their usual place of residence the benefit cannot be a housing benefit and the benefit provided is therefore a residual fringe benefit under section 45 of the FBTAA as it does not fit within the other specific categories contained in Divisions 2 to 11 of the FBTAA.

A 'unit of accommodation' includes a house, flat, home unit, caravan or other mobile home, hotel, hostel, motel, guesthouse, bunkhouse, ship, vessel or floating structure.

The provision of the accommodation, being a serviced apartment is a residual benefit. It is a lease or licence in respect of a unit of accommodation provided to TOEs in respect of their employment satisfying this condition.

Paragraph 47(5)(b)

Based on subsection 136(1) of the FBTAA, where it is in relation to an employee whose duties of employment require the employee to live away, for a period, from his or her normal residence, include the employee, the term 'eligible family members' include the employee.

The employment contract specifies that it is a requirement of their employment that employees work in other locations around Australia and overseas.

It is therefore considered that the accommodation is provided solely because the duties of their employment require the TOEs 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 to address.

In relation to section 31C, the Employer has advised that some TOEs have, in Australia, near their substantive position a unit of accommodation that they have an ownership interest in and continues to be available for their immediate use. It is reasonable to expect that these TOEs will resume living at that place when their assignment overseas ends.

In relation to section 31D, it is assumed that the accommodation arrangements relate to a TOEs first 12 months that the duties of their employment require them to live away from their respective normal residence at the relevant project location.

This paragraph is therefore considered satisfied in relation to the TOEs that have a unit of accommodation in Australia that they have an ownership interest in, and that continues to be available for their immediate use while on assignment.

For the TOEs that do not have an ownership interest in a unit of accommodation, for example employees who live with a parent or guardian, this condition is not satisfied and as a result the exemption under subsection 47(5) of the FBTAA would not apply.

Paragraph 47(5)(c)

As addressed under Question 1 the TOEs are considered to be living away from home as opposed to travelling in the course of their employment duties. Paragraph 47(5)(c) is therefore satisfied.

Paragraph 47(5)(d)

Paragraph 47(5)(d)(iii) requires the 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.

If the accommodation is not an exclusive employee residual benefit as defined in section 136 of the FBTAA, the employees will provide to the Employer, before the declaration date, declarations in a form approved by the Commissioner in relation to the provision of the accommodation.

The Employer has advised that, if required, TOEs will provide the Employer, before the declaration date, declarations in a form approved by the Commissioner in relation to the provision of accommodation. Therefore paragraph 47(5)(d) will be satisfied.

Conclusion

Where requirements under section 47(5) of the FBTAA are satisfied - benefit is exempt and therefore excluded from being a fringe benefit

Where:

a.    the relevant declarations are obtained

b.    the provision of accommodation relates to the first 12 months, and

c.     the requirements under section 31C of the FBTAA are met

the provision of accommodation is not a fringe benefit as it will be an exempt benefit under subsection 47(5) of the FBTAA.

Where requirements under section 47(5) of the FBTAA are not satisfied - benefit is not an excluded benefit and is therefore a residual fringe benefit

For the employees who do not meet the requirements under section 31C of the FBTAA and therefore not satisfying the conditions of an exemption under subsection 47(5) of the FBTAA a residual fringe benefit will arise.

Residual fringe benefits can be separated under four different categories under subsection 136(1) of the FBTAA as:

(1)          In-house non-period residual fringe benefits;

(2)          In-house period residual fringe benefits;

(3)          External non-period residual fringe benefits

(4)          External period residual fringe benefits

Broadly, an 'in-house residual fringe benefit' is a residual benefit provided by an employer or associate of the employer as part of their business activities. An 'external residual fringe benefit' is a benefit that is not an in-house residual fringe benefit.

The distinction between a 'period' and a 'non-period' residual fringe benefit depends on the definition of 'period residual fringe benefit' in subsection 136(1) and section 149 of the FBTAA. A 'period residual fringe benefit' is defined as a residual fringe benefit that is provided during a period. Under subsection 149(1), a benefit is taken to be provided during a period if, and only if, it is provided and subsists during a period of more than one day and is not deemed to be provided at a particular time or on a particular day. The effect of this is that, generally, where a residual fringe benefit is provided and subsists for more than one day, it is a period residual fringe benefit.

In this case, the Employer provides accommodation of serviced apartments to TOEs. The Employer does not provide accommodation to members of the public, and the benefit is provided in relation to a period exceeding one day. There is no evidence the TOEs and the Employer are dealing with each other in any other capacity than as employees.

Therefore, the provision of accommodation to these TOEs is an external period residual benefit.

There is no evidence to suggest the benefit is an exempt residual fringe benefit.

Question 5

If the answer to Question 4 is yes, does the 'otherwise deductible rule' in section 52 of the FBTAA apply to reduce the taxable value of the accommodation to nil?

Detailed reasoning

TOEs that meet the requirements under section 31C of the FBTAA

For TOEs that meet the requirements under section 31C of the FBTAA the benefit is exempt and therefore the 'otherwise deductible rule' is not applicable.

TOEs who do not meet the requirement under section 31C of the FBTAA

The taxable value of the external period residual fringe benefit calculated in accordance with section 51 of the FBTAA is reduced where the 'otherwise deductible rule' in subsection 52(1) applies.

The 'otherwise deductible' rule operates to reduce the taxable value of a residual fringe benefit where the employee would have been entitled to a once-only deduction under section 8-1 of the ITAA 1997 (or where a specific provision of the tax laws applies to provide the deduction) for the expense had the employee personally incurred and paid the unreimbursed expense.

As concluded in Question 1, the TOEs' per diem allowance would not be deductible under section 8-1 of the ITAA 1997 because their expenses would not be incurred in the course of gaining or producing their assessable income and the expenditure is of a private or domestic nature because TOEs are living away from their usual residence. For the same reasons, their accommodation expense would also not be deductible.

Question 6

Is the provision by the Employer to TOEs of return flights to the overseas location and back again at the end of their assignment a 'fringe benefit' as defined in subsection 136(1) of the FBTAA?

Summary

The flights are exempt benefits under section 58F of the FBTAA and therefore excluded.

Detailed reasoning

Is the benefit provided an exempt benefit and therefore excluded from being a fringe benefit?

As outlined above, a benefit that is an exempt benefit in relation to the year of tax is not a 'fringe benefit'.

The provision of a car, expense payment, property or residual benefit which is in respect of 'relocation transport' is an exempt benefit under subsection 58F of the FBTAA.

The following paragraphs consider whether the flights provided to TOEs satisfy the necessary conditions to be 'relocation transport' for the purposes of section 143A of the FBTAA; where relocation transport is transport that enables an employee to relocate to a new residence in circumstances where they are required to live away from home in order to perform employment-related duties, or are similarly required to relocate their usual place of residence.

(a) a specified type of benefit is provided to an employee (or their associate) in respect of the employment of the employee which is in respect of or in connection with the provision of transport

It is considered that the Employer is providing TOEs with a residual benefit, comprising of return flights from their home in Australia to their overseas project location as the flights do not fall into the category of benefits set out in Subdivision A of Divisions 2 to 11 of the FBTAA. As such, it is a benefit of the type specified in paragraph 143A(a).

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

Subsection 136(1) of the FBTAA defines 'family member' to mean 'the employee', 'the spouse of the employee', and 'a child of the employee'. The Employer provides flights to the employee (being the TOE), therefore satisfying the condition in paragraph 134A(b) of the FBTAA.

(c) The transport is required solely because the employee is or was required to live away from their usual place of residence in order to perform the duties of that employment

The condition in paragraph 134A(c) requires 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 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.

As addressed above, under Question 1 TOEs are living away from their usual residence. Therefore, the condition in subparagraph 143A(c)(i) is met in relation to the first flight out of Australia provided to TOEs (and other family members if relevant).

This flight is solely provided because the employee is required to live away from their usual place of residence in Australia in order to perform the duties of their employment with the Employer.

Similarly, the condition in subparagraph 143A(c)(ii)(B) is also satisfied in relation to the TOEs returning flight to Australia at the end of their assignment because the TOEs, having lived away from their usual place of residence in order to perform the duties of that employment, is required to return to their usual place of residence because the TOE has ceased to perform those duties at their overseas location.

(d) The transport is provided to enable a family member to take up residence

The conditions in paragraph 143A(d) are met in relation to the:

a.    the first flight out of Australia to the TOEs overseas assignment location, as it enables the employee to take up residence near their new assignment location while living away from their usual place of residence in Australia per subparagraph 143A(d)(i) and

b.    the last flight back to Australia at the end of the TOEs assignment as it enables the employee to return to their usual place of residence back in Australia, per subparagraph 143A(d)(ii).

This condition would not be met in the instance where a TOE elects for the last flight to be to a location other than where their usual place of residence is in Australia. In such a case, the transport would not be provided to enable the employee to take up residence at their usual place of residence.

(e) If the transport is for the spouse, or a child, of the employee - the exclusions do not apply

The condition in paragraph 143A(e) requires transport provided to a spouse or child of the employee not be provided to enable the spouse or child to accompany the employee while the employee or the spouse or child is undertaking travel in the course of performing the duties of their employment. In the case of the spouse or child, this is duties of employment with the same employer or as an employee of the employee.

The Employer has advised that no family are travelling with the TOEs therefore it is considered this condition is likely met. There is also no suggestion in the information provided that a spouse or child of a TOE is also an employee of the Employer.

(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

Taxation Ruling 2021/1 Income tax: when are deductions allowed for employees' transport expenses? (TR 2021/1) provided guidance on whether travel expenses incurred by an employee are "in the course of" gaining or producing assessable income.

TR 2021/1 explains that "Other ways that this has been expressed in the context of transport expenses, is that the employee is travelling "on work", the travel is part of the employment, or the travel is an incident of the employment."

Per paragraph 84 of TR 2021/1, where an employee is living at a location away from their usual residence (usually on a temporary basis) for work but retains a connection to their previous home (for example, family remains behind), transport between their new work location and their previous home would not be deductible. This is the case even if the agreement with their employer involves the employer agreeing to provide or fund such transport.

As addressed under Question 1 it is considered that the TOEs are living at a location away from their usual residence and therefore the travel between their home and their subsequent regular place of work is not in the course of gaining or producing their assessable income.

Therefore, it is considered that the TOEs are not travelling while performing the duties of their employment for the Employer and therefore the condition in paragraph 143(A)(f) is met.

(g) The benefit is not provided under a non-arm's length arrangement

There is no suggestion on the information provided that the flights are provided under a non-arm's length arrangement therefore the condition in paragraph 134A(g) is met.

Conclusion on the application of section 58F

Having regard to the condition in sections 143A and 58F of the FBTAA, it is considered that the initial and return flights provided by the Employer to TOEs between their home in Australia and their overseas assignment location are in respect of 'relocation transport' and are therefore, exempt benefits under section 58F as such cannot be a fringe benefit as defined in subsection 136(1) of the FBTAA.

Question 8

Where travel expenditure, being the per diem allowance, accommodation and return flights to the overseas location and back again at the end of their assignment incurred by a TOE is reimbursed, such that an expense payment fringe benefit arises (rather than a residual fringe benefit), would the FBT principles discussed at Questions 1-7 equally apply?

Detailed reasoning

The 'otherwise deductible rule' would not apply to the travel expenditure, being per diems allowance, flights and accommodation. However, in relation to the accommodation, where applicable, would be an exempt accommodation expense benefit under section 21 of the FBTAA instead of being an exempt benefit under subsection 47(5) of the FBTAA.

The transport expense would continue to be exempt under subsection 58F of the FBTAA as it is a specified benefit under subsection 143A(ii) of the FBTAA provided that necessary evidence as specified under subsection 58F(c)(ii) is provided to the employer before the FBT return for the year must be lodged.

The per diems allowance would be excluded from PAYGW under subsection 12-1(3) of Schedule 1 to the TAA instead of subsection 12-1(2).