Private ruling: Fringe benefits tax - accommodation and meal benefits
Published: April 2013
Ruling period: Fringe benefits tax year ended 31 March 2013 | Fringe benefits tax year ended 31 March 2014 | Fringe benefits tax year ended 31 March 2015
Date scheme commenced: The scheme has commenced

Ruling: Q1: Is the Taxpayer an employer of the employees as defined in section 136 of the Fringe Benefits Tax Assessment Act 1986 ? | A1: Yes | Q2: Will the provision of an allowance by the Taxpayer to the employees to cover food and incidentals be a living-away-from-home allowance (LAFHA) benefit pursuant to subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986? | A2: No | Q3: Is the provision of accommodation by the Taxpayer a fringe benefit as defined in section 136 of the Fringe Benefits Tax Assessment Act 1986? | A3: Yes | Q4: If the answer to question three is yes, does the otherwise deductible rule in section 52 of the Fringe Benefits Tax Assessment Act 1986 apply to reduce the taxable value to nil? | A4: Yes

Relevant facts and circumstances: The Taxpayer is an Australian entity. The Taxpayer periodically engages overseas employees to work in Australia for varying periods. The employees are not residents of Australia for income tax purposes. The employees have necessary knowledge and skills and are assigned specific tasks whilst in Australia. While the employees are in Australia: (a) They are subject to the direction and supervision of the Taxpayer and the risk and responsibility for the work performed by the employees while in Australia lies with the Taxpayer; (b) Do not accrue leave or other benefits of employment from the Taxpayer; (c) Are provided accommodation by the Taxpayer while they are in Australia and do not make any contribution towards the cost of accommodation; (d) Are paid an allowance by the Taxpayer to cover additional expenses on food and incidentals while they are in Australia; (e) Are not accompanied by family while they are in Australia; (f) Maintain their usual place of residence; and (g) Are not provided home leave flights.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 section 30 | Fringe Benefits Tax Assessment Act 1986 section 31 | Fringe Benefits Tax Assessment Act 1986 section 45 | Fringe Benefits Tax Assessment Act 1986 section 47 | Fringe Benefits Tax Assessment Act 1986 section 51 | Fringe Benefits Tax Assessment Act 1986 section 52 | Fringe Benefits Tax Assessment Act 1986 section 136 | Income Tax Assessment Act 1997 section 6-1 | Income Tax Assessment Act 1997 section 8-1 | Taxation Administration Act 1953 Schedule 1 section 12-35

Reasons for decision: Summary: The Taxpayer will be an employer under section 136 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) | Detailed Reasoning - Detailed reasoning: For the purposes of the FBTAA under section 136: (a) Employment is defined as being where a person, holding an office or appointment, performs functions or duties, engages in work or does acts or things that result, will result or has resulted in the person being treated as an employee; (b) Employee is defined as being either a current, future or former employee; (c) Employer is defined as being either a current, future or former employer; (d) salary and wages (as relevant to these circumstances) is defined as 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 (TAA 1953) which is a payment to an employee to the extent that the payment is assessable income. In these circumstances, the allowance paid to the employees by the Taxpayer to cover food and incidentals will constitute assessable income of the employees under section 6-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as it is Australian sourced employment income of a non-resident taxpayer, unless it is considered to be a living-away-from-home allowance (LAFHA) under subsection 30(1) of the FBTAA. As outlined in Question 2, the Commissioner does not consider the allowance paid to the employees by the Taxpayer to cover food and incidentals to be a LAFHA. Therefore, the allowance paid to the employees by the Taxpayer to cover food and incidentals will be assessable income of the employees. Under section 12-35 of Schedule 1 to the Taxation Administration Act 1953 (TAA 1953) an entity must withhold an amount from allowances it pays to an individual as an employee (whether of that or another entity). The employees retain their employment relationship with their HCE when travelling to Australia. Notwithstanding, the Taxpayer 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 taxpayer to the employees as employees of their HCE. However, withholding is not required for allowances paid in relation to domestic or overseas travel involving an overnight absence from an employee's ordinary place of residence. Reasonable travel amounts for the 2012-13 income year are set out in Taxation Determination TD 2012/17 Income tax: what are the reasonable travel and overtime meal allowance expense amounts for the 2012-13 income year? Consequently, the Taxpayer will be an employer under section 136 of the FBTAA because: (a) the employees are appointed to perform functions or duties, engage in work or do acts or things that result in the employee being treated as an employee; (b) the employees are persons who receive salary or wages in the form of an allowance from the Taxpayer. (c) the allowance paid to the employees by the Taxpayer to cover food and incidentals is salary because the allowance is a payment from which an amount must be withheld (even if the amount is not withheld) under section 12-35 in Schedule 1 to the TAA 1953 which is a payment to an employee to the extent that the payment is assessable income. (d) the Taxpayer is an entity who pays a salary to the employees in the form of an allowance. | Summary: The allowance paid to the employees by the Taxpayer to cover food and incidentals will not qualify as a LAFHA under section 30 of the FBTAA. | Detailed Reasoning - Detailed reasoning: Section 136 of the FBTAA defines a LAFHA benefit as a benefit referred to in section 30 of the FBTAA. Section 30 of the FBTAA sets out the circumstances in which an allowance paid by an employer to an employee will qualify as a LAFHA. 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. Miscellaneous Taxation Ruling MT 2030 Fringe benefits tax: living-away-from-home allowance benefits (MT 2030) provides guidelines on LAFHA. Paragraphs 35 and 36 of MT 2030 refer to the distinction between travelling allowances and LAFHA which state: .....it is important that living-away-from-home allowances are distinguished from travelling allowances paid to employees. Living-away-from-home allowances are taxable fringe benefits [ ], whereas travelling allowances form part of the employee's assessable income against which appropriate deductions may be allowed for the cost of meals, accommodation and incidental expenses incurred while the employee is travelling in the course of carrying out the duties of employment. When an employee is travelling on business on behalf of an employer, expenses of travel are incidental to the proper carrying out of the employment function and do not have the character of being private or domestic expenses. As it was stated in Case No. B 84, 2 TBRD 390, " ... where the employment actually involves the duty of travelling and therefore staying away from home, the extra expenses of living at hotels, etc., together with costs of conveyance, etc., are deductible as, to that extent, they cease to be of a private or domestic nature." Paragraphs 37 to 43 of MT 2030 outline factors which may indicate an employee is travelling in the course of performing their duties of their employment including: (a) no change to their employment location (b) generally not accompanied by spouse or family (c) stay away from their employment location and residence for short periods of time; and (d) no change to their place of residence Below is an application of these factors to the current circumstances: (a) No change to their employment location At all times the employees remain employed by their HCE. They travel on behalf of their HCE in order to carry out the requirements of their employment. The employees travel to Australia as required by their HCE. The employees return to their home location overseas after their work is completed in Australia. The employment location for the employees remains in their home country with their HCE. (b) Generally not accompanied by spouse or family The spouses and family (if any) of the employees do not accompany them to Australia. (c) Stay away from their employment location and residence for a short period of time Paragraph 40 of MT 2030 states that 'the nature of the allowance is not to be determined by reference solely to the period for which it is paid'. Paragraph 41 of MT 2030 states: There will be circumstances, however, when an employee is away from his or her home base for a brief period in which it may be difficult to conclude whether the employee is living away from home or travelling. As a practical general rule, where the period away does not exceed 21 days the allowance will be treated as a travelling allowance rather than a living-away-from-home allowance. For longer periods, it will be necessary to determine the nature of the allowance with the guidance provided by this Ruling. Paragraph 39 of MT 2030 provides the example of academics studying on sabbatical leave travelling in the course of their employment rather than living away from home and thus could receive a travelling allowance over an extended period of time. The Commissioner accepts, in these circumstances, that the period that the employees are in Australia can be considered a short period of time. (d) No change to their place of residence The employees utilise the accommodation because of a requirement of their employment that they come to Australia and provide assistance to taxpayer. The nature of the accommodation is short term. The employees are not accompanied by family members. Home leave flights are not provided. The employees maintain their usual place of residence in their home country. In conclusion, the Commissioner accepts that the employees are travelling in the course of their employment. Accordingly, the allowance paid to the employees by the Taxpayer to cover food and incidentals will not qualify as a LAFHA under section 30 of the FBTAA. | Summary: The provision of accommodation by the taxpayer to the employees would be a benefit as defined in section 136 of the FBTAA. | Detailed Reasoning - Detailed reasoning: Pursuant to section 136 of the FBTAA, a fringe benefit is defined as: 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 provided to the employee or to an associate of the employee by: (c) the employer; or (d) an associate of the employer; .............. in respect of the employment of the employer............ For the provision of the accommodation by the taxpayer to be a fringe benefit as defined, a benefit must be provided by Taxpayer as an employer of the employees in respect of their employment. As outlined in Question 1 above, the Commissioner accepts that Taxpayer is an employer for the provisions of the FBTAA in relation to the employees as employees engaged in employment. A benefit is defined in section 136 of the FBTAA as including any right, privilege, service or facility that is provided under an arrangement for or in relation to the provision of work. Accordingly, as the employees are performing work for Taxpayer, the provision of accommodation by Taxpayer to the employees would be a benefit as defined. | Summary: There will be no fringe benefits tax liability in respect of the provision of accommodation by the Taxpayer to the employees as the taxable value of the benefit will be reduced to nil under the otherwise deductible rule in section 52 of the FBTAA. | Detailed Reasoning - Detailed reasoning: As outlined in Question 3 above, the provision of accommodation is a fringe benefit provided by the Taxpayer to the employees. The benefit will be a residual fringe benefit as defined in section 45 of the FBTAA. The exemption for accommodation in section 47(5) of the FBTAA will not apply as the Commissioner has accepted that the employees are undertaking travel in the course of performing the duties of employment (refer Question 2 above). The accommodation benefit provided by the Taxpayer to the employees will be an external period residual fringe benefit as it is not provided to members of the public and is for a specific period. Subsection 51(a) of the FBTAA states that the taxable value of an external period residual fringe benefit provided by an employer, where it is purchased under an arm's length transaction, will be the amount paid or payable. In these circumstances the Taxpayer purchases the accommodation from a third party under an arm's length transaction so the taxable value of the benefit under subsection 51(a) of the FBTAA will be the amount paid by the taxpayer. However, the taxable value of the benefit may be reduced to nil under the 'otherwise deductible rule' (ODR) in section 52 of the FBTAA. For the ODR to apply, it is necessary to establish that the employees would have been entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) had they incurred and paid unreimbursed expenditure on their accommodation. As stated in paragraphs 35 and 36 of MT 2030 (refer Question 2 above) deductions may be allowed for the cost of meals, accommodation and incidental expenses incurred while the employee is travelling in the course of carrying out the duties of employment. The Commissioner has accepted that the employees are undertaking travel in the course of performing the duties of employment. As a result, had the employees incurred the appropriate unreimbursed accommodation expenses themselves, it would be concluded that an income tax deduction would have been allowable under section 8-1 of the ITAA 1997. Therefore, in these circumstances, there will be no fringe benefits tax liability in respect of the provision of accommodation by the Taxpayer to the employees as the taxable value of the benefit will be reduced to nil under the ODR in section 52 of the FBTAA.