ATO ID 2006/294: Exempt loan benefits: outlay advance - in the course of performing the duties of that employment
Date of decision: 14 September 2006
Year of income: year ending 31 March 2007
Business line: Superannuation and Employer Obligations

Issue
Is an outlay advance that is made to an employee who is temporarily relocated overseas, which is made solely to meet expenses associated with the overseas posting, considered to be a loan made to the employee to meet expenses incurred by the employee 'in the course of performing the duties of that employment', within the meaning of subsection 17(3) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Decision
Yes. The purpose of the outlay advance is to enable the employee to meet household expenses to be incurred by the employee in the course of performing the duties of that employment.

Facts
The employer requires the employee to be temporarily relocated overseas in order to perform the duties of their employment. The employee is transferred from their usual place of residence in Australia to the overseas post for a period of 3 years. At the end of this period the employee will return to Australia. One of the conditions of service at the overseas post is an entitlement to receive an interest free loan described as an 'outlay advance'. The employee is entitled to receive an outlay advance of up to $10,000 upon acceptance of the overseas posting. The sole purpose for providing the outlay advance is to enable the employee to meet expenses associated with the overseas posting. The employee makes an application for an outlay advance in order to purchase household goods, household furniture and a washing machine to be used in the employee's place of accommodation at the overseas post. Within 6 months of making the loan, the employee provides the employer with evidence that the loan has been fully expended. The full amount of the outlay advance is repaid within 12 months.

Reasons for decision
Summary: The provision of the outlay advance is a loan benefit under section 16 of the FBTAA. Section 17 of the FBTAA provides an exemption for certain loan benefits. Exempt loan benefits are not subject to fringe benefits tax. Subsection 17(3) of the FBTAA provides that a loan made by an employer to an employee for the purpose of enabling the employee to meet expenses incurred by the employee, 'in the course of performing the duties of that employment' (emphasis added), subject to additional conditions, is an exempt benefit. The outlay advance is made to the employee for the purpose of enabling the employee to meet expenses associated with the overseas posting. Those expenses are identified by the employee as being the purchase of household goods, household furniture and a washing machine. It needs to be determined whether those household expenses are in the nature of expenses incurred by the employee 'in the course of performing the duties of that employment'. The phrase 'in the course of performing the duties of that employment' is not defined in the FBTAA and takes on its ordinary meaning. The phrase 'in the course of performing the duties of that employment', is used in the FBTAA in several places in relation to travel undertaken, for example refer sections 21 and 143A of the FBTAA. However, only section 17 of the FBTAA deals with that phrase in relation to expenses incurred by the employee. The Explanatory Memorandum to the FBTAA, at Clause 17, states that 'an advance made by an employer to an employee solely for the purpose of meeting expenses incurred, within a maximum of 6 months of the advance being made, in carrying out duties of employment, is taken outside the scope of the fringe benefits tax rules'. Australian courts when dealing with workers compensation law have determined whether an injury occurring during intervals between an employee's ordinary duties was sustained 'in the course of employment' (emphasis added). These courts have applied a principal formulated by the High Court in Hatzimanolis v. ANI Corporation Ltd (1992) 173 CLR 473 ( Hatzimanolis) . In the present case, the employee spends the outlay advance on household items in order to establish the accommodation at the overseas posting. The employee is engaged in working at the overseas posting and is living away from home for a period of 3 years. The entire period of the overseas posting constitutes an overall period or episode of work rather than a series of discrete periods or episodes of work. This satisfies the first element of the principle stated in Hatzimanolis . The second element in Hatzimanolis is satisfied as the employee was doing something which he was reasonably required, expected or authorised to do in order to carry out his duties. That is, the employee was induced or encouraged, including by the making of the loan, to establish and live at a place of accommodation at the place of the overseas post. In accordance with the principle formulated in Hatzimanolis , the outlay advance is spent on household items in which expenses are incurred 'in the course of employment' and 'in order to carry out his duties'. In the present case, the employee is establishing accommodation at an overseas post in order for the employee to work at the overseas post. The employee is living away from the usual place of residence in Australia. In order to facilitate this process, the employer provides an outlay advance. In these circumstances it is accepted that expenditure incurred on household goods, household furniture and a washing machine is expenditure incurred 'in the course of performing the duties of that employment'. Accordingly, the sole purpose of the outlay advance is to enable the employee to meet household expenses to be incurred 'in the course of performing the duties of that employment' in accordance with subsection 17(3) of the FBTAA. Subject to the additional conditions contained in subsection 17(3) of the FBTAA, the loan benefit provided to the employee would be an exempt loan benefit.

Legislative references: Fringe Benefits Tax Assessment Act 1986 section 16 section 17 subsection 17(3) section 21 section 143A
Case references: Hatzimanolis v. ANI Corporation Ltd (1992) 173 CLR 473
Other references: Explanatory Memorandum to the Fringe Benefits Tax Assessment Act 1986
Subject references: Exempt benefits Fringe benefits Fringe benefits tax Loan fringe benefits