Private ruling: Living-away-from-home-allowance
Date of advice: 13 August 2020
Published: September 2020
Ruling period: 1 April 20XX to 31 March 20XX | 1 April 20XX to 31 March 20XX
Date scheme commenced: 1 September 20XX

Ruling: Q1: Does the allowance paid by the Employer to the Employee qualify as a living-away-from-home allowance (LAFHA) fringe benefit within the meaning of subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)? | A1: Yes. | Q2: If the answer to Question One is 'Yes', can the taxable value of the LAFHA fringe benefit be reduced pursuant to subsection 31(2) of the FBTAA? | A2: Yes.

Relevant facts and circumstances: The Employer is a company registered in Australia, operating from premises located in State A. The Employee was previously engaged by another (unrelated) entity to provide services to the Employer. The Employer subsequently offered an employment contract to the Employee who was living in State B at the time. The term of the contract was for 12 months and commenced from 1 September 20XX. A condition of the contract is that the Employee is based at the Employer's business premises in State A. To be able to fulfil the conditions of the employment contract, the Employee relocated from State B to State A and occupied a serviced apartment. As per the employment contract, included in the remuneration package was a weekly living-away-from-home allowance (LAFHA) of $XXX paid for the first 12 months to reimburse the Employee for additional accommodation and living expenses incurred whilst living in State A. The Employee was not required to refund the Employer for any unexpended amounts of this weekly payment received. During the 12 month period, the Employee maintained a home in State B where he usually resided. The home was available for his use at all times, and his spouse and children remained there. The Employee would have continued to live at his family home in State B if he did not accept the employment contract with the Employer. It was the Employee's intention to return to live at his family home in State B on cessation of employment with the Employer. The Employee has provided the Employer with Living-Away-From-Home Declarations covering the period 1 September 20XX to 1 September 20XX. In these Declarations, the Employee has declared the total amount of accommodation expenses he had incurred whilst living away from home, and that he can substantiate with documentary evidence. The Employee will keep records (for five years) of the accommodation and other living expenses incurred whilst living in State A to work for the Employer. With respect to the component of the LAFHA that was to compensate the Employee for total food or drink expenses, the amount that was incurred by the Employee on food and drinks did not exceed the amount of reasonable food and drink expenses for the relevant year as determined by the Commissioner under Taxation Determinations TD 2018/3 and TD 2019/7.

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 31C | Fringe Benefits Tax Assessment Act 1986 Section 31D | Fringe Benefits Tax Assessment Act 1986 Section 31F | Fringe Benefits Tax Assessment Act 1986 Section 31G | Fringe Benefits Tax Assessment Act 1986 Section 31H | Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Reasons for decision: Summary: The allowance paid by the Employer to the Employee qualifies as a LAFHA fringe benefit within the meaning of subsection 30(1) of the FBTAA. | Detailed Reasoning - Detailed reasoning: For Fringe Benefits Tax (FBT) purposes, a LAFHA is an allowance an employer pays to an employee to compensate for additional expenses incurred and any disadvantages suffered because the employee's duties of employment require them to live away from their normal residence. The term 'additional expenses' does not include expenses the employee would be entitled to claim as an income tax deduction. Subsection 30(1) of the FBTAA sets out the circumstances in which an allowance paid by an employer to an employee will qualify as a LAFHA, and states: Where: (a) at a particular time, in respect of the employment of an employee of an employer, the employer pays an allowance to the employee; and (b) it would be concluded that the whole or a part of the allowance is in the nature of compensation to the employee for: (i) additional expenses (not being deductible expenses) incurred by the employee during a period; or (ii) additional expenses (not being deductible expenses) incurred by the employee, and other additional disadvantages to which the employee is subject, during a period; by reason that the duties of that employment require the employee to live away from his or her normal residence; the payment of the whole, or of the part, as the case may be, of the allowance constitutes a benefit provided by the employer to the employee at that time. In summary, for a payment to an employee to be considered a LAFHA fringe benefit, there are three conditions that must be met: 1. It is an allowance an employer pays an employee in respect of the employment of that employee. 2. The duties of their employment require them to live away from their normal residence. 3. The whole or part of the allowance is in the nature of compensation for: · non-deductible additional expenses an employee might be expected to incur, or · non-deductible additional expenses an employee might be expected to incur and other disadvantages suffered, because the duties of an employee's job require them to live away from their normal residence. | Detailed Reasoning - 1. Did the Employer pay an allowance to the Employee in respect of his employment?: Chapter 1 of the ATO's publication entitled Fringe benefits tax - a guide for employers provides guidance on what is meant by the term 'in respect of employment'. According to the fringe benefits tax (FBT) legislation, a fringe benefit is a benefit provided in respect of employment. This effectively means a benefit is provided to somebody because they are an employee. The 'employee' may even be a former or future employee. The Commissioner accepts that a payment made by the Employer to the Employee in respect of additional accommodation and living expenses incurred by the Employee whilst living in State A was provided because the Employee is an employee of the Employer. However, it is necessary to determine whether the payment/benefit provided is actually an allowance. Taxation Ruling TR 92/15 Income tax and fringe benefits tax: the difference between an allowance and a reimbursement (TR 92/15) explains the difference between an allowance and a reimbursement for the purposes of determining whether a payment is a fringe benefit or whether that payment is assessable income. Paragraph 2 of TR 92/15 describes an 'allowance' as: A payment is an allowance when a person is paid a definite predetermined amount to cover an estimated expense. It is paid regardless of whether the recipient incurs the expected expense. The recipient has the discretion whether or not to expend the allowance. 'Reimbursement' is described at paragraph 3 of TR 92/15 as: A payment is a reimbursement when the recipient is compensated exactly (meaning precisely, as opposed to approximately), whether wholly or partly, for an expense already incurred although not necessary disbursed. In general, the provider considers the expense to be its own and the recipient incurs the expenditure on behalf of the provider. A requirement that the recipient vouch expenses lends weight to a presumption that a payment is a reimbursement rather than an allowance. A requirement that the recipient refunds unexpended amounts to the employer adds further weight to that presumption. Paragraph 10 of TR 92/15 further provides the following in respect of the term 'reimbursement': The ordinary meaning of the word "reimburse" implies that the recipient is to be compensated exactly for an expense already incurred although not necessarily disbursed. The definition of "reimburse" under subsection 136(1) of the FBTAA is wide enough to include payments made before expenses are incurred. However, whether payment is made before or after expenses are incurred by the recipient, it qualifies as a reimbursement when the provider considers the expense to be its own and the recipient incurs the expense on behalf of the provider. As a result, a requirement that the recipient vouch or substantiate expenses lends weight to a presumption that a payment is a reimbursement rather than an allowance. A further indication of a reimbursement is where the recipient is required to refund unexpended amounts to the provider. Therefore, a payment to an employee that constitutes a 'reimbursement' would not meet the first condition in subsection 30(1) of the FBTAA, as it would not be an 'allowance'. As per the Facts, included in the Employee's remuneration package was a weekly payment of a definite, pre-determined amount of $XXX from the Employer - paid for the first 12 months to cover additional accommodation and living expenses incurred by the Employee whilst living in State A. The Employee was not required to refund the Employer for any unexpended amounts of the weekly $XXX payment received. Therefore, the weekly payment by the Employer to the Employee of $XXX is considered to constitute the payment of an allowance . As such, the first condition in subsection 30(1) of the FBTAA is satisfied. | Detailed Reasoning - 2. Do the duties of employment require the Employee to live away from his normal residence at the time the allowance is paid?: 'Normal residence' is defined in subsection 136(1) of the FBTAA as the employee's usual place of residence, when the employee's usual place of residence is in Australia. The FBTAA does not provide a definition of the term 'usual place of residence'. However, subsection 136(1) of the FBTAA defines 'place of residence' to mean: (a) a place at which the person resides; or (b) a place at which the person has sleeping accommodation; whether on a permanent or temporary basis and whether or not a shared basis. In the absence of a legislative reference, it is relevant to refer to the ordinary meaning of the word 'usual'. The Macquarie Dictionary defines 'usual' to mean 'habitual or customary...'. Paragraphs 75 to 77 of Taxation Ruling TR 2017/D6 Income tax and fringe benefits tax: when are deductions allowed for employees' travel expenses (TR 2017/D6) provides guidance for determining an employee's usual place of residence. As per the Facts, the Employee owns a unit of accommodation in State B, which is his normal residence. Chapter 11.2 of the ATO's Fringe benefits tax - a guide for employers publication provides that whether an employee's job requires them to live away from their normal residence, and where the employee's normal residence is located, is a question of fact and will depend on each employee's circumstances. The term 'required' is not defined in the FBTAA. ATO Interpretative Decision ATO ID 2013/8 Fringe Benefits Tax: Employee required to change usual place of residence in order to perform duties of employment (ATO ID 2013/8) states that the term 'required' must take its ordinary meaning in the context in which it is used. Relevantly, The Macquarie Dictionary Online defines 'require' as: 'to have need of; need; to impose need or occasion for; make necessary or indispensable; to place under an obligation or necessity.' As per the employment contract between the Employer and the Employee, the Employee was required to be based at the Employer's business premises in State A during the employment term. Accordingly, the duties of the Employee's employment required him to live away from his normal residence. Therefore, the second condition in subsection 30(1) of the FBTAA is satisfied. 3. Was the allowance paid wholly or partly to compensate the Employee for additional, non-deductible expenses incurred because of the requirement to live away from his normal residence? The allowance was paid to the Employee to cover the additional expenses of accommodation and other living expenses incurred whilst living in State A to work for the Employer for 12 months. As these expenses are private in nature, the Employee will not be able to claim an income tax deduction for them. Accordingly, the weekly allowance of $XXX was paid wholly or partly to compensate the Employee for additional, non-deductible expenses incurred because of the requirement under the employment contract for the Employee to live away from his normal residence. Therefore, the third condition in subsection 30(1) of the FBTAA is satisfied. As all three of the conditions in subsection 30(1) of the FBTAA are satisfied, the weekly payment of $XXX made by the Employer to the Employee in respect of additional accommodation and living expenses constitutes a LAFHA fringe benefit under subsection 30(1) of the FBTAA. | Detailed Reasoning - Question 2: If the answer to Question One is 'Yes', can the taxable value of the LAFHA fringe benefit be reduced pursuant to subsection 31(2) of the FBTAA? | Summary: The taxable value of the LAFHA fringe benefit can be reduced pursuant to subsection 31(2) of the FBTAA. | Detailed Reasoning - Background: The Revised Explanatory Memoranda to the Tax Laws Amendment (2012 Measures No. 4) Bill 2012 provides the background to the introduction of a tax concession for a LAFHA and an explanation of the reasoning behind the changes to the concession(s) up to the present time. A tax concession for a LAFHA was introduced to the income tax system in 1945 for the purposes of compensating an employee for additional expenditure incurred on food and accommodation where an employee is required by their current employer to live away from their usual place of residence, where they are maintaining a residence. LAFHA provisions were moved to the FBTAA in 1986 when FBT was introduced, and the incidence of tax shifted to the employer as a fringe benefit. Changes to the living-away-from-home provisions in the FBTAA were implemented in 2012. Prior to the changes, employees were using the concessions to access tax-free amounts even though they were not incurring additional expenses, such as the cost of maintaining two homes. In addition, it was considered that the amount of the allowance may have been in excess of actual expenditure incurred on accommodation and food, and employees were claiming the concessions for extended periods of time. Thus, it was believed that the LAFHA concessions were being widely exploited, resulting in a significant and growing cost to revenue. The measures implemented in 2012 limit the concessional tax treatment of LAFHA and benefits provided to employees who maintain a home in Australia for their own use at which they usually reside. Employees must be able to substantiate expenses incurred on accommodation, and food or drink beyond the Commissioner of Taxation's (Commissioner's) reasonable amounts - which are published in an annual Taxation Determination (TD 2018/3 for the FBT year commencing 1 April 2018 and TD 2019/7 for the FBT year commencing 1 April 2019). The concessional treatment is limited to a period of 12 months for an employee at a particular work location. To qualify, employees must provide the employer with a declaration relating to living away from home. | Detailed Reasoning - Application of current law to the Employer's circumstances: It is accepted that the allowance considered in Question One satisfied the requirements to be a LAFHA fringe benefit for the purposes of section 30 of the FBTAA. The taxable value of a LAFHA fringe benefit is calculated in accordance with section 31 of the FBTAA. To determine whether a LAFHA receives concessional tax treatment, the criteria under subsection 31(1) of the FBTAA must be satisfied. Subsection 31(1) of the FBTAA provides that: | Detailed Reasoning - 31(1): This section applies to living-away-from-home allowance fringe benefit covered by subsection 30(1) in relation to a year of tax to the extent that the employee satisfies all of the following for the fringe benefit and the period to which it relates: (a) section 31C (about maintaining an Australian home); (b) section 31D (about the first 12 months); (c) section 31F (about declarations). Section 31C of the FBTAA requires the employee to maintain a home in Australia that continues to be available for the employee's immediate use and enjoyment during the period that the duties of employment require the employee to live away from it. Guidance on maintaining a home in Australia is provided in the ATO's Fringe benefits tax: a guide for employees publication at Chapter 11.7 which states: For the employee to maintain a home for their immediate use and enjoyment at all times, the entire home cannot be rented out or sublet while they are living away from it. The employee must incur the ongoing costs of maintaining the residence, such as mortgage or rental payments and rates. The employee must be able to return to the home at any time and take up immediate occupancy. As per the Facts, the Employee maintained a home in State B where he usually resided during the 12 month period he worked in State A for the Employer. The home was available for his use at all times, and his spouse and children remained there, thus meeting the requirements of section 31C of the FBTAA to maintain a home in Australia. Pursuant to section 31D of the FBTAA, the fringe benefit must relate to all or part of the first 12 months the duties of employment required the employee to live away from the unit of accommodation where they usually reside in Australia. This provision is also satisfied in the current circumstances based on the conditions in the employment contract between the Employer and the Employee. Under section 31F of the FBTAA, an employee must give to the employer one of the following declarations before the date of lodgement of the FBT return for the LAFHA fringe benefit to be concessionally taxed: · Home maintained in Australia · Where the requirements of section 31 of the FBTAA are satisfied, the employee must prepare a declaration in the form approved by the Commissioner that sets out: - the address in Australia where the employee usually resides - an ownership interest in the above property is held and continues to be available for the employee's immediate use and enjoyment, as well as confirmation that the employee will resume living there when the LAFHA period ends, and - the address of each place where the employee actually resided during the period the LAFHA is paid. · Expenditure on accommodation and food · In addition to the above declaration, employees are required to substantiate by way of documentary evidence or a declaration the amount of expenditure incurred on food if the amount exceeds the Commissioner's reasonable amount as provided in TD 2018/3 and TD 2018/3. All accommodation expenditure must be substantiated by way of a documentary evidence or a declaration. As per the Facts, the requirements in section 31F of the FBTAA have been satisfied through the Employee providing the Employer with each of the above declarations. Therefore, subsection 31(1) of the FBTAA is considered to be satisfied. The concessional tax treatment available in relation to the taxable value of a LAFHA - where the criteria in subsection 31(1) of the FBTAA are satisfied - is calculated as provided for under subsection 31(2) of the FBTAA, as follows: | Detailed Reasoning - 31(2): Subject to this Part, the taxable value of the fringe benefit in relation to the year of tax is the amount of the fringe benefit reduced by: (a) any exempt accommodation component; and (b) any exempt food component. Subsection 136(1) of the FBTAA defines the ' exempt accommodation component ' in relation to a LAFHA fringe benefit to mean so much of the accommodation component as is equal to the total of the expenses that: · are incurred by the employee for that accommodation; and · are substantiated under section 31G of the FBTAA. The ' exempt food component ' is defined in subsection 136(1) of the FBTAA as having the meaning given by section 31H of the FBTAA. Section 31H states: | Detailed Reasoning - 31H(1): The exempt food component , in relation to a living-away-from-home allowance fringe benefit, is so much of the result of subsection (2) as is equal to the total of the expenses that: (a) are incurred by the employee for food or drink for eligible family members during the period to which the fringe benefit relates; and (b) if section 31G applies to the expenses - are substantiated under that section. | Detailed Reasoning - 31H(2): Work out the result of the following: Food component - Applicable statutory food total where: applicable statutory food total means the total of the statutory food amounts for eligible family members for the period to which the fringe benefit relates, reduced (but not below zero) by any amount that: (a) might reasonably be expected to be the total normal food or drink expenses for those eligible family members had they remained living in their normal residence during that period; and (b) was taken into account in working out the food component. Section 31G of the FBTAA provides that an employee must give to their employer, before the declaration date, one of the following: · documentary evidence of the expenditure on accommodation and food or drink, or · a declaration approved by the Commissioner. The above requirement does not apply if the food and drink expenditure incurred by the employee does not exceed the amount considered reasonable by the Commissioner. Each year, the Commissioner releases a Taxation Determination setting out the reasonable food and drink amounts - relevantly, TD 2018/3 pertains to the FBT year commencing 1 April 20XX and TD 2019/7 relates to the FBT year commencing 1 April 20XX. In the current circumstances, there exists an exempt accommodation component, being so much of the LAFHA that equals the accommodation expenses actually incurred by the Employee for accommodation whilst he was living away from home. In the Living-Away-From-Home Declarations that the Employee provided to the Employer covering the period 1 September 20XX to 1 September 20XX, the Employee had declared the total amount of accommodation expenses he had incurred whilst living away from home. An exempt food component also exists as, based on the Facts, the amount incurred by the Employee on food and drinks did not exceed the amount of reasonable food and drink expenses for the relevant year as determined by the Commissioner under Taxation Determinations TD 2018/3 (covering the 20XX FBT year) and TD 2019/7 (covering the 20XX FBT year). As such, pursuant to subsection 31(2) of the FBTAA, the taxable value of the LAFHA fringe benefit can be reduced by both the exempt accommodation component and the exempt food component.

Whether an employee is living away from their 'usual place of residence' usually involves a choice between two places of residence - where the employee is living at the time and the location of the work. | An employee is only living away from home where it is reasonable to conclude that they intend to return to their previous location after work at the new location ceases. An employee who has permanently left their previous location is not living away from home but has relocated. | Indicators that an employee has a usual place of residence at a previous location include the employee's ownership or possession of premises at that location and occupation of the premises by the members of the employee's family.