Private ruling: Living Away From Home Accommodation payments - PAYG and FBT
Date of advice: 1 June 2016
Published: July 2016
Ruling period: Income tax year ending 30 June 2016 | Income tax year ending 30 June 2017 | Fringe benefits tax year ending 31 March 2017
Date scheme commenced: 1 April 2015

Ruling: Q1: Should X withhold pay as you go income tax from an 'accommodation allowance' payment to Y under a Remuneration Tribunal Determination (the RTD)? | A1: No | Q2: Can the fringe benefits tax concession for living-away-from-home accommodation benefits be applied by X for a period in excess of twelve months for Y, engaged under the RTD? | A2: No

Relevant facts and circumstances: Since 20XX, Y, an employee of X, has been entitled to receive an accommodation allowance under a Remuneration Tribunal Determination (the RTD). Y is employed on a fixed term contract of greater than 12 months. The RTD provides eligibility for an accommodation allowance under certain terms and conditions, and specifies a per annum allowance amount in relation to Y. The 'Accommodation allowance' under the RTD is based on reimbursement of costs of up to the allowance amount for the period of Y's appointment. Since 20XX, X has paid Y an amount in respect of Y's accommodation, in conjunction with Y's fortnightly salary. The amount paid is contingent upon the exact amount Y is obligated to pay under a rental tenancy agreement. The rental payments are made solely because Y's employment duties require Y to live away from Y's normal residence. Since 20XX, X has treated the amount as a fringe benefit provided to Y, on which no fringe benefits tax has been paid. Since 20XX, Y's office location has remained at the same 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 subparagraph 21(d)(i) | Fringe Benefits Tax Assessment Act 1986 section 22 | Fringe Benefits Tax Assessment Act 1986 section 23 | Fringe Benefits Tax Assessment Act 1986 section 30 | Fringe Benefits Tax Assessment Act 1986 section 31 | Fringe Benefits Tax Assessment Act 1986 paragraph 31(1)(b) | Fringe Benefits Tax Assessment Act 1986 subsection 31B(2) | Fringe Benefits Tax Assessment Act 1986 section 31C | Fringe Benefits Tax Assessment Act 1986 section 31D | Fringe Benefits Tax Assessment Act 1986 subsection 31D(1) | Fringe Benefits Tax Assessment Act 1986 subsection 31D(2) | Fringe Benefits Tax Assessment Act 1986 paragraph 31D(2)(c) | Fringe Benefits Tax Assessment Act 1986 section 31E | Fringe Benefits Tax Assessment Act 1986 section 31F | Fringe Benefits Tax Assessment Act 1986 section 31G | Fringe Benefits Tax Assessment Act 1986 section 136 | Tax Administration Act 1953 Subdivision 12-B in Schedule 1 | Tax Administration Act 1953 subsection 12-1(2) in Schedule 1 | Tax Administration Act 1953 subsection 12-1(3) in Schedule 1 | Tax Administration Act 1953 section 12-35 in Schedule 1 | Tax Administration Act 1953 section 12-45 in Schedule 1

Reasons for decision: Summary: No. X should not withhold pay as you go (PAYG) income tax from the payment because the payment is excluded from PAYG withholding under either: • subsection 12-1(2) in Schedule 1 to the Tax Administration Act 1953 as a living-away-from-home (LAFH) allowance benefit, or • subsection 12-1(3) as an expense payment benefit. | Detailed Reasoning - Detailed reasoning: Subdivision 12-B in Schedule 1 to the Tax Administration Act 1953 (TAA) provides that an entity must withholding an amount of PAYG income tax withholding from salary, wages, commissions, bonuses or allowances it pays to employees and government office holders (sections 12-35 and 12-45 in Schedule 1 to the TAA). When working out how much to withhold under sections 12-35 or 12-45 in Schedule 1 to the TAA, the entity disregards so much of the payment as is: • a LAFH allowance benefit as defined by section 136 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) (subsection 12-1(2) in Schedule 1 to the TAA), or • an expense payment benefit as defined by section 136 of the FBTAA, and is not an exempt benefit under section 22 of that Act (subsection 12-1(3) in Schedule 1 to the TAA). Allowances and reimbursements Taxation Ruling TR 92/15 Income tax and fringe benefits tax: the difference between an allowance and a reimbursement (TR 92/15) provides the Commissioner's view on allowances and reimbursements. A payment is: • an allowance when a person is paid a definite predetermined amount to cover an estimated expense. It is paid regardless of whether the recipient incurs the expense, and the recipient has the discretion of how or whether to expend the allowance (TR 92/15 paragraph 2). • a reimbursement when a person is compensated exactly (as opposed to approximately), whether wholly or partly, for an expense already incurred although not necessarily disbursed (paragraph 3). LAFH allowance benefits Section 136 of the FBTAA provides that a LAFH allowance benefit means a benefit referred to in section 30 of the FBTAA. Section 30 of the FBTAA provides that where an employer pays an allowance to an employee in respect of the employee's employment, the allowance is a LAFH allowance benefit where it would be concluded that the whole, or a part, of the allowance is in the nature of compensation to the employee for: (a) additional expenses (not being deductible expenses) incurred by the employee during a period; or (b) additional expenses (not being deductible expenses) incurred by the employee, and other additional disadvantages to which the employee is subject, during the period; and is provided because the duties of employment require the employee to live away from his or her normal residence. Under section 31 of the FBTAA, the taxable value of a LAFH allowance fringe benefit is reduced by any exempt accommodation component, to the extent that the employee satisfies: • sections 31C (about maintaining an Australian home), and 31D (about the first 12 months); or • section 31E (about fly-in fly-out and drive-in drive-out requirements); and • section 31F (about giving declarations to the employer), and • section 31G (about substantiation). Expense payment benefits Section 136 of the FBTAA provides that an expense payment benefit means a benefit referred to in section 20 of the FBTAA. Section 20 of the FBTAA provides that where an employer pays or reimburses an employee, in respect of an amount of expenditure incurred by the employee, making the payment or reimbursement constitutes provision of an expense payment benefit. Under section 21 of the FBTAA, an expense payment benefit: • provided in respect of accommodation for eligible family members, • required 'solely because the employee's duties of employment require the employee to live away from his or her normal residence', is an exempt benefit where: • sections 31C and 31D, and the relevant subparagraphs of 31F are satisfied, and • the accommodation is not provided while the employee is undertaking travel in the course of performing the duties of that employment. Since 20XX, X has paid a fortnightly amount to Y, together with Y's fortnightly salary. The amount paid is in respect of Y's rental accommodation, and is provided solely because the duties of employment require Y to live away from Y's normal residence. It is unnecessary for the Commissioner to resolve the question of whether the payment is an allowance or a reimbursement to determine whether X is required to withhold PAYG amounts from the payment. Whether the payment is: • an allowance to compensate for Y's additional non-deductible expenses incurred by reason that the duties of employment require Y to live away from Y's normal residence, or • a reimbursement of Y's accommodation expense, required solely because the duties of employment require Y to live away from Y's normal residence, the payment is a fringe benefit, under either section 30 or section 20 of the FBTAA, and X is subject to fringe benefits tax on providing the benefit to Y. In either case, X should not withhold PAYG income tax from the payment because the payment is excluded from PAYG withholding under either: • subsection 12-1(2) in Schedule 1 to the TAA as a living-away-from-home (LAFH) allowance benefit, or • subsection 12-1(3) in Schedule 1 to the TAA as an expense payment benefit. | Summary: No. X cannot apply the concession for LAFH allowance benefits accommodation component, or the accommodation expense payment benefit exemption, for a period in excess of twelve months as the requirements of section 31D of the FBTAA are no longer satisfied by Y. | Detailed Reasoning - Detailed reasoning: Section 31 of the FBTAA provides concessional treatment for calculating the taxable value of a LAFH allowance fringe benefit. Section 21 of the FBTAA provides exemption for expense payment benefits provided by an employer to its employee, in respect of the employee's employment, solely because the duties of that employment require the employee to live away from his or her normal residence. Both sections 31 and 21 of the FBTAA apply only where the employee satisfies section 31D of the FBTAA (paragraph 31(1)(b) and subparagraph 21(d)(i) of the FBTAA). An employee satisfies section 31D of the FBTAA if the fringe benefit relates only to all or part of the first 12 months that the duties of employment require the employee to live away from the place in Australia where he or she usually resides when in Australia (subsection 31D(1) of the FBTAA). Subsection 31D(2) of the FBTAA provides two options under which the period can be extended: • the employer may pause the 12-month period (for example during a period of leave), or • the employer should start a separate 12-month period if the employee is later required to live at another location for the purposes of the employment, and it would be unreasonable to expect the employee to commute to the other location from the earlier location for which a benefit of the same kind had been provided. Other changes in the nature of the employment are not relevant to the 12-month period (paragraph 31D(2)(c) of the FBTAA). Where the employee does not satisfy the requirements of section 31D of the FBTAA, including where a payment continues following a full 12-month concessional or exempt period: • the taxable value of a LAFH allowance fringe benefit is the amount of the benefit (subsection 31B(2) of the FBTAA), and • the taxable value of an expense payment fringe benefit that is not an in-house expense payment fringe benefit is the amount of the payment or reimbursement reduced by the amount of the recipients contribution (section 23 of the FBTAA). X has made payments to Y in respect of Y's accommodation for a continuous period of 12 months, and has applied either section 21 or section 31 of the FBTAA in relation to the full 12-month period. X has not: • paused the 12-month period commencing 20XX, or • started a separate 12-month period due to requiring Y to live at another location for the purposes of employment. X cannot apply the concession for LAFH allowance benefits accommodation component, or the accommodation expense payment benefit exemption, for a period in excess of twelve months as the requirements of section 31D of the FBTAA are no longer satisfied by Y.