Private ruling: Fringe Benefits Tax: Living away from home allowance benefits – Provision of benefit
Date of advice: 1 December 2017
Published: April 2018
Ruling period: Year ending 31 March 2018 | Year ending 31 March 2019 | Year ending 31 March 2020 | Year ending 31 March 2021
Date scheme commenced: 1 April 2017

Ruling: Q1: Is fringe benefits tax (FBT) payable by the employer on accommodation provided, either directly or via a third party, to non-resident assignees temporarily working in Australia on a short term assignment for up to 90 days? | A1: No, provided the duration of the assignment does not exceed 90 days in any one project location. | Q2: If the employer provides a daily living allowance to non-resident assignees temporarily working in Australia on a short term assignment for up to 90 days is the allowance paid subject to FBT as a living-away-from-home allowance? | A2: No, provided the duration of the assignment does not exceed 90 days in any one project location. | Q3: If the employer provides a daily living allowance to non-resident assignees temporarily working in Australia on a short term assignment for up to 90 days is the allowance included in assessable income as a travel allowance? | A3: Yes, provided the duration of the assignment does not exceed 90 days in any one project location. | Q4: If the employer provides a daily living allowance to non-resident assignees temporarily working in Australia on a short term assignment for up to 90 days does PAYG withholding have to be withheld? | A4: No, provided they do not exceed the reasonable travel allowance expense amounts published by the Commissioner from time to time. | Q5: If the employer, via a third party, provides meals to non-resident assignees temporarily working in Australia on a short term assignment for up to 90 days is the benefit subject to FBT as a property fringe benefit? | A5: No, provided the ‘otherwise deductible’ rule applies.

Relevant facts and circumstances: The employer is a Foreign Country resident corporation. The employer operates a Permanent Establishment in Australia. The employer currently has two projects (Project A and Project B) in Australia which require their foreign employees (assignees) to travel to Australia to oversee work on these projects at two key times – construction/installation and then subsequent commissioning/start-up. This is due to the fact that the process provided by the employer is trademarked and it requires the skills of their specialist employees. The Project A is located in Location1 at the projects construction site. The Project B is located at both Location 2 and Location 3. Accommodation is either provided by the employers’ customer (Location 3) or arranged by the employer with the assignees reimbursed for actual costs incurred (Location 1 and Location 2). The accommodation is located as close as practically possible to the assignee’s project location. Accommodation at Location 3 is provided by way of a campsite with basic accommodation. Assignees located at Location 1 are provided with meals by the customer. Accommodation at Location 1 and Location 2 is provided by way of a furnished apartment or long stay hotel. Assignees located in Location 1 and Location 2 also receive a ‘Daily Living Allowance’ as a contribution towards their meal costs and incidentals. They are not intended to cover their accommodation costs. Assignees who work on Australian based projects will travel to Australia to complete their part of the project. The amount of time the assignee will work in Australia is typically pre-determined as part of a project plan. Fact Pattern ● The assignment is subject to the employers’ “International Mobility Program – International Site Assignments” policy (International Site Assignments policy); ● The assignees travel to Australia in the course of their employment for a period of up to 90 days per assignment to work on a project or projects; ● The assignees continue to be employees of the employer; ● Salary is paid by the employer the entire time that the assignee is located in Australia; ● The assignees do not bring their family to Australia; ● The assignees may be provided with assignment leave to return home during the project to visit family; ● The assignees are encouraged to retain their permanent home in the Foreign Country; ● The assignees are subject to income tax in Australia for the period they are in Australia on assignment; ● Any costs associated with the assignment, including recharges for salary, visa costs, travel, accommodation and daily living allowances are borne by the employer/Permanent Establishment; ● The accommodation is either provided by the employers’ customer or arranged by the employer and is as close as practical to the assigned project location; ● Any accommodation costs are in addition to their usual requirements in the Foreign Country and are reimbursed to the assignee; ● Assignees who are assigned to Location 1 and Location 2 are provided with a daily living allowance as a contribution towards the difference is the cost of living in Australia and in recognition of expense duplication. It is intended to assist with the cost of meals, laundry and other miscellaneous expenses; and ● The assignees will return to the Foreign Country and continue their role there upon completion of their assignment in Australia. Conditions of Travel to Australia The assignees travel to Australia to work on the employers’ projects based in Australia. They provide specialist technical advice that is not available in Australia. In all cases, the following commonalities exist: Policy: The assignees on assignment are subject to the employer’s International Site Assignments policy. Employment: All assignees remain employed by the employer. Salary: Salary is paid by the employer the entire time that the assignee works in Australia. Taxes: Australian taxes are borne by the employer via their Permanent Establishment. Home Country Housing: Assignees are encouraged to retain their place of residence in the Foreign Country. Host Country Housing: Assignees are provided with accommodation in the form of campsites, long stay hotels or furnished apartments. Tax and Social Security: Assignees remain tax residents of the Foreign Country and are subject to tax and social security in the Foreign Country. Visas: Assignees are temporarily in Australia on either a subclass 400 or 457 visa. Direction and Control The assignees are provided with instructions by the employer prior to departure pertaining to the location at which they will be working and the activities to be undertaken. While working in Australia the assignees will need to comply with Australian or local entities’ regulations, risk management and quality control protocols. Examples You have provided examples of the common scenarios under which employees will travel to Australia on assignment. Example 1 Employee: From the Foreign Country Assignment: Project A, Location 1 (55 days) Role: In the scope of the project, the employee worked with the customer to highlight any issues during the construction stage. These issues consist of site safety, Quality Assurance compliance, interpretation and understanding and understanding of drawings and specifications, systems completion and commissioning and opportunities for concurrent activities and schedule improvement. Accommodation: Location 1 – Long stay hotel with actual hotel costs reimbursed. Example 2 Employee: From the Foreign Country Assignments: Project A, Location 1 (87 days) and Project B, Location 3 (12 days) Role: In the scope of both the projects, the employee worked with the customer to highlight the issues during the course of construction. These issues consist of site safety, Quality Assurance compliance, insulation techniques, site manning levels, design interface, systems completion and commissioning and opportunities for concurrent activities and schedule improvement. Accommodation: Location 1 – Long stay hotel with actual hotel costs reimbursed. Location 3 – Camp accommodation as well as meals provided by the employers’ customer. Example 3 Employee: From the Foreign Country Assignments: Project A, Location 1 (29 days) and Project B, Location 3 (30 days) Role: In the scope of both the projects, the employee worked with the customer to highlight the issues during the course of construction. These issues consist of site safety, Quality Assurance compliance, technical background and support, systems completion and commissioning and opportunities for concurrent activities and schedule improvement. Accommodation: Location 1 – Long stay hotel with actual hotel costs reimbursed. Location 3 – Camp accommodation as well as meals provided by the employers’ customer.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 Division 5 | Section 20 | Section 20A | Subsection 20A(2) | Section 21 | Section 24 | Section 30 | Subsection 30(1) | Section 31 | Section 31A | Section 31C | Section 31D | Section 31E | Section 40 | Section 41 | Section 44 | Division 12 | Section 45 | Subsection 47(5) | Section 47A | Section 52 | Subsection 136(1) | Income Tax Assessment Act 1936 Subsection 23L(1) | Income Tax Assessment Act 1997 Section 6-5 | Subsection 6-5(2) | Section 8-1 | Taxation Administration Act 1953 Section 12-35 of Schedule 1 | Section 12-45.

Reasons for decision: Summary: Fringe benefits tax (FBT) is not payable by the employer on accommodation benefits provided, either directly or via a third party, to non-resident assignees temporarily working in Australia on a short term assignment provided the assignee’s duration at any one location does not exceed 90 days. | Detailed Reasoning - Detailed reasoning: The term ‘fringe benefit’ is defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) as follows: fringe benefit , in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit: (a) provided at any time during the year of tax; or (b) provided in respect of the year of tax; being a benefit provided to the employee or to an associate of the employee by: (c) the employer; or (d) an associate of the employer; or (e) a person (in this paragraph referred to as the arranger ) other than the employer or an associate of the employer under an arrangement covered by paragraph (a) of the definition of arrangement between: (i) the employer or an associate of the employer; and (ii) the arranger or another person; or (ea) a person 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; in respect of the employment of the employee, but does not include: (a) … (f) a payment of salary or wages or a payment that would be salary or wages if salary or wages included exempt income for the purposes of the Income Tax Assessment Act 1936 ; or (g) a benefit that is an exempt benefit in relation to the year of tax; or (h) … | Detailed Reasoning - Is a benefit provided?: As provided in subsection 136(1) of the FBTAA, the term ‘benefit’ includes any right, privilege, service or facility. Based on the facts, ● The employer arranges and pays for the assignees accommodation directly, or ● Accommodation expenses are paid by the employees and reimbursed by the employer, or ● Accommodation is provided to the employees by a third party under an arrangement with the employer. Each of these constitutes a ‘benefit’ as defined in subsection 136(1) of the FBTAA. | Detailed Reasoning - 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. ‘Current employee’ means a person who receives, or is entitled to receive, salary or wages, and ‘salary or wages’ is defined in subsection 136(1) of the FBTAA as: (a) a payment from which an amount must be withheld (even if the amount is not withheld) under a provision in Schedule 1 to the Taxation Administration Act 1953 listed in the table, to the extent that the payment is assessable income; … The table in the definition of ‘salary or wages’ in subsection 136(1) of the FBTAA includes section 12-35 of Schedule 1 of the Taxation Administration Act 1953 (TAA), which states: An entity must withhold an amount from salary, wages, commission, bonuses or allowances it pays to an individual as an employee (whether of that or another entity). Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a foreign resident includes: (a) Ordinary income 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. In determining liability to tax on Australian income derived by a foreign resident, it is necessary to also consider the applicable agreement as defined in section 3AAA or section 3AAB of the International Tax Agreements Act 1953 (the Agreements Act). Subsection 4(1) of the Agreements Act incorporates the Income Tax Assessment Act 1936 (ITAA 1936) and the ITAA 1997 so that those Acts are read as one with the Agreements Act. In this instance, the relevant agreement is the Convention between the Government of Australia and the Government of the Relevant Foreign Country for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income [1983] ATS 16 (the X Convention). Article 15(1) of the Relevant Convention provides that salaries, wages and other similar remuneration derived by residents of the Foreign Country will be taxed solely in the Foreign Country unless the employment is exercised in Australia. If the employment is exercised in Australia, Australia may tax the income unless the following conditions in Article 15(2) of the US Convention are satisfied: (a) that the employee is present in Australia for less than 183 days in the year of income; (b) that the remuneration is paid by, or on behalf of, an employer or company who is not an Australian resident; and (c) that the remuneration is not deductible in determining taxable profits of a "permanent establishment" which the employer or company has in Australia. In this case, the employer continues to pay the assignees’ salaries whilst they are on assignment in Australia. The employer has an Australian permanent establishment, and the salary expense connected with the assignees’ employment whilst on assignment in Australia is deductible in determining taxable profits of the employer’s permanent establishment. Consequently, paragraph (c) of Article 15(2) of the US Convention is not satisfied. The assignees’ salary whilst working in Australia is assessable income from which withholding is required under section 12-35 of the TAA. As such, the assignees’ satisfy the definition of ‘current employee’ for the purposes of the FBTAA, and the benefit is provided to an employee. | Detailed Reasoning - The benefit is provided by the employer, an associate of the employer or a third party: As discussed above, a fringe benefit includes a benefit provided by: ● the employer (paragraph (c) of the definition of ‘fringe benefit’ in subsection 136(1) of the FBTAA); ● an associate of the employer (paragraph (d) of the definition); ● a third party under an arrangement with the employer or the employer’s associate (paragraph (e) of the definition); or ● a third party, if the employer or the employer’s associate: (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 (paragraph (ea) of the definition); Subsection 136(1) of the FBTAA provides that ‘employer’ means a current, future or former employer, and ‘current employer' means 'a person (including a government body) who pays, or is liable to pay, salary or wages …’. When the assignee is located in Location 1 or Location 2, the assignees’ accommodation may be provided directly by the employer, where the company either pays for accommodation for the assignees, or the employer reimburses the assignee for the accommodation cost as per the International Site Assignments policy. In these scenarios, the employer is providing the benefit. Alternatively, the customer of the employer will provide accommodation to the assignees located at Location 3. In this scenario, the accommodation is provided as part of the contract between the customer and the employer, and falls within paragraph (e) of the definition of ‘fringe benefit’ in subsection 136(1) of the FBTAA. Therefore, the benefit is provided by parties and under arrangements that meet the requirements of a ‘fringe benefit’ as defined in subsection 136(1) of the FBTAA. | Detailed Reasoning - The benefit is provided in respect of the employment of the employee: As per subsection 136(1) of the FBTAA, ‘in respect of’ in relation to the employment of an employee includes by reason of, by virtue of, or for or in relation directly or indirectly to, that employment. In J & G Knowles & Associates Pty Ltd v Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22 ( Knowles ), 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 connection between the accommodation benefits received by the employers’ employees while travelling to Australia on assignment and their employment is material and sufficient, and not merely causal. As such, the requirement of the definition of ‘fringe benefit’ in subsection 136(1) of the FBTAA is satisfied. | Detailed Reasoning - Is the benefit excluded under the definition of ‘fringe benefit’?: Exempt benefits are not fringe benefits as they are excluded under paragraph (g) of the definition of ‘fringe benefit’ in subsection 136(1) of the FBTAA. In considering whether a benefit is an exempt benefit it is necessary to determine the type of benefit that has been provided: ● Reimbursing an employee for accommodation expenses incurred by the employee is an expense payment benefit under section 20 in Division 5 of the FBTAA. ● Providing temporary use of accommodation to an employee, whether by the employer or by a third party under an arrangement, is a residual benefit under section 45 in Division 12 of the FBTAA as it does not come within a more specific benefit type in Divisions 2 to 11. Section 21 (expense payment benefits) and subsection 47(5) (residual benefits) of the FBTAA provide exemption in relation to accommodation provided to employees living away from home. Section 20A (expense payment benefits) and section 47A (residual benefits) of the FBTAA provide exemption in relation to ‘no-private-use declarations’. | Detailed Reasoning - Living away from home exemptions: From 1 October 2012, both section 21 and subsection 47(5) of the FBTAA provide that, among other conditions: ● an expense payment benefit, or ● a residual benefit consisting of the existence of a lease or licence in respect of a unit of accommodation, that is provided in a year of tax to an employee of an employer in respect of his or her employment will be an exempt benefit in relation to the year of tax if 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). An employee satisfies section 31C of the FBTAA 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 ITAA 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. As the assignees and/or their spouses do not have an ownership interest in a unit of accommodation in Australia where the employee usually resides when in Australia, section 31C of the FBTAA is not satisfied. An employee satisfies section 31E of the FBTAA if: (a) the employee, on a regular and rotation basis: (i) works for a number of days and has a number of days off (but not the same days in consecutive weeks); and (ii) on completion of the working days, travels from his or her usual place of employment to his or her normal residence and, on completion of the days off, returns to that usual place of employment; and (b) the basis of work described in paragraph (a) is customary for employees performing similar duties in that industry; and (c) it would be unreasonable to expect the employee to travel on a daily basis on work days between: (i) his or her usual place of employment; and (ii) his or her normal residence; having regard to the location of those places; and (d) it is reasonable to expect that the employee will resume living in his or her normal residence when the duties of that employment no longer require him or her to live away from it. As the assignees’ conditions of employment do not involve working on a rotational basis, and the assignees’ do not return to their normal residences on days off, section 31E of the FBTAA is not satisfied. | Detailed Reasoning - Conclusion in respect of living away from home exemptions: As the assignees do not satisfy either section 31C or section 31E of the FBTAA, the benefits are not exempt benefits under section 21 or subsection 47(5) of the FBTAA. | Detailed Reasoning - No-private-use declaration - expense payment benefits exemptions: An expense payment benefit that is covered by a No-private-use declaration – expenses payments benefits is an exempt benefit under subsection 20A(2) of the FBTAA. A condition of this exemption is that the expense payment benefit that arises is wholly employment related and that, as such, under the ‘otherwise deductible’ rule (ODR), the expense payment benefit would have a taxable value of nil as the employee would be entitled to an income tax deduction if the payment or reimbursement had not been made by the employer. Section 8-1 of the ITAA 1997 outlines that individuals can deduct from their assessable income any loss or outgoing to the extent that it is incurred in gaining or producing assessable income and is not capital, private or domestic in nature. Draft Taxation Ruling TR 2017/D6 Income tax and fringe benefits tax: when are deductions allowed for employees’ travel expenses? (TR 2017/D6) discusses accommodation at paragraphs 50 to 98. From 12 July 2017, several former rulings and determinations discussing the deductibility of accommodation expenses were withdrawn and, as such, no longer reflect the current ATO view. Where appropriate, matters previously dealt with in the withdrawn documents have been included in TR 2017/D6. Paragraph 54 of TR 2017/D6 explains that accommodation expenses are incurred by an employee in performing an employee’s work activities, and are therefore deductible, only where: (a) the employee's work activities require them to undertake the travel (b) the work requires the employee to sleep away from home overnight (c) the employee has a permanent home elsewhere, and (d) the employee does not incur the expenses in the course of relocating or living away from home. Where an employee incurs expenses in relocating to a place of work or in living away from home to work, they are preliminary to the work and not deductible. Such expenses often reflect a choice the employee has made, including their choice about where to live (paragraphs 52-53 of TR 2017/D6). The principles discussed in these paragraphs are based on the decisions in Lunney and Hayley v. FCT (1958) 100 CLR 478; FCT v. Charlton (1984) 71 FLR 107 (Charlton) ; FCT v. Toms (1989) 20 ATR 466 (Toms) ; Roads and Traffic Authority (NSW) v. FCT 93 ATC 4508 (RTA) ; Fullerton v. FCT (1991) 32 FCR 486 and Hancox v. FCT [2013] FCA 735 (Hancox) . To the extent accommodation costs are of a private or domestic nature, they may need to be apportioned to reflect use of the accommodation for private purposes (paragraph 86 of TR 2017/D6). It is clear from the facts that the assignees satisfy (a), (b) and (c) in paragraph 54 of TR 2017/D6, however (d), whether the assignees are living away from home, requires further consideration. The following factors, which are also based on principles from the decisions in RTA, Charlton, Toms, and Hancox , are relevant in determining whether an employee is living away from home (paragraph 72 of TR 2017/D6): (a) The time spent working away from home (b) Whether the employee has a usual place of residence at a previous location (c) The nature of the accommodation, and (d) Whether the employee is, or can be, accompanied by family or visited by family or friends. Further, TR 2017/D6 explains that: ● The longer an employee spends working away from home, the more likely that the employee is living away from home. However, where an employee works at different locations for extended periods, each period is considered separately (paragraph 73 to 74). ● Where the nature of accommodation is rudimentary, with basic level of amenities and facilities, this may indicate the employee is not living away from home, even where they work at a particular location over an extended period (paragraph 81). ● An employee may be living away from home if family members accompany them for a short stay after which the family members return to live at the family's permanent home, while the employee continues to work on at the temporary location (paragraph 85). We refer to Example 17 in TR 2017/D6, which demonstrates the ATO view on accommodation expenses for a secondment to Australia for between 90 and 120 day project work, and is similar to the circumstances in this ruling. Paragraph 241 shows that a stay of 90-120 days in one location is viewed as considerable, is less likely to be ‘travelling for work purposes’, and is more likely to indicate an employee is living away from home. Applying the living away from home factors to the assignees’ circumstances: (a) the assignees’ may work in one or multiple locations while in Australia. As typical examples you have provided the following details about three typical assignments: ● Assignment 1 – Location 1: 55 days ● Assignment 2 – Location 1: 87 days, Location 3: 12 days ● Assignment 3 – Location 1: 29 days, Location 3: 30 days Based on these examples, each of the assignees stays in each different location for periods of less than 90 days. (b) The assignees maintain residences in their home locations, which remain their usual places of residence. (c) Although accommodation in Location 1 is generally in furnished apartments or long stay hotels, the accommodation provided at Location 3 is rudimentary camp accommodation. (d) The assignees’ families do not accompany them to Australia. However; under the International Site Assignments policy the company will pay for travel of a family member or friend to visit the assignee in Australia during assignment leave. Based on the facts above, it is the Commissioner’s view that the assignees are not ‘living away from home’ when they work in Australia for periods not exceeding 90 days, and condition (d) in paragraph 54 of TR 2017/D6 is satisfied. | Detailed Reasoning - Conclusion in respect of the no-private-use declaration - expense payment benefit exemption: Where there has been no private use of the accommodation, and No-private-use declaration – expenses payments benefits is made by the employer in respect of the reimbursement of assignees’ accommodation costs, the reimbursement would be an exempt benefit. | Detailed Reasoning - No private use declaration - residual benefit exemption: A residual benefit that is covered by a No-private-use declaration – residual benefits is an exempt benefit under section 47A of the FBTAA. A condition of this exemption is that the residual benefit arises from the use of property that is subject to a consistently enforced policy prohibiting private use and that, as such, under the ODR, the benefit would have a taxable value of nil. The International Site Assignments policy at pages 21 – 23 allows assignment leave to unaccompanied assignees, which provides the assignee the option to have a family member or friend visit them in Australia, where the employer will reimburse travel and in-transit expenses up to the value of one round trip. This International Site Assignments policy does not discuss accommodation, and relevantly, does not prohibit the family member or friend from using the accommodation provided to the assignee. | Detailed Reasoning - Conclusion in respect of the no private use declaration - residual benefit exemption: As the International Site Assignments policy does not prohibit private use of the accommodation, the no-private-use declaration exemption cannot be applied in relation to the employer or the employer’s customer provided accommodation. Therefore the benefit is not an exempt benefit. | Detailed Reasoning - Summary – Are the benefits exempt benefits?: As the assignees do not satisfy either section 31C or section 31E of the FBTAA, the benefits are not exempt benefits under section 21 or subsection 47(5) of the FBTAA. Where a no-private-use declaration – expenses payments benefits is made by the employer in respect of the reimbursement of assignees’ accommodation costs, the reimbursements are an exempt benefit, and are not subject to fringe benefits tax. As the no-private-use declaration exemption in section 47A of the FBTAA in relation to residual benefits cannot be applied, the accommodation benefits provided by the employer or the employer’s customer are not an exempt benefit. | Detailed Reasoning - Otherwise Deductible Rule: As discussed above, under the circumstances provided in the facts, the reimbursement of the assignees’ accommodation expenses is an exempt benefit and is not subject to fringe benefits tax where a no-private-use declaration is made by the employer. In relation to the residual benefits where accommodation is provided by the employer or the employer’s customer, or where the employer does not make a no-private-use declaration in respect of the reimbursements, the taxable value of the benefits is calculated under either Division 5 (expense payment benefits) or Division 12 (residual benefits) of the FBTAA. Both Divisions 5 and 12 of the FBTAA provide an ‘otherwise deductible rule’ (ODR) which may apply to reduce the taxable value of a fringe benefit. The ODR operates under the assumption that instead of the employer incurring expenses in relation to the benefit, or the employer paying or reimbursing the employee expenses, the employee incurs and pays unreimbursed expenses. The general effect of section 24 of the FBTAA is to reduce the taxable value of an expense payment fringe benefit, to the extent to which the employee would have been entitled to a “once-only” income tax deduction for the expense. Similarly, the general effect of section 52 of the FBTAA is to reduce the taxable value of a residual fringe benefit, to the extent to which the employee would have been entitled to a "once-only" income tax deduction. As discussed above, paragraph 54 of TR 2017/D6 explains that accommodation expenses are deductible by an employee only where: (a) the employee's work activities require them to undertake the travel (b) the work requires the employee to sleep away from home overnight (c) the employee has a permanent home elsewhere, and (d) the employee does not incur the expenses in the course of relocating or living away from home. Expenses are not deductible to the extent they are of a private or domestic nature (paragraph 86 of TR 2017/D6). In some circumstances, accommodation costs have to be apportioned to reflect use of the accommodation for private purposes. As paragraphs (a) to (d) of TR 2017/D6 are satisfied in relation to the accommodation provided to the assignees whilst working in Australia, under the assumption that the assignee incurred the expenses themselves and was not reimbursed by the employer, the assignee would be entitled to an income tax deduction for 100% of the expense. As such, the ODR applies to reduce the taxable value of the expenses to nil, and no fringe benefits tax is payable on the benefits provided an ‘Otherwise Deductible’ declaration is obtained from the applicable employee. | Detailed Reasoning - Conclusion: FBT is not payable by the employer on accommodation benefits provided, either directly or via a third party, to non-resident assignees temporarily working in Australia on a short term assignment provided the assignee’s duration at any one location does not exceed 90 days. | Summary: If the employer provides a daily living allowance to non-resident assignees temporarily working in Australia on a short term assignment the allowance paid is not subject to FBT as a living-away-from-home allowance provided the duration of the assignment does not exceed 90 days in any one project location. | Detailed Reasoning - Detailed reasoning: Subsection 30(1) of the FBTAA deals with living-away-from-home-allowance (LAFHA) benefits under an employee/employer relationship where the payment is in respect of the employee’s employment. A LAFHA is an allowance the employer pays to their employee to compensate the employee for additional expenses incurred and any disadvantages suffered because the employee duties of employment require them to live away from their normal residence. Additional expenses do not include expenses for which the employee would be entitled to claim as income tax deduction (deductible expense’ is defined in subsection 136(1) of the FBTAA, as an expense incurred by the employee in respect of which a deduction is allowable to the employee under section 8-1 of the ITAA 1997). For a payment to an employee to be considered a LAFHA, there are three conditions that must be met: 1. It is an allowance an employer pays to their employee in respect of the employment of that employee, 2. The duties of the employees employment require them to live away from their normal residence, 3. The whole or part of the allowance is in the nature of compensation for: a. Non-deductible additional expenses the employee might be expected to incur, or b. Non-deductible additional expenses the employee might be expected to incur and other disadvantages suffered, because the duties of the employee’s job require them to live away from their normal residence. The term ‘normal residence’ is defined in subsection 136(1) of the FBTAA. For an employee whose usual of residence is in Australia, then their normal residence is that usual place of residence. For an employee whose usual place of residence is not in Australia and they do not have a place in Australia where they usually reside while living in Australia, then their normal residence is their usual place of residence overseas. An employee is regarded as living away from their usual place of residence if they would have continued to live at the former place had the duties of their employment not required them to work temporarily in the new locality. Chapter 11 of the Tax Office publication ‘Fringe Benefits Tax: A guide for Employers’ explains what a LAFHA is and the distinction between a LAFHA and a travelling allowance. TR 2017/D6 sets out the general treatment for determining whether an employee can deduct travel expenses under section 8-1 of the ITAA 1997. Miscellaneous Taxation Ruling MT 2030 Fringe benefits tax: living-away-from-home allowance benefits (MT 2030) previously provided the Commissioner’s view in relation to a LAFHA. MT 2030 was withdrawn on 12 July 2017 because of significant changes to the FBTAA since it was issued in 1986. Those changes are discussed in Chapter 11 of the Fringe benefits tax: a guide for employers . Where appropriate, other matters considered in MT 2030 have been included in TR 2017/D6. It is important to determine what type of allowance is being paid as the tax treatment of a travelling allowance and living-away-from-home allowance (LAFHA) is different in the hands of the employee. A travelling allowance (which includes accommodation, meals and incidentals) is paid because an employee is travelling in the course of performing their job, does not involve a change of job location, is paid for shorter periods, and where the employee has a spouse and family they generally do not accompany them. A travelling allowance paid to an employee is ‘salary or wages’ and assessable income under section 6-5 of the ITAA 1997: Roads and Traffic Authority (NSW) v. FCT 93 ATC 4508 at 4514. Where an employee receives this allowance, they can claim a deduction for the employment related expenses incurred under section 8-1 of the ITAA 1997.Generally, the employee must be able to substantiate the expenses incurred. A LAFHA on the other hand is paid where an employee has taken up temporary residence away from their normal residence to perform their employment duties, is considered to have changed their job location, it is more common for the employees spouse and family to accompany them and the allowance is paid for longer periods. A LAFHA is not included in the employee’s assessable income because it is a fringe benefit which is non-assessable non-exempt income (subsection 23L(1) of the ITAA 1936). The definition of a fringe benefit in subsection 136(1) of the FBTAA excludes salary and wages. The employers’ employees who are assigned to Location 1 and/or Location 2 are provided with a daily living allowance as a contribution towards the difference in the cost of living in Australia and in recognition of expense duplication. It is intended to assist with the cost of meals, laundry and other miscellaneous expenses. The employers’ employees are travelling to Australia on assignment in the course of their employment when performing their duties and the distance between Australia and the Foreign Country requires them to sleep away from their normal residence for the duration of their assignment. As discussed in Question 1 we consider that the assignee is not living away from home when on assignment in Australia where the duration at any one location doesn’t exceed 90 days. | Detailed Reasoning - Conclusion: The Commissioner accepts that the daily living allowance paid to the employers’ employees travelling on assignment to Australia for a period of less than 90 days to any one of the project locations, to cover food and incidentals whilst performing their employment duties in Australia, is not a LAFHA under section 30 of the FBTAA as the allowance is to cover deductible expenses. | Summary: If the employer provides a daily living allowance to non-resident assignees temporarily working in Australia on a short term assignment the allowance is included in assessable income as a travel allowance provided the duration of the assignment does not exceed 90 days in any one project location. | Detailed Reasoning - Detailed reasoning: As outlined in Question 2 the Commissioner does not consider the daily living allowance for food and incidental expenses paid to the employers’ employees travelling to Australia on assignment for a period less than 90 days in any one location to be a LAFHA. The daily living allowance is assessable income, under section 6-5 of the ITAA 1997 as it is ‘salary or wages’, being remuneration for the provision of the assignees’ services generally: Roads and Traffic Authority (NSW) v. FCT 93 ATC 4508 at 4514. | Summary: If the employer provides a daily living allowance to non-resident assignees temporarily working in Australia on a short term assignment for up to 90 days PAYG, withholding does not have to be withheld provided the amount of the allowance does not exceed the reasonable allowances amount published by the Commissioner. | Detailed Reasoning - Detailed reasoning: As outlined in Question 3 the daily living allowance for food and incidental expenses paid to the employers’ employees travelling to Australia on assignment is ‘salary or wages’ and is assessable income under section 6-5 of the ITAA 1997. Under section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) an entity must withhold an amount from salary, wages and allowances it pays to an individual as an employee (whether of that or another entity). Accordingly, the employer will have an obligation to withhold tax under section 12-35 of Schedule 1 to the TAA 1953 because the allowance is paid by the employer to its employees whilst they are in Australia on assignment. In 2015, the Commissioner issued a legislative instrument not requiring employers to withhold PAYG tax where it is expected that the allowance would be fully expended in the course of an employee providing their services and the employee is not required to substantiate their expenses: see Legislative Instrument F2015L01047. The daily living allowance meets these requirements as, in the circumstances, Taxation Ruling TR 2004/6 Income tax: substantiation exception for reasonable and overtime meal allowance expenses (and Taxation Determination TD 2017/19 Income Tax: what are the reasonable travel and overtime meal allowance expense amounts for 2017-18 income year?) applies and would not require the employees to substantiate their expenses. Therefore, provided the daily living allowance does not exceed the reasonable amounts published by the Commissioner for the relevant income year, the employer will not be required to withhold tax from the allowance paid to their employees travelling to Australia on assignment for up to 90 days. Further, Table 1 on ATO Fact Sheet – Withholding for allowances (QC 51680) provides that employers are not required to include a travel allowance on an employee’s payment summary if the allowance is likely to be fully spent by the employees on deductible expenses – that is, expenses they incur in the course of gaining or producing their employment income. The daily living allowance paid to the assignees is considered to satisfy these requirements. Please note: If the employer does not include the allowance on an assignee’s payment summary and the assignee fully spends the allowance on deductible expenses, they do not need to declare the allowance as income on their tax return and do not claim expenses. | Summary: If the employer, via a third party, provides meals to non-resident assignees temporarily working in Australia on a short term assignment for up to 90 days the benefit is not subject to FBT as a property fringe benefit provided the ‘otherwise deductible’ applies. | Detailed Reasoning - Detailed reasoning: As previously discussed in Question 1, the first four requirements of a fringe benefit have been met: 1) a benefit has been provided, 2) to an employee (or associate), 3) by the employer or a third party, 4) in respect of the employment of the employee. Under the arrangement, in the circumstances of Location, the employer’s customer will provide meals to the assignees whilst they are located there. A third party providing meals to an employee of an employer will be a property benefit under section 40 of the FBTAA. As the property benefit provided in this instance would not meet the conditions in section 41 of the FBTAA for it to be considered an exempt property benefit, the benefit would not be excluded under paragraph (g) of the definition of ‘fringe benefit’ in subsection 136(1) of the FBTAA. The taxable value of a property benefit may be reduced in accordance with the ‘otherwise deductible’ rule in section 44 of the FBTAA, but only where the recipient of the benefit is the employee. As discussed in Question 1 we consider that the assignee is not living away from home when on assignment in Australia where the duration at any one location doesn’t exceed 90 days. Therefore, the Commissioner accepts that the taxable value of the meals provided to the employers’ employees staying at Location 3 whilst on assignment to Australia for a period of less than 90 days will be able to be reduced using the ‘otherwise deductible’ rule.