Private ruling: FBT - Fringe benefits tax implications of the provision of accommodation to foreign technicians temporarily working in Australia.
Date of advice: 2 May 2019
Published: July 2019
Ruling period: 01/04/2017 to 31/03/2022
Date scheme commenced: 01/04/2017

Ruling: Q1: Can subsection 31E(a) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) be satisfied given that the non-resident related party employees (non-resident employees) are based in Australia on a Subclass 400 short stay Visa for three months, if during these three months non-resident employees will also be working at the company premises in Australia (on a standard 5 day week) and at other Company locations? | A1: No. | Q2: If the company do not satisfy the requirements of section 31E of the FBTAA, will the entire rental payment be subject to FBT and be a reportable expense payment benefit? | A2: No.

Relevant facts and circumstances: The company employs both Australian residents and non-residents. Non-resident employees come to Australia on subclass 400 short stay specialist visas. These employees are not directly employed by the company; they are employed by related entities as part of the world wide group. The overseas related entities invoice the company for the work performed by non-resident employees in Australia. The company rents a staff house in mainland Australia to provide accommodation for non-resident employees when they are not working at other work locations. The Company pays the rent and the occupants do not contribute to any costs. When non-resident employees are in Australia they are initially based at the staff house rented by the Company. Non-resident employees travel to other work locations when required. When they are not at other work locations during their three month period, they work a standard five day week at the office in Australia. Non-resident employees are not provided with a roster for their work duties for the 12 week period they will be in Australia. Rather they are directed to work either other work locations or at the local office on an as needs basis. Non-resident employees are required to fly into where the staff house is located in Australia in order to commence their working duties. It is not possible for them to fly directly from their overseas residences to the other work locations. After the three month period has finished, non-resident employees return to their home overseas. The company obtains Living-away-from-home declarations from each non-resident employees residing at the staff house for the FBT year.

Relevant legislative provisions: Fringe Benefits Tax Assessment Act 1986 section 31E | 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) | Fringe Benefits Tax Assessment Act 1986 section 137 | Fringe Benefits Tax Assessment Act 1986 subsection 148(1) | Income Tax Assessment Act 1997 section 8-1 | Taxation Administration Act 1953 12-35 of Schedule 1.

Reasons for decision: Summary: No, subsection 31E(a) of the FBTAA is not satisfied as non-resident employees do not work on a regular and rotational basis. | Detailed Reasoning - Detailed reasoning: Application of section 31E to the case Section 31E of the FBTAA prescribes that an employee is considered to be working on a fly-in fly-out (FIFO) or drive-in drive-out (DIDO) basis if all of the following conditions are satisfied: Section 31E (a) the employee, on a regular and rotational basis: (i) works for a number of days and has a number of days off (but not the same days on consecutive weeks); and (ii) on completion of the working days, travels from his or her usual place of employment to his or her normal residence and, on completion of the days off, returns to that usual place of employment; and (b) it is customary for such arrangements to exist for employees performing similar duties in that industry; (c) it would be unreasonable to expect the employee to travel on a daily basis on work days between his or her usual place of employment and his or her normal residence; and (d) it is reasonable to expect the employee will resume living at his or her normal residence where the duties of that employment no longer require him or her to live away from it. The words “regular and rotational” are not defined in the FBTAA and therefore it is relevant to consider their ordinary meanings. In the context of section 31E it is considered the following definitions in the Macquarie Dictionary 5th Ed are relevant: Regular: recurring at fixed times; periodic Rotation: regularly recurring in succession. The requirement that the working days and days off cannot be the same in consecutive weeks ensures that an employee working a standard five-day week will not qualify. This requirement will be satisfied if the employment duties of the employee are such that their hours of work are determined on a rostered basis. Non-resident employees fly out to other work locations when required. When they are not at the other work locations during their three month period, they work a standard five day week at the office in Australia. Non-resident employees are not provided with a roster for their work duties for the 12 week period they will be in Australia. Rather they are directed to work either at other work locatons or at the Australia office on an as needs basis. Non-resident employees do not work on a regular and rotational basis as prescribed under paragraph 31E(a)(ii) of the FBTAA. The nature of their work arrangements cannot be said to be ‘regular and rotational.’ Rather, their work location is determined on an as needs basis depending on the operational requirements of the business. Given subsection 31E(a) is not satisfied, non-resident employees are not considered to be FIFO employees of the company as prescribed under section 31E. | Detailed Reasoning - Question 2: If the company cannot pass the above requirements of section 31E of the FBTAA, will the entire rental payment be subject to FBT and be a reportable expense payment benefit? | Summary: No. The company will not be liable to pay FBT on accommodation provided to employees who travel in-bound to Australia. Although the benefit in respect of accommodation is a fringe benefit, the taxable value of the fringe benefit can be reduced to nil by applying the otherwise deductible rule. | Detailed Reasoning - Detailed reasoning: In order to determine whether the company is liable for FBT in respect of accommodation provided to non-resident employees, it is necessary to firstly consider whether the provision of accommodation to non-resident employees constitutes a ‘fringe benefit’ as defined in subsection 136(1) of the FBTAA. A ‘fringe benefit’ is defined in subsection 136(1) of the FBTAA, which holds that the following conditions must be satisfied: 1. A benefit is provided at any time during the year of tax. 2. The benefit is provided to an employee or an associate of the employee. 3. The benefit is provided by: a. their employer; or b. an associate of the employer; or c. a third party other than the employer or an associate under an arrangement between the employer or associate of the employer and the third party; or d. a third party other than the employer or an associate of the employer, if the employer or an associate of the employer: i. participates in or facilitates the provision or receipt of the benefit; or ii. participates in, facilitates or promotes a scheme or plan involving the provision of the benefit; and the employer or associate knows, or ought reasonably to know, that the employer or associate is doing so; 4. The benefit is provided in respect of the employment of the employee. 5. The benefit is not one that is specifically excluded as per paragraphs (f) to (s) of the definition of a fringe benefit in subsection 136(1). Is the definition of a fringe benefit satisfied? 1. Provision of a benefit Subsection 136(1) of the FBTAA provides a broad definition of a ‘benefit’ as including: any right (including a right in relation to, and an interest in, real or personal property), privilege, service or facility and, without limiting the generality of the foregoing, includes a right, benefit, privilege, service or facility that is, or is to be, provided under: (a) an arrangement for or in relation to: (i) the performance of work (including work of a professional nature), whether with or without the provision of property; Based on the facts, the company provides non-resident employees with accommodation in Australia when working in Australia. This accommodation is arranged by the company and all costs are paid by the company. The provision by the company of accommodation to non-resident employees falls within the definition of a ‘benefit’ as defined in subsection 136(1) of the FBTAA. As such, the first condition (i.e. the provision of a ‘benefit’) of the definition of a ‘fringe benefit’ – as defined in subsection 136(1) of the FBTAA – would be satisfied . 2. Benefit provided to an employee or an associate of an employee An 'employee’ is defined in subsection 136(1) of the FBTAA to mean a current, future or former employee. The salaries of the non-resident employees are paid by their home country employers whilst they work in Australia. As the home country employers are not Australian entities and do not have a permanent establishment in Australia, the home country will not have a withholding obligation in relation to their salary or wages. However, section 137 of the FBTAA extends the circumstances in which a person will be deemed to be employee. Based on the facts, the company bears the cost of the employees (being salaries that are re-charged). In applying section 137 of the FBTAA, the employees are considered employees in respect of the additional benefits you provide because the company would have had withholding obligations if it made a cash payment to the employees instead. Therefore, it follows that these employees are treated as employees for the purposes of the FBTAA in respect of the provision of accommodation. As such the benefit (accommodation) is provided to the company’s employees, the second condition (i.e. a benefit is provided to an employee) of the definition of a ‘fringe benefit’ as defined in subsection 136(1) of the FBTAA would be satisfied . 3. The benefit provided by an employer, an associate of the employer or a third party ‘Employer’ is defined in subsection 136(1) of the FBTAA to mean a current, future or former employer. As discussed above, non-resident employees travelling to Australia are employed by the company for the purposes of the FBTAA. Therefore, the third condition (i.e. a benefit is provided by an employer) of the definition of a ‘fringe benefit’ as defined in subsection 136(1) of the FBTAA would be satisfied . 4. The benefit provided in respect of the employment of the employee As per subsection 136(1) of the FBTAA, 'in respect of’ in relation to the employment of an employee includes by reason of, by virtue of, or for or in relation directly or indirectly to, that employment. Subsection 148(1) of the FBTAA stipulates that a benefit will be provided in respect of the employment of an employee: - whether or not the benefit also relates to some other matter or thing; - whether the employment is past, present or future; - whether or not the benefit is surplus to the recipient's requirements; - whether or not the benefit is also provided to another person; - whether or not the benefit is offset by any inconvenience or disadvantage; - whether or not the benefit is provided or used, or required to be provided or used, in connection with any employment; - whether or not the provision of the benefit is in the nature of income, and - whether or not the benefit is provided as a reward for services rendered, or to be rendered, by the employee. In J & G Knowles & Associates Pty Ltd v Federal Commissioner of Taxation (2000) 96 FCR 402; 2000 ATC 4151; (2000) 44 ATR 22 ( Knowles ), the full Federal Court – in examining the meaning of 'in respect of’ an employee’s employment – held that the phrase required a 'nexus, some discernible and rational link, between the benefit and employment’, though noted that 'what must be established is whether there is a sufficient or material, rather than a causal, connection or relationship between the benefit and the employment’. Based on the facts, the connection between the accommodation benefits received by non-resident employees while working in Australia, and their employment is material and sufficient, and not merely causal. As such, the fourth condition (i.e. a benefit is provided in respect of the employment of the employee) of the definition of a ‘fringe benefit’ as defined in subsection 136(1) of the FBTAA would be satisfied . 5. The benefit is not specifically excluded from the definition of a fringe benefit A benefit that comes within paragraphs (f) to (s) of the definition of fringe benefit in subsection 136(1) of the FBTAA will not be a fringe benefit. Paragraph 136(1)(g) provides that an exempt benefit will not be a fringe benefit. In considering whether the accommodation benefits provided by the company fall within any of the exempt benefits listed in the FBTAA, it is necessary to initially determine the types of fringe benefits that are applicable under the FBTAA. The provision of accommodation to an employee who is living away from their usual place of residence will be a ‘residual benefit’ as defined in section 45 of the FBTAA as it does not come within a provision of Subdivision A of Divisions 2 to 11. Will the benefits be exempt benefits under section 47A of the FBT Act? | Detailed Reasoning - Exemption No-Private-Use Declaration: Section 47A of the FBTAA provides the following: 47A(1) [Exempt benefit] A residual fringe benefit that is covered by a no-private-use declaration is an exempt benefit. 47A(2) [No-private-use declaration] An employer may make a no-private-use declaration that covers all the employer's residual fringe benefits for an FBT year that are covered by a consistently enforced policy in relation to the use of the property that is the subject of the benefit that would result in the taxable value of the benefit being nil. 47A(3) [Form of declaration] The declaration must be in a form approved in writing by the Commissioner and be made by the declaration date. The conditions in section 47A of the FBTAA would be met if, for example, the benefits were used only for employment-related purposes so that the taxable value of the benefit would be reduced to nil under the Otherwise Deductible Rule (ODR). Under the ODR in section 52 of the FBTAA (pertaining to residual fringe benefits), the taxable value of a residual fringe benefit is reduced to nil/reduced by the amount that an employee would have been entitled to claim as a one-off income tax deduction had the employee incurred and paid unreimbursed expenditure in respect of the accommodation benefit. The ODR only applies where the employee would have been entitled to a once-only deduction for the accommodation expenditure paid by the employer. A 'once-only’ deduction is defined in subsection 136(1) of the FBTAA to mean one that is wholly or partly allowable under the income tax law in only one income year. For an employer (the company) to reduce the taxable value of a fringe benefit under the ODR, non-resident employees who have travelled to Australia to work for no more than three months would have had to incur the accommodation expense solely relating to the performance of their employment-related duties and that expense would have to be wholly deductible to that employee for income tax purposes. Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for a loss or outgoing incurred in gaining or producing assessable income. However, no deduction is allowed for losses or outgoings to the extent to which they are of a capital, private or domestic nature, or are incurred in gaining or producing exempt income, or are otherwise prevented from being deductible by a specific provision of the ITAA 1997. For any deduction to be allowable under section 8-1 of the ITAA 1997, an employee must be able to demonstrate that there is a real and direct connection between an outgoing (in this case, the accommodation expense) and the gaining of assessable income, so that the outgoing is incidental and relevant to the actual activities that gain assessable income. The extent to which accommodation expenses would be an allowable income tax deduction if incurred by an employee is determined under the general deduction provisions in section 8-1 of the ITAA 1997. An expense is deductible under section 8-1 when the essential character is that of an income-producing expense. As stated in Taxation Ruling TR 95/33 Income tax: subsection 51(1) – relevance of subjective purpose, motive or intention in determining the deductibility of losses and outgoings , the essential character of an expense is a question of fact to be determined by an objective analysis of all the surrounding circumstances. Tax Determination TD 93/230 Income tax and fringe benefits tax: is a camping allowance assessable under section 30 of the Fringe Benefits Tax Assessment Act 1986 or under Division 6 of the Income Tax Assessment Act 1997 (TD 93/230), stated that the following factors were taken into account by Hill J in the Federal Court in Roads and Traffic Authority of New South Wales v. Federal Commissioner of Taxation (1993) 43 FCR 223; 93 ATC 4508; (1993) 26 ATR 76 (RTA case) in determining whether expenses incurred by an employee were in respect of gaining assessable income: (a) the employee was required by the employer, as an incident of their employment, to live close by their work (b) the employee was only living away from home for relatively short periods of time (c) the employee did not choose to live at the places where the camp sites were located, and (d) the employee had a permanent home elsewhere. These factors are all present in the current scenario. Non-resident employees travel to Australia from their usual place of residence in order to perform their duties for no longer than three months. When travelling to Australia for work, non-resident employees are required to fly into Australia prior to going to the other work locations. The company has an obligation to house them for a period of time before they can fly out to perform their duties at the other work locations. Non-resident employees are accommodated at a staff house in Australia when they are not working at the other work locations. Non-resident employees come to Australia for up to three months on subclass 400 short stay specialist visas. Non-resident employees only come to Australia temporarily and are not accompanied by their families. After the three month period has finished, non-resident employees return to their home overseas. Based on the above analysis, it can be said that the ‘essential character’ of an accommodation expense – had it been incurred by an employee who has come to work in Australia for a short-term is that of an income-producing expense. Such an expense would have been incurred to gain assessable income. Therefore, had the employee incurred and paid unreimbursed expenditure in respect of their short-term accommodation while working in Australia, they would have been entitled to claim such an expense as a one-off income tax deduction pursuant to section 8-1 of the ITAA 1997. It follows that the ODR in section 52 of the FBTAA would apply such that the company would be able to reduce the taxable value of the residual fringe benefit by the amount that non-resident employees would otherwise have been entitled to claim as a once-only income tax deduction had non-resident employees incurred and paid unreimbursed expenditure in respect of the accommodation benefit. Conclusion in respect of section 47A of the FBTAA The Commissioner considers that – in circumstances where the company make a ‘no-private-use’ declaration by the declaration due date each FBT year, where such a declaration covers all of its residual fringe benefit for the FBT year which are covered by a consistently enforced policy in relation to the provision of accommodation to non-resident employees in-bound to Australia to work, the exemption under section 47A of the FBTAA would apply to render such accommodation benefits an exempt benefit. Therefore, with respect to the provision of residual fringe benefits (accommodation expenses), the fifth condition (i.e. the benefit provided is not specifically excluded) of the definition of a ‘fringe benefit’ as defined in subsection 136(1) of the FBTAA would not be satisfied in circumstances where the company makes a ‘no-private-use’ declaration pursuant to section 47A. Conclusion Accommodation benefits provided by the company to non-resident employees who have come to work in Australia for a period of no more than three months are not subject to FBT on the following basis: ● If the company makes a 'no-private-use’ declaration pursuant to section 47A of the FBTAA in respect of the provision of residual fringe benefits (accommodation provided), these benefits would not satisfy the definition of a 'fringe benefit’ under subsection 136(1) as they constitute an exempt benefit. ● Alternatively, if the company do not make a 'no-private-use’ declaration pursuant to section 47A of the FB TAA, then the associated accommodation benefit would constitute a 'fringe benefit’ as defined in subsection 136(1). As such, the taxable value of the benefit can be reduced to nil using the ODR under section 52 provided an 'Otherwise Deductible’ declaration is obtained from the applicable employee.

Question 1: Can subsection 31E(a) of the FBTAA be satisfied given that non-resident employees are based in Australia on a Subclass 400 short stay Visa for three months, if during these three months non-resident employees will also be working at the company premises in Australia (on a standard five day week) and at various facilities?