Private ruling: Income - assessable income
Published: July 2013
Ruling period: 1 April 2012 – 31 March 2015
Date scheme commenced: 1 October 2012

Ruling: Q1: Is the allowance, described by you as a living away from home allowance, received from your employer, assessable income under section 6-5 or 15-2 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes

Relevant facts and circumstances: You are a holder of a temporary resident visa. You signed a contract with your employer, for an assignment to work in Australia for the relevant years. Your employer undertook to pay your subsistence allowances while in Australia. In an employment contract you received a living away from home (LAFH) allowance. This was backed up by a lease and an annual declaration. The allowance was intended to compensate you for expenses incurred as a result of living away from your private residence overseas, and was not subject to taxation at the time your employment contract was signed. On 1 October 2012, your employer ceased paying you this allowance and added the amount of the allowance in your employment remuneration, thus causing you to pay income tax on this amount. Your employer does not accept that this payment is a fringe benefit from 1 October 2012 under the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986), on the basis that the duties of your employment does not require you to live away from your normal rented residence in Australia. Your employer claimed that the payment no longer qualified as a LAFHA under the definition as amended, which applied from 1 October 2012. Your employer claims that as the amount of the allowance is now assessable to you under the ITAA 1997 and that he is required to deduct and remit amounts from the allowance to the ATO under the Pay As You Go (PAYG) system. You believe your employer is wrong in his interpretation and that this allowance which is attached to your contract of employment by letter signed by a director of the company should be defined as a fringe benefit and liable to FBT in the hands of the employer, that your employer should pay FBT on this allowance and should not deduct income tax from this allowance nor remit it to the ATO under PAYG.

Relevant legislative provisions: Income Tax Assessment Act 1977 section 6-5, | Income Tax Assessment Act 1977 section 15-2, | Fringe Benefits Tax Assessment Act 1986 section 30, | Fringe Benefits Tax Assessment Act 1986 section 31 and | Fringe Benefits Tax Assessment Act 1986 section 136(1).

Reasons for decision: Summary: Section 6-5 of the ITAA 1997 states that assessable income includes income according to ordinary concepts which is called ordinary income. Section 15-2 of the ITAA 1997 states that allowances, compensations, gratuities, bonuses and premiums received by a taxpayer, in relation to their employment, are assessable. In your case, your employer paid you a predetermined amount per year towards food and accommodation. This amount was treated as a living-away-from-home allowance (LAFHA) until 1 October 2012 when the LAFHA legislation was amended. Since 1 October 2012, the amount has been added to your payslip as part of your total salary and wages. All remuneration for personal services, received in the capacity of an employee, is income according to ordinary concepts. Assessable earnings for personal services include salary or wages. Therefore, the amount is assessable income under section 6-5 of the ITAA 1997.