Private ruling: Fringe Benefits Tax - Accommodation for foreign secondees
Date of advice: 23 June 2016
Published: August 2016
Ruling period: 1 April 20xx to 31 March 20yy
Date scheme commenced: 1 April 20xx

Ruling: Q1: Is the taxable value of the local accommodation provided to overseas-based employees reduced under section 52 of the FBTAA 1936? | A1: Yes | Q2: Is the provision of the local accommodation to overseas-based employees an exempt benefit under section 47A of the FBTAA 1936? | A2: Yes, subject to receipt of the no-private-use declaration.

Relevant facts and circumstances: • You are an Australian resident company that is part of a global group of companies (referred to here as your foreign associates) operating in the medical technology business. • In line with your group's strategic goals, you have embarked on a project to deliver a standard set of processes underpinned by the implementation of a common IT platform across the business globally. • Following the successful implementation of the program overseas, the next phase of the project was to deliver the business solution to other countries. • The roll-out of the program commenced in 20xx. As part of the resourcing for the program implementation, the local team was supplemented by a pool of specialist employees from foreign offices, some of whom were directly involved in the previous overseas roll-out. • The project involved developing an IT system solution through a number of implementation phases. • Overseas based employees travelled to Australia as part of the project, for short periods of time, to assist with each of the implementation phases. • Depending on the employee's role, a number of trips were required to be undertaken throughout the implementation phases. These trips were typically pre-determined as part of the overall implementation and having regard to the individuals' roles and responsibilities. • The employees to which this private ruling applies are employees who: • At law, continue to be employees of their home country employer (your foreign associate) whilst seconded to your company and remain on their home country payroll whilst in Australia; • Were employees of the foreign associate prior to their involvement in the project and continued to be employed with the foreign associate post-implementation; • Have a usual residence and place of employment at branches in the relevant countries; • Travelled to Australia for a relatively short period of time to work on the project; • Were required to work solely on the project for the entire period they were in Australia; • Did not bring their family to Australia; • Retained a permanent home outside of Australia; • Returned to their permanent home outside of Australia following completion of the project. • During the employees' time in Australia, accommodation was: • Arranged by you in accordance with internal temporary accommodation guidelines and was as close as practical to the project location; • Directly related to the employee's employment and was incurred directly by the foreign associate; • Was in addition to costs incurred by each employee, of maintaining their home country accommodation; • Total costs for salaries and additional expenses such as accommodation incurred by the foreign associate with respect to seconding overseas employees to Australia form part of the overall project implementation costs to be recharged to you. • Employees were subject to income tax in Australia, and you withheld PAYG for amounts paid in respect of the employees' employment. Accommodation • For the duration of the project, your foreign associate entered into an arrangement with a third-party provider of serviced apartments, whereby an account was opened to secure access to serviced apartments on a needs-basis. When an overseas employee was required to travel to Australia, the total cost associated with their accommodation would be offset against the foreign associate's account with the provider. Travel Pattern • For some employees, their role in the project necessitated multiple trips to and from Australia across the various phases of implementation. In such instances, the employee returned to their home country and resumed employment duties at their principal place of employment until they were next required to travel to Australia as part of the implementation phases. • The ruling relates to Z employees of the foreign associates on extended travel to Australia, based on the above defined fact pattern and where the employee is subject to Australian income tax and travelled to Australia on one or more instances. • Across the Z employees who are the subject of this ruling, the total number of trips per employee (across the project phases) ranged from one trip to less than five trips. • For all but three trips, the total trip duration did not exceed 90 days. The three trips exceeding 90 days (taken by three separate employees) did not exceed 125 days. Conditions of Business Travel to Australia • The employees who are the subject of this ruling travelled to Australia to work on the roll-out of the project. They were a necessary short term resource for the purposes of providing specialist skills, knowledge and experience and were deemed business critical to the success of the implementation. • The majority of employees were present in Australia for a period of up to 90 days per trip, and at times a limited number of employees had extended travel of up to 125 days for the one trip. In both cases the following commonalities exist: • Policy: The employees were sent to Australia under the group's global Commuter Assignment Policy (as part of the overall International Assignment Policy). • Employment: All employees remained legally employed by their home country (overseas) employer whilst seconded to Australia and the underlying employment contract/relationship between the foreign associate and the employee remained with the home country. • Salary: Employees remained on the home country payroll for the duration of each trip to Australia and were paid by their home country. • Home/Host Location Housing: Employees retained their place of residence in the home location and were living in temporary accommodation organized by you. • Home Country Tax and Social Security Liability: Employees remained tax resident of their home country and were subject to tax and social security in their home country. • Visas: Employees were temporarily in Australia on either a subclass 400, 457 or a business visitor visa. • In addition, employees were subject to Australian income tax and PAYG withholding was applied in respect of the Australian-sourced employment income.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 section 45 | Fringe Benefits Tax Assessment Act 1986 section 47A | Fringe Benefits Tax Assessment Act 1986 section 52 | Fringe Benefits Tax Assessment Act 1986 subsection 136(1) | Income Tax Assessment Act 1936 paragraph 318(2)(e) | Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 subsection 6-5(3) | Taxation Administration Act 1953, Schedule 1, section 12-35

Reasons for decision: Summary: This ruling answers two questions in relation to the facts outlined above: (1) Can the residual benefit be reduced under section 52 of the FBTAA 1936? (2) Is the residual benefit exempt under section 47A of the FBTAA 1936? In order to satisfy Questions One and Two, it is necessary to establish that the benefit provided is a fringe benefit. The definition of a benefit is broad and includes "any right, privilege, service or facility, which can be provided under…an arrangement for or in relation to the performance of work" (subsection 136(1)). A benefit will be a fringe benefit as defined in subsection 136(1) of the FBTAA if it has been provided to an employee in respect of the employee's employment by • An employer • An associate of an employer, or • A person (referred to as the arranger) other than the employer or associate of the employer and covered by paragraph (a) of the definition of arrangement between the employer or associate of employer and the arranger or another person. Paragraph (a) of the definition of arrangement means any agreement, arrangement, understanding, promise or undertaking, whether express or implied, and whether or not enforceable, by legal proceedings. In accordance with the facts outlined above, the benefit is the provision of accommodation, provided under an arrangement. In this case, the arrangement is an undertaking by you to pay your foreign associate for project implementation costs, including both salaries and accommodation. The definitions of an 'employee' and 'employer' in subsection 136(1) of the FBTAA are based on the payment or liability to pay salary or wages: • Current employee means a person who receives, or is entitled to receive salary or wages… • Current employer means a person…who pays, or is liable to pay, salary or wages… Salary or wages is defined in subsection 136(1) to mean: 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) listed in the table, to the extent that the payment is assessable income… Section 12-35 of Schedule 1 to the TAA is one such withholding provision, and applies to payments made to individuals in their capacity as an employee, even where their salaries are redirected through another entity (see paragraph 10 of TR 2005/16). Taxation Ruling 2005/16 provides guidance on whether an employment relationship exists for the purposes of section 12-35. Factors to be considered include: • The degree of control the person performing services has over the work done; • Whether or not the person is carrying on their own business; • Whether or not payment depends on the production of a given result, or if the person is paid by reference to the number of hours worked; • Whether or not the work can be delegated; • Provision of tools or equipment (including the provision of a place of work) and payment of business expenses. Moreover, if the payment is made in respect of the employment of the individual, it is not relevant who actually made the payment. The essential element is the nature of any connection between the payment and the individual's employment with the payer or any other entity. You have advised that the relevant employees are subject to income tax in Australia and that PAYG is required in this case. Based on the facts provided, and consideration of the factors in TR2005/16, the Commissioner accepts that payments to the seconded employees are indeed subject to withholding pursuant to section 12-35 of Schedule 1 to the TAA. As such, the secondees are considered to be your employees for the purposes of subsection 136(1) of the FBTAA. Your foreign associate is your associate for the purposes of s136(1) of the FBTAA, pursuant to the definition of associate contained in s318(2)(e) ITAA 1936. Your foreign associate provided the benefit to employees by establishing an account with the provider of serviced apartments to secure accommodation on a needs basis. You, as the secondees' employer for the purpose of the FBTAA, entered into an agreement with your foreign associate to bear the cost of these employees, in respect of both salaries and accommodation. Therefore benefits provided in respect of accommodation will be fringe benefits unless they are excluded on the basis that they are exempt benefits. The benefits that are the subject of this ruling are residual benefits under section 45 of the FBTAA as they are not a benefit by virtue of a provision of Subdivision A of Divisions 2 to 11 of the FBTAA. | Summary: The accommodation expense would be deductible under section 8-1 of the ITAA 1997 if it was incurred by the employee, enabling the application of the otherwise deductible rule (ODR) under section 52 of the FBTAA 1936. | Detailed Reasoning - Detailed reasoning: Section 52 of the FTBAA 1936 provides for the reduction of the taxable value of a residual benefit if the recipient of the benefit is the employee and the employee would have been entitled to claim an income tax deduction had they incurred the expense themselves. TR 2001/2 provides guidance on the operation of the ODR. TR 2001/2 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 either an airline transport fringe benefit, 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… Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction against assessable income where the incurred expenditure relates to the gaining or producing of assessable income or is necessarily incurred in carrying on a business. Where expenditure is a capital outgoing or private or domestic in nature, section 8-1 of the ITAA 1997 specifically denies a deduction. Subsection 6-5(3) of the ITAA 1997 states that if you are a foreign resident, your assessable income includes the income you derived directly or indirectly from all Australian sources during the income year and other income that a provision includes in your assessable income for the income year on some basis other than having an Australian source. Your seconded employees from your foreign associate remained on the home country payroll and were paid by their home country. The total cost incurred by your foreign associate with respect to seconding overseas employees to Australia form part of the overall project and the implementation costs and are to be recharged to you. Accordingly, payments made to the employees in respect of work completed for you are derived indirectly from an Australian source. Therefore the gains produced are assessable income, and as such, they are subject to tax in Australia. Whether or not the expenditure was necessarily incurred for the purpose of gaining or producing assessable income depends on the question of whether the employees were living away from their usual place of residence, or were travelling in the course of performing their duties of employment. In Case No. B 84 , 2 TBRD 390, it was said that, "where the employment actually involves the duty of travelling and therefore staying away from home, the extra expenses of living at hotels, etc….are deductible as, to that extent, they cease to be of a private or domestic nature." Miscellaneous Tax Ruling MT2030 - Fringe benefits tax: living-away-from-home allowance benefits (MT2030) is informative in this regard. At paragraphs 37 to 43, MT2030 sets out some general factors to be taken into account in determining that an amount is a travel allowance. These include: • No change of employment location • No change to the employees' place of residence • Generally not accompanied by his or her spouse or family • Generally present for a relatively short time Taking into account the discussion in ATOID 2001/120, which also deals with the ODR in relation to accommodation expenditure, the following additional factors are considered relevant: • The employees cannot choose accommodation other than what is provided by the employer • The employees were required by the employer, as an incident of their employment, to live close by to the work site • They are generally required to leave the accommodation during their rostered off-period These factors were considered in relation to the provision of accommodation and other benefits to road workers in Roads and Traffic Authority of NSW v FC of T (1993) 43 FCR 223. In making the decision, Hill J (at 240) noted the following features of the RTA employees' working conditions that supported claims for deductibility of expenditure: 'they are required, as an incident of their employment, by their employer for the purposes of their employer to live close by their work site for relatively short periods of time. No question arises of their choosing to live in these places. Each of the persons in question has a permanent house in which he lives when not in camp. None of the employees spend inordinate periods of time in camps so that the camp becomes their home. Their house is retained and the employees in question travel home at weekends. They do not remain in the camps'. Applying these tests to the facts in this case, it becomes clear that the provision of accommodation to the seconded employees would otherwise have been deductible. Employees of your foreign associate travelled to Australia to perform their work, but there was no change in their employment location. Support for this position is found in MT2030, in which a distinction is made between living away from home and travelling for the purposes of work. In the former case, there is a change of the job location, whereas in the latter, the employee does not change job locations but simply travels in order to carry out the requirements of the job. The facts in this case indicate that there was no change in the employees' job location. Employees travelled to Australia to fulfil the requirements of the posting, and returned to their usual place of employment upon completion of the duties for which they had travelled. The employees retained their residence in their home countries and did not establish a residence in Australia. Rather, employees were housed in short-term accommodation in the form of serviced apartments. Moreover, they were not joined by their spouses or families for the duration of their posting. Whilst there is a general rule that short trips not exceeding 21 days are considered to be travel for work purposes, the nature of the allowance (in this case an accommodation benefit) is not to be determined by reference solely to the period for which it is paid. For periods longer than 21 days, its nature will be determined in accordance with the guidance provided by MT2030. Having regard to the nature of the employment, MT2030 allows for situations where employees travelling for extended periods of time may be considered to be travelling for work, rather than living away from home. In the case of your employees, the duration of trips ranged from 18 to 125 days, and the majority of trips fell within the 20-60 day range. The preceding tests indicate that the employees are not living away from home, but rather, travelling for work. This is the case notwithstanding that the amount of time for which the employees visited was, in some cases, substantially longer than 21 days. Employees travelling to Australia did not choose their accommodation. Accommodation was arranged by you in accordance with internal temporary accommodation guidelines, and was selected for its proximity to the project location. Finally, the employees were generally required to leave the accommodation between implementation phases, and their presence in the site was strictly tied to project milestones. For example, an employee may have been expected to travel to Australia for a 7 week period, but if they reached the milestone earlier, they were deployed back to their home country where they returned to their usual employment duties until the next phase of implementation required their services (if any). For these reasons, the Commissioner considers that your employees were travelling in the course of performing their duties of employment. As a result, had the employees incurred the cost of accommodation themselves, it would have been allowable as a deduction against the employees' assessable income under section 8-1 of the ITAA 1997. Accordingly, the requirements of the 'otherwise deductible rule' set out in section 52 of the FBTAA are satisfied, and the taxable value of the benefit may be reduced. | Summary: Section 47A of the FBTAA operates to allow the exemption of the residual fringe benefits, subject to the provision of a no-private-use declaration. | Detailed Reasoning - Detailed reasoning: In accordance with section 47A of the FBTAA, a residual benefit that is covered by a no-private-use declaration is an exempt benefit. The declaration must be in a form approved in writing by the Commissioner and be made by the declaration date. The declaration must cover all the employer's residual fringe benefits for the year, and show that the benefits were provided only for employment-related purposes and that there was no private portion. For the purposes of this provision, the declaration date is the date that an employer is required to lodge their FBT return for the FBT year, or such a later date as the Commissioner allows. In order to determine whether section 47A applies, it is necessary to determine whether employees are entitled to a deduction under section 8-1 of the ITAA 1936, had the employee borne the cost of the benefit. The detailed reasoning for Question 1, which relates to the application of section 52, indicates that the taxable value of the benefit, by virtue of it being otherwise deductible in its entirety, would be nil. The facts outlined in this case indicate that there is indeed a consistently enforced prohibition on private use. The length of each employee's stay in Australia was dictated by project milestones. Since employees never stay in Australia, and therefore never use the accommodation, beyond the completion of the work for which they were engaged, it is accepted that the prohibition of private use would be consistently applied. Thus, contingent upon the making of the no-private-use declaration, the benefits provided are exempt pursuant to section 47A.

Issue: Is Fringe Benefits Tax (FBT) payable on accommodation provided to inbound individuals temporarily working in Australia on short-term assignments?