Private ruling: Income tax and fringe benefits tax - the provision of accommodation and meals provided to employees
Date of advice: 31 January 2019
Published: May 2019
Ruling period: Year ending 31 March 2018 and subsequent FBT years
Date scheme commenced: 1 April 2017

Ruling: Q1: Is the taxable value of accommodation provided to employees at the deployment location during the period of deployment reduced to nil under the “otherwise deductible” rule within section 52 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A1: Yes. | Q2: If the answer to Question 1 is yes, is the taxable value of board fringe benefits provided to employees at the deployment location during the period of deployment reduced to nil under the “otherwise deductible” rule within section 37 of the FBTAA? | A2: Yes. | Q3: If the answer to Question 1 is no, is the provision of the accommodation to the employees at the deployment location during the period of deployment an exempt benefit under subsection 47(5) of the FBTAA? | A3: Not applicable.

Relevant facts and circumstances: 1. An employer employs both ongoing and non-ongoing employees. 2. Employees are deployed to a remote and isolated location by the employer to perform specific tasks, projects or operational duties. 3. Employees who travel to a deployment location are not permitted to continue to live or stay at the location beyond the term of their contract or deployment assignment. In general, deployments are for a limited duration of between three to twelve months but some deployments may be for just under a year and a half. Employees intend to return to their usual place of residence at the conclusion of their deployment. 4. Employees contribute to the operation of the facilities at the deployment location by undertaking additional roles or community duties. 5. An Enterprise Agreement provides the terms and conditions of employment for the employees. 6. Employees are paid salaries directly into an Australian bank, building society, or credit union account. Ongoing employees 7. The employer employs ongoing employees in several metropolitan cities within Australia. These employees may express an interest to be deployed to a deployment location. The relevant manager will determine which employees may be deployed. 8. Ongoing employee deployments vary from a day to a period of three to four months. 9. Employees do not have any control over the length of their deployment as it is determined by the task, project or operational duties. Non-ongoing employees 10. Non-ongoing employees are engaged for a specific task, project or operational duties which require deployment to the deployment location. Their employment is governed by individual employment contracts. 11. Such employees are selected largely because of their skills, experience, knowledge and personal qualities. 12. The requirement for deployment to the deployment location forms part of the employee’s employment contract with the employer. 13. The employee’s usual place of employment, as provided in their employment contract, is at a particular city within Australia. 14. The length of the employee’s period of deployment varies depending on the specific task, project or operational duties. 15. The maximum period of time such employees may be deployed for is less than a year and a half. 16. A non-ongoing employee may be deployed to the same deployment location in the future, however, this would be under a new employment contract. The employee would have returned to Australia for an extended period of time before a subsequent deployment. Prior to the subsequent deployment the person would not be an employee of the employer. 17. All employees are considered to be on duty from the point they board the transport for deployment to the deployment location. Once aboard, employees are subject to the direction and control of the employer. Deployment location 18. The employer deploys employees to one of several remote and isolated locations. The employer provides free accommodation to employees as there is no other accommodation available. 19. Employees cannot select or request their accommodation at the deployment locations. Accommodation is allocated by the employer to employees in either a single or shared room. Employees can be asked to move rooms without notice if required. 20. All other facilities are shared spaces, for example bathroom, kitchen and living quarters. 21. Some deployments involve deployment at multiple locations in succession and the employee is advised of this in advance. 22. Locations are self-contained communities, largely isolated from mainstream society. Work arrangements 23. Work arrangements (for example, the deployment location and job requirements) are subject to operational requirements at the deployment location. Accordingly, arrangements may change on short notice with regard to location allocation or length of deployment. Any changes to operational requirements, including length of deployment are explicitly stated as non-negotiable. 24. Employment contracts explicitly state that planned operational and transport requirements cannot be guaranteed. Employees have no control over these changes and are required to be flexible with any travel changes to, from and during deployment and take this into account when planning career absences and/or personal obligations. 25. The employment contract provides that the employer reserves the right to withdraw an employee at any time where changes occur. Working Hours 26. The requirements of duty vary such that employees are regularly required to work additional hours beyond their standard hours. 27. Extended hours are required for a variety of reasons in addition to work duties, including the provision of support for the community at the deployment location, effects of weather on programmed work, required training, and emergency situations. 28. These requirements are compensated by allowances set out in the Enterprise Agreement and by other benefits. 29. Annual leave will not be granted during the period of deployment due to operational requirements. 30. In the event of injury, worker’s compensation covers an employee for 24 hours per day, 7 days per week, including periods of travel to and from the location. Private Time 31. Each deployment location has recreational activities available for the use of employees. 32. Recreational activities are a privilege not a ‘right’. Operational activities take precedence over recreation at all times. 33. All internet activity is regulated and monitored by the employer with certain prohibitions in place. Accommodation conditions 34. Accommodation provided to employees in a deployment location is owned by the employer. 35. The living conditions are relatively basic and the weather conditions can be harsh and extreme. Restrictions can apply to the use of water. 36. Employees are not permitted to be accompanied by family, nor are family members permitted to visit employees while on deployment. 37. The employer provides all meals to employees in the dining facility. Food and Drink 38. Re-supplies at locations are limited. All supplies are therefore rationed and managed to ensure availability. 39. All food is provided by the employer. All meals are cooked or otherwise prepared on the premises of the employer.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1 | paragraph 8-1(a) | Fringe Benefits Tax Assessment Act 1986 section 25 | section 35 | section 37 | section 45 | section 52 | subsection 136(1)

Reasons for decision: Summary: Is the taxable value of accommodation provided to employees at the deployment location during the period of deployment reduced to nil under the “otherwise deductible” rule within section 52 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? Summary The ‘otherwise deductible’ rule applies to reduce the taxable value of the accommodation provided to employees in the remote and isolated location during the deployment to nil. The employees have more than one place of work and are required, by the nature of their duties of employment, to travel from one workplace to the other. The particular and unique circumstances of this case support the conclusion that the accommodation expenses would be incurred in the course of earning the employees’ assessable income if the employees’ had incurred the expenses. Detailed reasoning | Detailed Reasoning - Fringe benefits tax: Under subsection 136(1) of the FBTAA, a ‘fringe benefit’ is defined as a benefit provided to an employee (or an associate of an employee) by their employer (or an associate of an employer) in respect of their employment. Both ongoing and non-going staff are, employees for the purposes of the FBTAA, being engaged under employment contracts. The employer provides accommodation to employees while they are deployed. In determining if the employer has a liability to pay FBT on the provision of such accommodation, it is necessary to determine the type of benefit being provided. Accommodation provided for the employee is not a housing benefit as defined in section 25 of the FBTAA. A housing benefit comprises of the provision of a housing right to the recipient. A “housing right” is defined in subsection 136(1) of the FBTAA as a lease or licence granted to the person to occupy or use a unit of accommodation insofar as that lease or licence subsists at a time when the unit of accommodation is the person’s usual place of residence . Even though the accommodation provided may satisfy the meaning of unit of accommodation in subsection 136(1) of the FBTAA, accommodation at the deployment location is not the usual place of residence of the employee. Employees have a place of residence they intend to return to at the end of the deployment. For these reasons, accommodation provided to the employees does not constitute a housing right. If contrary to assumptions made an employee does not have a usual place of residence elsewhere (i.e. having a transient lifestyle or engaging in itinerant work), this requirement may be satisfied. This is because such employees are considered to relocate to each location they move to (i.e. it becomes their usual place of residence). On the assumption that employees have a usual place of residence elsewhere, it needs to be considered whether the accommodation provided constitutes a residual benefit. Section 45 of the FBTAA provides that a residual benefit is one that does not fall within one of the prescribed categories of fringe benefit. ‘Benefit’ is defined very broadly in subsection 136(1) of the FBTAA to include any right, privilege, service or facility provided in respect of employment. Accommodation provided to employees is in respect of the employment of these individuals and would fall within this category of benefit. The taxable value of a fringe benefit is determined under the FBTAA in accordance with the type of benefit provided. Section 52 of the FBTAA provides that the taxable value of a residual fringe benefit may be reduced where the ‘otherwise deductible’ rule applies. Paragraph 112 of Taxation Ruling TR 2001/2 Fringe benefits tax: the operation of the new fringe benefits tax gross-up formula which applied from 1 April 2000 states: The taxable value of certain fringe benefits may be reduced to the extent that the employee would have been able to claim an income tax deduction had the employee themselves incurred the expense. The otherwise deductible rule applies to reduce the taxable value of a board fringe benefit, an expense payment fringe benefit, a loan fringe benefit, a property fringe benefit or a residual fringe benefit. The taxable value is reduced by the hypothetical income tax deduction to which the employee would have been entitled had the employee incurred the expense. An employee has no 'entitlement to an input tax credit' under the GST Act and may, for the purposes of section 27-5 of the ITAA 1997, claim a deduction for the GST-inclusive value of any relevant expenditure. Therefore, where the 'otherwise deductible rule' applies to the calculation of the taxable value of a fringe benefit such 'deductible amount' will be at the GST-inclusive value as applicable. | Detailed Reasoning - Deductibility of the accommodation to an employee: Paragraph 8-1(a) of the Income Tax Assessment Act 1997 (ITAA 1997) provides an expense is deductible to the extent it is incurred in gaining or producing an employee’s assessable income. An accommodation expense incurred by an employee is only deductible to the extent that it is: ● incurred in the course of the gaining or producing the employee’s assessable income, and ● is not of a capital or private or domestic nature. It is a question of fact whether an expense for accommodation is incurred in gaining or producing assessable income or is of a private or domestic nature. An accommodation expense is not deductible to the extent that it is incurred in order to enable the employee’s income-producing activity to start or after it ends. Accommodation expenses incurred because an employee has chosen to live at a distance from their main work place are also not incurred in the course of the employee’s income-producing activity and are of a private or domestic nature. The same conclusion applies to accommodation expenses incurred because an employee is relocating in order to be closer to their main workplace. On the other hand, accommodation expenses may be deductible where they are incurred because an employee has more than one place of work, or is required to attend a workplace for relatively short periods of time, provided their stay away is explicable by the nature of the work. In the present case, the employees have workplaces in one of several cities within Australia, as well as in the deployment location. Furthermore, the facts indicate that when employees travel to and stay at deployment location: ● they do so in the course of carrying out their duties of employment, and ● this is explicable by the practical demands of the work. Other special circumstances of this case, such as the environmental factors and employment conditions, support this conclusion. These facts indicate that the employees are acting in the course of their employment throughout the duration of each deployment, including during intervals or interludes in which they occupy accommodation. If the employees had incurred expenses on accommodation these would have been deductible under section 8-1 of the ITAA 1997. The ‘otherwise deductible’ rule under section 52 of the FBTAA will therefore apply to reduce the taxable value of the residual fringe benefit to nil. | Detailed Reasoning - Question 2: If the answer to Question 1 is yes, is the taxable value of board fringe benefits provided to employees at the deployment location during the period of deployment reduced to nil under the “otherwise deductible” rule within section 37 of the FBTAA? Summary The ‘otherwise deductible’ rule applies to reduce the taxable value of the board fringe benefits provided to employees in the remote or isolated location during the period of deployment to nil. Detailed reasoning Employees required to travel for official work purposes, will have their meals met by the employer. In accordance with section 35 of the FBTAA, the provision of meals by the employer to their employees constitutes a board fringe benefit if what is provided constitutes a board meal. Subsection 136(1) of the FBTAA specifies what requirements need to be met for a board meal to be provided: ● the meal is provided on a meal entitlement day ● the meal is provided by the employer or by a company related to the employer ● the meal is cooked or otherwise prepared on eligible premises of the employer and is provided to the recipient on eligible premises of the employer (not being a dining facility that at any time is open to the public) ● the facility in which the meal is cooked or otherwise prepared is not principally used for a particular employee, and ● the meal is not provided at a party, reception or other function. Subsection 136(1) of the FBTAA includes, in the definition of ‘meal entitlement day’, an arrangement in respect of employment in which the recipient was entitled to be provided with no fewer than two meals per day. As the employer provides all meals each day to employees, in the dining facility, it is accepted that meals are provided on a ‘meal entitlement day’. Subsection 136(1) of the FBTAA includes in the definition of ‘eligible premises’ the premises of the employer. As all meals are cooked or otherwise prepared on premises of the employer, it is accepted that this requirement is also met. As the facility in which meals are cooked or otherwise prepared is not principally used for a particular employee, where meals are not provided at a party, reception or other function, given the requirements for ‘meal entitlement day’ and ‘eligible premises’ are met, the provision of such meals constitutes a board fringe benefit. Section 37 of the FBTAA provides that the taxable value of a board fringe benefit may be reduced through the application of the ‘otherwise deductible’ rule. As employees are acting in the course of their employment throughout the duration of each deployment, including during intervals or interludes, if they had incurred expenses on meals these would have been deductible under section 8-1 of the ITAA 1997. The ‘otherwise deductible’ rule under section 37 of the FBTAA will therefore apply to reduce the taxable value of the residual fringe benefit to nil. | Detailed Reasoning - Question 3: If the answer to Question 1 is no, is the provision of the accommodation to the employees at the deployment location during the period of deployment an exempt benefit under subsection 47(5) of the FBTAA? Summary Consideration of this question is not necessary as the ‘otherwise deductible’ rule under section 52 of the FBTAA applies to reduce the taxable value of the accommodation provided to employees to nil.