Private ruling: FBT - Living away from home - Transitional provisions
Published: June 2013
Ruling period: FBT year ended 31 March 2013. | FBT year ending 31 March 2014. | FBT year ending 31 March 2015.
Date scheme commenced: The scheme has commenced

Ruling: Q1: Do the transitional provisions, as set out in sections 26 to 28 of Part 3, Schedule 1 of the Tax Laws Amendment (2012 Measures No 4) Act 2012 (TLAA) continue to apply from a date 20XX if the employee remains in the temporary location to finalise the employment duties which necessitated their original relocation? | A1: No.

Relevant facts and circumstances: · The Employer previously sought a Private Ruling which determined that the employee was living away from their usual place of residence for a period of 12 months commencing on x date, during their assignment in a specific role. · The facts in the Ruling are relied upon for the current ruling application. o The employee has been requested and agreed to take on a specific role for the employer a period of twelve months starting on x date. o The employee has another and continuing role. o Prior to taking the specific role, the employee lived in a city in Australia and worked in the same location. o The specific role will require the employee to live in another state for the term of the contract (12 months). o The employer, requires that he return to the original city once the contract is completed. o The employee's intention is to return and reside closer to their employer in the original city. The employee sold their residence prior to moving interstate with the intention of purchasing a replacement residence in the original city. o During the 12 month assignment period, the employee will live interstate in rental accommodation provided by the employer for the employee and their immediate family. · The 12 month assignment period has now expired but the project is still to be finalised. · The employer and employee are both operating on the basis that the employee will continue in the temporary location until the project is completed. · It is not considered necessary to update any contractual arrangements or inform payroll of any changes to pay/benefit arrangements until the project is completed and the employee returns to their usual place of residence (and employment location). · The accommodation is provided to the employee by the employer i.e. the employer does not have a lease agreement and does not have to be reimbursed. · The accommodation is leased by the employer. · The employee's spouse does not have ownership interest in any property. · The employee has not purchased a new unit of accommodation. · There is no project agreement.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986, subsection 47(5), | Fringe Benefits Tax Assessment Act 1986 , section 31C, | Tax Laws Amendment (2012 Measures No 4) Act 2012, section 26 and | Tax Laws Amendment (2012 Measures No 4) Act 2012 , section 27.

Reasons for decision: Summary: The employee breaches the transitional provisions of the Tax Laws Amendment (2012 Measures No. 4) Bill 2012 as their employment arrangement has ended or alternatively, there has been a material variation to their employment agreement. | Detailed Reasoning - Subsection 47(5) of the FBTAA: 1. Subsection 47(5) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) exempts the provision of accommodation to employees under certain limited circumstances. Subsection 47(5) of the FBTAA states (as relevant here): | Detailed Reasoning - 47(5): Where: (a) a residual benefit consisting of the subsistence, during a year of tax, of a lease or licence in respect of a unit of accommodation is provided to an employee of an employer in respect of his or her employment; and (b) the unit of accommodation is for the accommodation of eligible family members and is provided solely because the duties of that employment require the employee to live away from his or her normal residence; and (ba) the employee satisfies: (i) sections 31C (about maintaining an Australian home) and 31D (about the first 12 months);... (ii) ...and | Detailed Reasoning - Conditions for exemption under subsection 47(5) of the FBTAA: 2. Therefore, exemption is granted under subsection 47(5) of the FBTAA where all the following conditions are met (as relevant here): (a) there is a residual benefit consisting of the subsistence of a lease or licence in respect of a unit of accommodation. (b) the residual benefit is provided to an employee of an employer in respect of the employee's employment. (c) the unit of accommodation is for the accommodation of eligible family members. (d) the unit of accommodation is provided solely because the duties of the employee's employment require the employee to live away from the employee's normal residence. (e) the employee satisfies the requirements of section 31C of the FBTAA. (f) the employee satisfies the requirements of section 31D of the FBTAA. | Detailed Reasoning - (a) is there a residual benefit consisting of the subsistence of a lease or licence in respect of a unit of accommodation?: 3. The term 'benefit' is defined in subsection 136(1) of the FBTAA to include any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility. It is considered, therefore, that the provision of accommodation in city c to the employee and their family will constitute a benefit to each of them for the purposes of the FBTAA. 4. The provision of the accommodation in city c to the employee and their family indicates that section 25 of the FBTAA may have a possible application to this case unless otherwise excluded. Section 25 of the FBTAA states that a housing benefit will arise where a 'housing right' is provided by one person to another. 5. The term 'housing right' is defined in subsection 136(1) of the FBTAA as meaning a 'lease or licence granted to the person to occupy or use a unit of accommodation, insofar as that lease or licence subsists at a time when the unit of accommodation is the person's usual place of residence'. 6. Under paragraph (aa) of the definition a 'unit of accommodation' in subsection 136(1) of the FBTAA, accommodation in a house, flat or home unit is included in that definition. The accommodation in state b provided to the employee will, therefore, meet the definition of a 'unit of accommodation'. 7. In the previous private ruling, however, it was determined that the employee, was considered to be living away from their usual place of residence for the purposes of Part III of the FBTAA for the term of the specified contract that requires them to live in state b. 8. Therefore, the provision of the accommodation does not meet the definition of housing right. 9. Section 45 of the FBTAA states that a residual benefit is one that is not a benefit by virtue of any provision of Subdivision A of Divisions 2 to 11 inclusive of the FBTAA. Therefore, in basic terms, a residual benefit is a benefit that does not fall within one of the other more specific benefit types contained in the FBTAA. 10. It has been determined above (at paragraphs 7 and 8) that section 25 of FBTAA has no application. It is also considered that no other no other specific benefit type applies to the employee's circumstances. 11. It is further considered, therefore, that the provision of the accommodation in state b to the employee is a residual benefit. 12. This condition is met. | Detailed Reasoning - (b) is the residual benefit provided in respect of the employee's employment?: 13. As determined above (at paragraph 10) the provision of the accommodation in state b to the employee is a residual benefit. 14. The meaning of the phrase 'in respect of the employment of the employee' was considered in J & G Knowles & Associates Pty Ltd v. Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; 44 ATR 22 ( Knowles ). It was found in Knowles that the words 'in respect of' must be given a meaning that depends on the context in which they are used. In the case of the FBTAA, this means that there must be a sufficient or material relationship or connection between the provision of the benefit and the employee's employment. The establishment of a mere causal link between the benefit and the employee's employment is not necessarily enough. 15. The employee is employed by the employer under the terms of the Employment Agreement. 16. A clause of the Employment Contract sets out the Employee's position and states that 'The Employee will hold the position described in item x of the schedule and agrees to carry out the responsibilities of that position as specified from time to time by the Employer.' 17. Item x of the Schedule states that the Position of the Employee is 'Full-time - xx - 12 month assignment. 18. A clause of the Employment Contract states that 'The Employer agrees to pay or provide other benefits to the Employee specified in item x of the schedule.' 19. Item x of the Schedule includes information relating to accommodation and states 'During the 12 month assignment period, the employer will provide accommodation for the employee and their immediate family by making available the use of a rental property.' 20. Under the terms of the Employment Agreement, then, the employee is provided with accommodation in state c from the xx onwards. 21. The accommodation is therefore provided in respect of the employee's employment. This condition is met. | Detailed Reasoning - (c) is the unit of accommodation for the accommodation of eligible family members?: 22. As determined above (at paragraph 6) the accommodation in state c will meet the definition of a 'unit of accommodation'. The term 'eligible family member' is defined in subsection 136(1) of the FBTAA to mean (as relevant here): eligible family member means: (a) in relation to an employee whose duties of employment require the employee to live away, for a period, from his or her normal residence: (i) the employee; or (ii) the spouse of the employee, or a child of the employee, being a spouse or child, as the case may be: (A) who lived with the employee during that period; and (B) whose usual place of residence during that period was the same as the usual place of residence of the employee; and (b) ... 23. Although the employee and their immediate family may, otherwise, readily meet the requirements of both subparagraphs (a)(i) and (a)(ii) of the definition of 'eligible family member', in subsection 136(1) of the FBTAA, the prerequisite of that definition still remains to be satisfied that in relation to the employee is that the employee's duties of employment require the employee to live away, for a period, from his or her normal residence. 24. The term 'normal residence' is defined (as applicable here) in paragraph (a) of the definition of that term in subsection 136(1) of the FBTAA as meaning the employee's usual place of residence if the employee's usual place of residence is in Australia. 25. In this case, it was determined in the private ruling that the employee was living away from their usual place of residence for a period of 12 months commencing on xx, during their assignment in the x role. 26. The employee is required under the terms of his Employment Agreement to live away from their normal residence because of their duties of employment, per paragraph 17 above. 27. Therefore, this condition is met as the employee is required to live away, for a set period, from their normal residence by the duties of employment and their immediate family live with them in state c. (d) is the unit of accommodation provided solely because the duties of the employee's employment require the employee to live away from the employee's normal residence? 28. It was determined above (at paragraph 26) that the duties of the employee's employment require them to live away from their normal residence. However, it also needs to be determined that the state c accommodation is being provided to the employee solely because their duties of employment require them to live away from their normal residence. 29. It is accepted, in the absence of any evidence to the contrary, that the only reason the employee is provided with the accommodation in state c, per clause x of the Employment Contract and Item x of the Schedule, is because their duties of employment require them to live away from their normal residence. 30. This condition is met. | Detailed Reasoning - (e) does the employee satisfy requirements of section 31C of the FBTAA?: 31. Section 31C of the FBTAA states: | Detailed Reasoning - SECTION 31C: 31C MAINTAINING A HOME IN AUSTRALIA The employee satisfies this section if: (a) the place in Australia where the employee usually resides when in Australia: (i) is a unit of accommodation in which the employee or the employee's spouse has an ownership interest (within the meaning of the Income Tax Assessment Act 1997 ); and (ii) continues to be available for the employee's immediate use and enjoyment during the period that the duties of that employment require the employee to live away from it; and (b) it is reasonable to expect that the employee will resume living at that place when that period ends. 32. Section 31C of the FBTAA was introduced by Tax Laws Amendment (2012 Measures No.4) Act 2012 (TLAA 142) ('new LAFH rules'), and applies generally to employees who are living away from their normal residence on or after 1 October 2012 regardless of when the allowance or benefit was received or provided. 33. Consequently, the 'new LAFH rules' will apply to the accommodation in the particular state provided to the Employee, and their immediate family, during the period 1 October 2012 to inclusive as the Employee was living away from their normal residence on or after 1 October 2012. 34. Nonetheless, concessional treatment regarding the application of section 31C of the FBTAA is afforded, where applicable, to certain existing employment arrangements under the 'transitional rules', contained in Schedule 1, Part 3 of TLAA 142. 35. Schedule 1, Part 3 of TLAA 142 states regarding the transitional rules (as applicable here): | Detailed Reasoning - 26 Application of amendments: The amendments made by this Schedule apply in relation to an employee who, on or after 1 October 2012, lives away from his or her normal residence (whether a benefit provided for living away from that residence on or after that day was paid before, on or after that day). | Detailed Reasoning - 27 Transitional - existing employment arrangements: (1) During the transitional period, disregard paragraph 31C(a) and section 31D of the Fringe Benefits Tax Assessment Act 1986 if: (a) the employee is neither a temporary resident nor a foreign resident; and (b) during the entire period: (i) starting at the Budget time; and (ii) ending on 30 September 2012; that employment was covered by an eligible employment arrangement that was neither varied in a material way nor renewed. (2) ... (3) In this item: Budget time means 7.30 pm, by legal time in the Australian Capital Territory, on 8 May 2012. eligible employment arrangement means an arrangement under which: (a) the employer; or (b) an associate of the employer; commits to provide the employee with [a] benefit for the employee's accommodation...while the duties of that employment require the employee to live away from [the employee's]...normal residence. ... transitional period means the period: (a) starting on 1 October 2012; and (b) ending at the earliest of: (i) 30 June 2014; and (ii) the time the eligible employment arrangement referred to in paragraph (1)(b)...ends; and (iii) the first time that eligible employment arrangement is varied in a material way or renewed. | Detailed Reasoning - 28 Transitional - first 12 months for existing arrangements: (1) This item applies if, on 1 October 2012: (a) an employee's duties of employment require the employee to live away from the place in Australia where he or she usually resides when in Australia; or (b) ... (2) Treat the 12-month period referred to in subsection 31D(1) of the Fringe Benefits Tax Assessment Act 1986 as if it were the first 12 months on or after 1 October 2012 that the employee lives away from that place as so required. 36. Therefore, under Item 27 of Schedule 1, Part 3 of TLAA 142, the requirements of paragraph 31C(a) of the FBTAA (in relation to maintaining a home in Australia) are disregarded if: (iii) the employee is neither a temporary resident nor a foreign resident (that is, a 'permanent resident'). (iv) the employee was already covered by an 'eligible employment arrangement' in place before 7.30pm (AEST) on 8 May 2012. (v) the 'eligible employment arrangement' was not varied in a material way nor renewed from 7.30pm (AEST) on 8 May 2012 up to, and including, 30 September 2012. | Detailed Reasoning - (i) is the employee a 'permanent resident'?: 37. The Employee is a permanent resident of Australia. This condition is met. | Detailed Reasoning - (ii) is the employee already covered by an 'eligible employment arrangement'?: 38. An 'eligible employment arrangement', as that term is defined in paragraph 3 of Item 27 of Schedule 1, Part 3 of TLAA 142, is an arrangement under which the employer or an associate of the employer commits to provide the employee with a benefit for the employee's accommodation while the duties of that employment require the employee to live away from the employee's normal residence. 39. The employer has committed, per clause x and item x of the schedule of the Employment Agreement to provide the employee with accommodation while the employee is living in state c for 12 months. It was determined at paragraphs 28 and 29 that the employee was provided with the accommodation because the duties of that employment require the employee to live away from their normal residence. This condition is therefore met. | Detailed Reasoning - (iii) was the 'eligible employment arrangement' not materially varied nor renewed during the relevant period?: 40. The eligible employment arrangement is dated the xx and under clause x of the agreement, the parties (being the employer and employee) agree that the Employer will employ the Employee on the terms set out in this agreement from the xx. 41. There were no variations to this agreement between 7.30pm (AEST) on 8 May 2012 up to, and including 30 September 2012. 42. Therefore, paragraph 31C(a) of the FBTAA is disregarded during the transitional period. 43. The transitional period is defined in item 27(3) as the period starting on 1 October 2012 and ending on the earliest of the 30 June 20XX, the end of the eligible employment arrangement or the date the eligible employment arrangement is varied in a material way or renewed. 44. Chapter 11.10 of Fringe benefits tax: a guide for employers provides guidance on what is and is not a material variation. It states: Material variation or renewal of employment arrangement A material variation occurs when fundamental changes are made to the employment arrangement. For the purposes of the transitional rules, an annual salary review is not a material variation to an employment arrangement. Changes to an employment arrangement to reflect other annual adjustments, such as the food component of a LAFHA, do not constitute a material variation. In the case of promotions, it will be a matter of fact depending on the circumstances of each case - for example, if an employee is promoted and the underlying terms of their employment arrangement do not change, there has not been a material variation in the employment arrangement. However, if there are fundamental differences to the employment arrangement arising from the promotion, the employment arrangement has been the subject of a material variation. Where an employer formally extends the employee's secondment period, through issuing a new contract or by letter confirming an extension to a current arrangement that would constitute, a material variation or renewal of an eligible employment arrangement. 45. In the National Tax Liaison Group FBT Sub-committee meeting of the 8 November 2012, guidance was sought at agenda item 8 as to whether an employee who was living-away-from-home before 7.30pm 8 May 2012 breached the transitional provisions if they remained in the temporary location to finalise the employment duties. 46. The ATO responded that based on the facts relating to that particular agenda item, the transitional rules would continue to apply to the employee. 47. The facts of that agenda item included that the purpose of the secondment was to complete a project, projected to take y months and that the employee's contract stipulated that the project was expected to take y months. 48. In this case, Clause x of the Employment Agreement states that The Employee has agreed to take on the role of xx which incorporates xx responsibilities for a period of twelve months from xx. 49. Clause x of the Employment Agreement states that The Employer agrees to provide other benefits to the Employee specified in item x of the schedule. 50. Item x of the Schedule makes reference to 'During the 12 month assignment period.' 51. In this case, then, the Employment Agreement covers the period of 12 months. There is nothing in the Employment Agreement to state that the 12 months assignment period could be extended. 52. Further, it was confirmed that there is no project agreement - the relevant document in the Employment Agreement. | Detailed Reasoning - Conclusion on whether section 31C of the FBTAA is disregarded under Item 27 of Schedule 1, Part 3 of TLAA 142 from the 5 April 2013: 53. Subsection 27(3) of Part 3, Schedule 1 of the TLAA states that the transitional period ends at the earliest of 30 June 2014 or if the arrangement is varied in a material way or renewed. In this instance, according to the employment agreement, your arrangement ended on the xx. Therefore, the transitional period ended on xx and section 31C of the FBTAA cannot be disregarded. 54. Alternatively, the transitional period ended on xx because the employer would like the employee to work for an extended time in the state c location. The contract would need to be formally extended and this would constitute a material variation, as explained at 11.10 of Fringe benefits tax: a guide for employers . 55. The accommodation provided by you do not satisfy subparagraph 47(5)(ba)(i) of the FBTAA and therefore, do not satisfy the requirements of an "exempt residual benefit" from xx.