Private ruling: Fringe Benefits Tax
Date of advice: 10 April 2017
Published: September 2017
Ruling period: 1 April 2016 to 31 March 2017 | 1 April 2017 to 31 March 2018 | 1 April 2018 to 31 March 2019
Date scheme commenced: 1 April 2016

Ruling: Q1: Is Fringe Benefits Tax (“FBT”) payable by an Australian-based company of a multi-national organisation (“MNO”) on accommodation provided to non-resident individuals temporarily working in Australia on extended business travel arrangements? | A1: No. | Q2: Is Fringe Benefits Tax (“FBT”) payable by an Australian-based company of a multi-national organisation (“MNO”) on flights provided to non-resident individuals temporarily working in Australia on extended business travel arrangements? | A2: No. | Q3: Is Fringe Benefits Tax (“FBT”) payable by an Australian-based company of a multi-national organisation (“MNO”) on meal allowances provided to non-resident individuals temporarily working in Australia on extended business travel arrangements? | A3: No.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. The multi-national organisation (“MNO”) is a global company operating through numerous companies located around the world. The MNO's Australian based company (“Australian company”) was recently awarded a major contract. The Australian Company has needed to source employees from its foreign associate company (“associate company”), to obtain specialist skills required for work associated with the new contract because the Australian company is unable to source these skills from its Australia-based employees. The associate company is not an Australian resident entity and does not have a permanent establishment in Australia. This ruling relates to associate company employees who travel to Australia on secondment under the following criteria: ● Employees travel to Australia to work for a short period of time to complete their part of the project. They are present in Australia between 90 and 183 days during a 12 month period. ● It is a condition of employment that the employees may be required to travel for work purposes. ● Employees are subject to the MNO's extended business travel policy while travelling in Australia. ● All revenue generated by the project the employees are working on will be booked by the Australian company and any project costs the employees incur are recharged to and borne by the Australian company. ● Employees retain their permanent home overseas. ● Employees fly to Australia to work for a continuous three week period (with Saturdays and Sundays off) before returning to their home country for four days break and then returning to Australia to commence the three week work period again. ● Employees travel to Australia without their families. ● During the work period the Australian company provides the employees with an allowance for meals and incidentals. ● The Australian company will either meet the accommodation and flights costs directly or the employees will pay and seek full reimbursement from the Australian company. ● The employees reside in temporary hotel accommodation that is as close as practically possible to the employees' work place. ● The associate company will continue to pay the employees' salary and meet their social security requirements during this period. ● Employees remain legally employed by the associate company whilst seconded to Australia and remain tax residents of their home countries. Assumptions: ● For the purposes of this ruling, it is assumed that the relevant employees are subject to income tax in Australia and that Pay As You Go (PAYG) withholding is required therefore accommodation, flights and meal allowances provided to the employees meet the definition of a fringe benefit for the purposes of the Fringe Benefits Tax Assessment Act 1986 . ● Employees do not make personal contributions towards the benefit.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 (“ FBTAA ”) Section 20 . | Fringe Benefits Tax Assessment Act 1986 Section 21. | Fringe Benefits Tax Assessment Act 1986 Section 24 . | Fringe Benefits Tax Assessment Act 1986 Section 30 . | Fringe Benefits Tax Assessment Act 1986 Section 31C. | Fringe Benefits Tax Assessment Act 1986 Section 31E. | Fringe Benefits Tax Assessment Act 1986 Section 45. | Fringe Benefits Tax Assessment Act 1986 Section 47. | Fringe Benefits Tax Assessment Act 1986 Section 52. | Fringe Benefits Tax Assessment Act 1986 Subsection 136(1). | Income Tax Assessment Act 1997 (“ ITAA97 ”) Section 8-1. | Taxation Administration Act 1953 Section 12-35 of Schedule 1.

Reasons for decision: Summary: The Australian company is not liable to pay FBT on accommodation provided to non-resident individuals temporarily working in Australia on extended business travel arrangements. | Detailed Reasoning - Fringe Benefits: In order to answer the questions it is necessary to establish that the provision of the accommodation constitutes a fringe benefit. As such, this analysis also applies to question 2. A fringe benefit is defined in subsection 136(1) of the FBTAA as a 'benefit provided to the employee by the employer in respect of the employment of the employee' and is not specifically excluded by paragraphs (f) to (s) under 'fringe benefit' of subsection 136(1) of the FBTAA . Subsection 136(1) of the FBTAA states that a 'benefit' includes rights, privileges or services. On the facts, the Australian company provides employees with accommodation in relation to working in Australia. Alternatively, the Australian company reimburses employees for their expenses incurred in these respects. The provision of the accommodation falls within the definition of 'benefit' as per subsection 136(1) of the FBTAA . As stated above, for the purposes of this private ruling it is assumed that the relevant employees are subject to income tax in Australia and that PAYG withholding is required. Therefore, the employees are considered the Australian company's employees as they meet the definition of a current employee according to the definition of “current employee” and “salary or wages” under section 136 of the FBTAA. 'In respect of' is defined in subsection 136(1) to mean 'in relation to the employment of an employee' whether direct or indirect. J&G Knowles and Associates Pty Ltd v Federal Commissioner of Taxation (2000) 96 FCR 402 elaborated on this requirement in stating that a nexus was required that showed a 'sufficient or material, rather than casual' relationship between the benefit and the employment. For the Australian company, the connection is that the accommodation is provided to the employees to cover expenses they would otherwise incur due to being required to work in Australia. This connection is material and sufficient. | Detailed Reasoning - Expense Payment Benefits and Residual Benefits: The accommodation provided may be classified as residual fringe benefits or expense payment fringe benefits. Residual fringe benefits are, per section 45 of the FBTAA , benefits that are not benefits by virtue of a provision of subdivision A of Divisions 2 to 11 of the FBTAA . They are residual fringe benefits where the Australian company pays for the accommodation of the employees directly. The accommodation is an expense payment benefit under section 20 of the FBTAA where the Australian company has reimbursed the employees for accommodation and flights they have incurred in relation to working for them in Australia. Paragraph 136(1)(g) of the FBTAA specifies that a fringe benefit does not include a benefit that is an exempt benefit in relation to the year of tax. The accommodation benefits in question are not exempt accommodation expense payment benefits as they do not satisfy the requirements of subsections 21(ba), as the employees are considered to be travelling in the course of employment; 21(c) , as the employees are not considered to be living away from home; and 21(d) as the employees do not maintain Australian homes under section 31C of the FBTAA nor do they satisfy the fly-in fly-out requirements provided in section 31E of the FBTAA . For the same reasons, the accommodation benefits are not exempt residual fringe benefits under paragraphs 47(5)(b), 47(5)(ba), and 47(5)(c) of the FBTAA respectively . | Detailed Reasoning - Otherwise Deductible Rule: The taxable value of a residual fringe benefit or an expense payment fringe benefit may be reduced in accordance with the otherwise deductible rule where the conditions under subsection 24(1), for expense payment fringe benefits, or subsection 52(1), for residual fringe benefits, of the FBTAA are satisfied. The otherwise deductible rule operates to reduce the taxable value by any amount an employee would have been able to deduct had they incurred or not been reimbursed for the expenditure. Both subsection 24(1) and 52(1) of the FBTAA require the deduction be a 'once-only deduction', which is defined in subsection 136(1) of the FBTAA as a deduction that is only incurred in one year of income. This means that expenditure that could be deducted over multiple years (such as depreciation) is not affected by the otherwise deductible rule. All expenditures subject to this ruling are 'once-only' deductions. Paragraph 8-1(1)(a) of the ITAA97 allows a deduction for a loss or outgoing to the extent that it is incurred in gaining or producing one's assessable income. However, per paragraph 8-1(2)(b) no deduction is allowed for losses or outgoings to the extent they are of a private or domestic nature. Historically, accommodation has been considered to be of a private or domestic nature. However, Hill J in FC of T v Cooper 91 ATC 4415 stated that the 'occasion of the outgoing may operate to give to expenditure … the essential character of a working expense in cases such as those illustrated of work-related entertainment or expenditure incurred while away from home'. Taxation Ruling 95/33 elaborates on this occasion in stating that expenditure will generally be deductible if its essential character is that of expenditure that has a sufficient connection with the operations or activities which produce the taxpayer's assessable income. This sufficient connection is a question of fact by reference to the circumstances present. Where a sufficient connection is ascertained; losses or outgoings will be deductible as per section 8-1 of the ITAA97 to the extent of the connection. Temporary accommodation in proximity to a foreign or remote worksite is essential to employees being able to complete their tasks relating to a short-term project. An additional consideration that pointed towards deductibility arose in FC of T v Toms (1989) 20 ATR 466. In that case Burchett J of the Federal Court found it critical for employees to have no choice but to stay in accommodation away from their main residence in order for the connected expenses to be deductible. Hill J of the Federal Court echoes this in Roads and Traffic Authority of New South Wales v Federal Commissioner of Taxation (1993) 116 ALR 482 by allowing deductions given the lack of choice of accommodation on the location of work. As such, the fact that the associate company employees were contractually required to work in Australia ensures a sufficient connection to the work activities that produce their assessable income. Given the occasion for these employees the accommodation expenses do not possess a private nature and accordingly a full deduction would be allowed under section 8-1 of the ITAA97 . Since a full deduction would be available to the employees to whom this question relates, the taxable value of the fringe benefits, whether residual fringe benefits or expense payment fringe benefits, that arise through the provision of accommodation is reduced to nil and therefore no fringe benefits tax will be payable. It should be noted that where the benefit is an expense payment fringe benefit subparagraph 24(1)(c)(ii) of the FBTAA requires that documentary evidence of the expenditure be provided . An employee declaration as to the income producing nature of the benefit concerned is not required for both expense payment fringe benefit and residual benefit as they are considered exclusive employee benefits. Exclusive employee expense payment benefit is defined under section 136 of the FBTAA as a benefit where the recipients' expenditure is exclusively incurred in gaining or producing salary or wages of the recipient in respect of the employment to which the fringe benefit relates and is not expenditure in respect of interest. Exclusive employee residual benefit on the other hand is defined under section 136 of the FBTAA as a benefit where if the recipient had incurred expenditure in respect of the provision of the recipients benefit, that expenditure would have been exclusively incurred in gaining or producing salary or wages of the recipient in respect of the employment to which the fringe benefit relates. | Detailed Reasoning - Question 2: Is Fringe Benefits Tax (“FBT”) payable by an Australian-based company of a multi-national organisation (“MNO”) on flights provided to non-resident individuals temporarily working in Australia on extended business travel arrangements? | Summary: The Australian company is not liable to pay FBT on flights provided to non-resident individuals temporarily working in Australia on extended business travel arrangements. | Detailed Reasoning - Detailed reasoning: As detailed above (under question one heading 'Fringe Benefits'), the provision of flights and the reimbursement of flight expenses by the Australian company would be considered a residual fringe benefit and an expense payment fringe benefit respectively. | Detailed Reasoning - Otherwise Deductible Rule: As with accommodation, it is necessary to show that the flights provided or flight expenses reimbursed would be deductible under section 8-1 of the ITAA 1997 for the employees in question. The otherwise deductible rule would then apply. Like accommodation, flights have historically been considered of a private or domestic nature and paragraph 8-1(2)(b) of the ITAA 1997 would therefore prevent their deductibility. Similar to accommodation, the flights must then possess the essential character of a working expense to allow their deduction. This character arises, as the ruling of John Holland Group Pty Ltd v FC of T FCAFC 82 (“ John Holland case” ) states, where the employee is travelling in the course of employment or travelling on business. Miscellaneous taxation ruling 2030 (“MT2030”) identifies three indicators where an employee will be travelling on business as opposed to living away from home. Although MT2030 was produced to present the distinction between a travelling allowance (employee is considered travelling on business or travelling in the course of employment and the allowance is assessable income in the hands of the employee) and a living away from home allowance (employee is considered living away from home and the allowance is subject to fringe benefit tax in the hands of the employer), these indicators are decisive for the deductibility of flight expenses as they indicate when an employee will be considered to be travelling on business, giving the flight expenses the requisite character for deductibility. ● The first indicator is whether there has been a change in job location. Where a travelling allowance is paid, there will be no change in job location and the employee will be travelling on business. On the facts provided, the associate company employees are temporarily assisting the Australian company on the new project. When the project finishes they will return to their home country to continue their employment for the associate employer. ● The second indicator specified in MT2030 is the length of time of the allowance. For the purposes of this ruling this length of allowance can be presented as the length of time of the remote or foreign work. MT2030 specifies 21 days as a practical guide for decision making, with lengths of time greater than this leaning towards living away from home rather than travelling on business. However, paragraph 40 of MT2030 emphasises that this timeframe is a guide and provides examples where this indicator may not be significant. Paragraph 41 states that where the allowance does exceed 21 days, it will be necessary to determine the nature of the allowance using all of the guidance provided in MT2030. In short, the 21 day rule is a practical general rule and not prescriptive. ● Two Administrative Appeals Tribunal (“AAT”) decisions have reflected some exceptions to the “21 day rule” noted under MT2030. In Park v FC of T 2011 ATC 10-198, SE Frost found that a continuous 13 week period did not lead to the conclusion that an employee had relocated. SE Frost considered the employee maintaining their original residence and the employee's family not travelling with them to carry more weight leading to the conclusion that the employee was travelling on business. For the employees subject to this ruling, they all maintain their original residence and do not travel with their families. This tribunal decision, relating to a length of time not significantly different to that for which the associate company employees travel to Australia supports finding those employees to be travelling on business despite the period exceeding 21 days. ● In Case V15, P.M. Roach found that a taxpayer had not taken up new residence despite travelling overseas for 12 months for a work-related study program. The senior member considered the entirety of the period of travel to be travelling on business. This tribunal decision, relating to a period of travel greater than the associate company employees can be applied alongside the other indicators to support concluding that the employees were travelling in the course of employment. ● The third indicator was whether or not the employees were accompanied by their families. MT2030 provides that generally employees travelling on business will not be accompanied by their families. ● All the employees subject to this ruling were not accompanied by their families. Overall, using the indicators put forward by MT2030 we would conclude that the employees subject to this ruling were travelling in the course of employment. In the John Holland case the full federal court allowed a fringe benefit liability related to flight expenses to be reduced by the otherwise deductible rule. Essential to making this finding was determining that the employees were travelling 'in the course of their employment'. Indicators of this included: ● their employer required them to travel a significant distance to a remote location; ● the employees were being paid during the time on the flights; ● the employees were covered by their employer's insurance and travel policies whilst travelling; and ● there were no other demands but employment that necessitated this travel. The facts provided for this ruling largely reflect these indicators. The associate company employees were required by contractual term to travel internationally; they were governed by the MNO's travel policy whilst travelling to Australia; and they travelled to Australia exclusively to work on the project with no personal leave permitted during this time. Overall, given the application of the principles provided in MT2030 and the John Holland case the flight expenses would be deductible where the employees in question incurred them. Since a full deduction would be available for the employees to whom this question relates, the taxable value of the fringe benefits, whether residual fringe benefits or expense payment fringe benefits, arising from the provision of flights is reduced to nil and therefore no fringe benefits tax will be payable. Again it should be noted that where the benefit is expense payment fringe benefit paragraph 24(1)(c)(ii) of the FBTAA requires that documentary evidence of the expenditure be provided . Also as noted under question one above, an employee declaration as to the income producing nature of the benefit concerned is not required for both expense payment fringe benefit and residual benefit as they are considered exclusive employee benefits. | Detailed Reasoning - Question 3: Is Fringe Benefits Tax (“FBT”) payable by an Australian-based company of a multi-national organisation (“MNO”) on meal allowances provided to non-resident individuals temporarily working in Australia on extended business travel arrangements? | Summary: The meals and incidentals allowance provided to non-resident individuals temporarily working in Australia is considered a travel allowance and as such no fringe benefits tax liability arises in relation to it. | Detailed Reasoning - Detailed reasoning: In contrast to accommodation and flights, the meals and incidentals allowance is not a residual or expense payment fringe benefit. It can either be classified as “Living- away-from-home allowance benefits” under section 30 of the FBTAA or travel allowance which is assessable income under section 6-5 of the ITAA 1997. The meals and incidentals allowance is labelled a 'daily allowance' according to the MNO's policy documents. This policy states that the purpose of the daily allowance is to cover the additional costs a traveller meets away from home, including meals and other incidentals. This purpose is similar to the purpose of a living away from home allowance described under subsection 30(1) of the FBTAA. | Detailed Reasoning - Living Away from Home Allowance: Subsection 30(1) of the FBTAA describes a living away from home allowance as: ● an allowance paid by the employer to an employee; ● to compensate the employee for additional (non-deductible) expenses incurred by the employee by reason that the employees' duties require the employee to live away from their normal residence for the period in question; and ● the payment of the allowance constitutes a benefit provided by the employer to the employee at the time. If the meals and incidentals allowance meets these requirements then it could be considered a living away from home allowance and a fringe benefits tax liability will arise for the Australian company in relation to it. Conversely, the meals and incidentals allowance, per section 12-35 in Schedule 1 to the Taxation Administration Act 1953, could also be considered an allowance (such as a travel allowance) to be included in the recipient's assessable income where it is a payment to an employee from which an amount must be withheld. An allowance meeting this definition is not a fringe benefit and no fringe benefits tax liability would arise. MT2030 provides guidance on the distinction between a living away from home allowance and a travel allowance. This is necessary as the expenses they are designed to compensate for can be very similar. MT2030 states that the key difference between the two possible categorisations to be the circumstances in which they are paid. A living away from home allowance will be paid where an employee has moved and taken up temporary residence in order to carry out their employment duties at a new job location. A travel allowance will be paid where the employee is travelling in the course of their employment and the location of their job has not changed. The analysis of the MT2030 and John Holland case indicators under question 2 can be used for this question to conclude that the employees were travelling for work rather than living away from their normal residence. Given this, the meals and incidentals allowance is a travel allowance (rather than a living away from home allowance) and as such no fringe benefits tax liability arises relating to the employees in question.