Determining if allowances or benefits provided to an employee relate to travelling on work or living at a location - ATO compliance approach

This Guideline outlines the ATO's compliance approach to determining if employees in certain circumstances are travelling on work [1] or living at a location away from their normal residence [2] (living at a location). [3] This Guideline should be read in conjunction with Taxation Ruling TR 2021/4 Income tax and fringe benefits tax: employees: accommodation and food and drink expenses, travel allowances, and living-away-from-home allowances. [4]

In order to determine the nature of an allowance paid, employers are required to consider all relevant circumstances to determine whether the employee is travelling on work or living at a location. The nature of an allowance is not to be determined by reference solely to its name or the period for which it is paid. [5] As such, there will be circumstances in which it may be difficult for an employer to conclude whether an employee is travelling on work or living at a location.

This Guideline is focused on providing practical guidance to assist in determining whether: • an allowance paid by an employer to an employee is paid for - travelling on work, which will be a travel allowance that is assessable to an employee and will not incur FBT [6] , or - living at a location which may be a LAFHA benefit [7] , and • amounts reimbursed or paid by an employer would have been deductible to the employee had they purchased the goods or services (that is, it would be otherwise deductible [8] under the FBTAA). [9]

Where an employer is eligible to rely on this Guideline, and does so, they are not required to determine definitively if an employee is living away from their normal residence or not. If an employer is outside the terms of the compliance approach in this Guideline, this should not be construed as meaning that the employee is living at a location. ATO officers will not approach this Guideline as imposing a 'bright line' to this effect - the matters set out in TR 2021/4 would need to be considered to reach a conclusion.

Expenses for living at a location are usually not deductible. [10] However, expenses incurred on accommodation and food and drink are usually deductible, or otherwise deductible, where an employee is working away from home for short periods of time. In these situations, an employee is generally travelling on work. [11]

In many cases, short periods of travel can be consistent with an employee travelling on work in the course of their employment and incurring deductible expenses. In applying the views in TR 2021/4, the concept of 'reasonably short' [12] is used. In considering whether an employee's presence at a work location [13] is reasonably short, consideration needs to be given to the: • time spent working away from home, and • pattern of visits to that location compared with visits to other locations.

Where an employee maintains a continuous presence at a work location, their presence will be reasonably short if all of the criteria in paragraph 12 of this Guideline are met.

All employers who provide benefits referred to in paragraph 3 of this Guideline to their employees (who do not work on a fly-in fly-out or drive-in drive-out basis) may rely on this Guideline. Fly-in fly-out and drive-in drive-out employees are specifically dealt with under the FBTAA. [14]

An employee works on a fly-in fly-out or drive-in drive-out basis when all of the following apply: • On a regular and rotational basis, the employee works for a number of days and has a number of days off which are not the same days in consecutive weeks. • The employee travels to their work location during their days on and returns to their home during their days off. • It is customary in the industry in which the employee works for employees performing similar duties to work on a rotational basis and return home during their days off. • It is unreasonable to expect the employee to travel to their work location from their home and back again on a daily basis, given the locations of the two places. • It is reasonable to expect that the employee will resume living at their home when the employment duties no longer require them to live away from home.

If an employer chooses not to rely on this Guideline or does not meet the requirements in paragraph 12 of this Guideline; they will need to apply the relevant FBT provisions to determine if a FBT liability arises for the benefit provided (or if an exemption or concession applies) and ensure they substantiate (through obtaining relevant declarations or documentation) how they determined the taxable value of the benefit.

This Guideline applies both before and after its date of issue.

The Commissioner will accept that an employee is travelling on work and will generally not apply compliance resources to determine if benefits referred to in paragraph 3 of this Guideline relate to expenses for living at a location when all of the following circumstances are satisfied: The employer The employee • provides an allowance to an employee or pays or reimburses [15] accommodation and food and drink expenses for the employee • does not provide the reimbursement or payment as part of a salary-packaging arrangement and the employee is not given the option to elect to receive additional remuneration in lieu • includes the travel allowance on the employee's payment summary or income statement and withholds tax, where appropriate [16] , and • obtains and retains the relevant documentation to substantiate the fact that all of these circumstances are met. [17] • is away from their normal residence for work purposes [18] • does not work on a fly-in fly-out or drive-in drive-out [19] basis • is away at the same work location for no more than 21 calendar days at a time continuously • is away at the same work location for no more than 90 calendar days in total in an FBT year, and • must return to their normal residence as soon as practicable when their period away ends. [20]

The compliance approach in this Guideline sets a period of no more than 90 calendar days in total for travel to the same work location in an FBT year. Provided that this requirement is met, the Guideline allows an employee to have numerous short stints of travel of up to, and including, 21 calendar days continuously. The number of days away includes the day of departure from the employee's normal residence and the day of departure from the work location that the employee has travelled to.

Kate lives in Perth and is employed by engineering company Employer Co. Kate spends most of her time working at Employer Co's head office in Perth.

From time to time, Kate is also required to spend between one and three weeks (no more than 21 calendar days) working in various remote locations of Employer Co in Western Australia (WA). Kate will sometimes add a privately-funded weekend on to her trip. She returns to her home in Perth for periods of more than a week before her next trip.

When this occurs, Employer Co pays Kate an allowance which she spends on accommodation and food and drink while she is away. Kate is away for a period of no more than 90 calendar days in total in the same location in WA in the FBT year.

The allowance is included in Kate's assessable income and Kate may be entitled to a deduction for her accommodation and food and drink expenses.

Employer Co is able to rely on this Guideline as the requirements in paragraph 12 of this Guideline are met, that is, the Commissioner would accept that Kate is travelling on work. Employer Co is paying Kate a travel allowance and not a LAFHA, and Employer Co is not liable for FBT on the allowance paid.

Louise works in Brisbane and is employed by engineering company Employer Co.

Employer Co gives Louise a three-month assignment in a remote work location in WA to perform duties for Employer Co. As part of the agreement, Louise works during the three-month assignment for: • three weeks in WA, returning to Brisbane for two weeks to perform duties in the Brisbane office • another three weeks in WA in the same work location, returning to Brisbane to again perform duties in the Brisbane office, this time for a week, and • another three weeks in WA in the same work location.

In effect, during the three-month assignment, Louise works in the same work location in WA for nine weeks and is home for three weeks in between. She is away for no more than 21 calendar days at a time continuously and is away for a period of no more than 90 calendar days in the same work location in total. Louise does not return to work again in the same work location in WA at the end of the three-month assignment.

Employer Co pays Louise's accommodation and food and drink expenses while she is in WA. The accommodation and food and drink expense amounts are not provided to Louise as part of a salary-packaging arrangement. Louise cannot claim the accommodation and food and drink expenses as a deduction in her tax return as they have been paid for by Employer Co.

Employer Co is able to rely on this Guideline as the requirements in paragraph 12 of this Guideline are met. The Commissioner would accept that Louise is travelling on work. Employer Co is not liable for FBT on the accommodation and food and drink expense payment benefits it provides as the otherwise deductible rule applies.

Ben lives in Melbourne and is employed by a law firm, ABC Co.

Ben is sent to Tasmania for 14 days to work on a litigation case. He then is sent to Canberra for 20 days to work on another litigation case. Ben does not return to his normal residence in Melbourne in between.

ABC Co is able to rely on this Guideline as the requirements in paragraph 12 of this Guideline are satisfied. While Ben is away from his normal residence for 34 days in total, he is not in any single work location for more than 21 calendar days, and he returns to his normal residence as soon as practicable after the period away.

Employer Co (referred to in Examples 1 and 2 of this Guideline) undertakes a four-month project near Adelaide. Jeremy, who is based in Melbourne, is appointed project manager.

Jeremy works from Adelaide for the duration of the project, and Employer Co pays him an allowance to cover his food and accommodation expenses while he is working in Adelaide. Employer Co also pays for Jeremy to return to Melbourne for the weekend at the end of every fortnight.

Employer Co is not able to rely on this Guideline as the requirements in paragraph 12 of this Guideline are not satisfied. While each of the continuous periods Jeremy is away are no more than 21 calendar days, the overall period he is away at the one work location is more than 90 calendar days in total for the FBT year. Accordingly, without more information, the Commissioner does not accept that Jeremy is travelling on work.

Employer Co will need to apply the relevant FBT provisions to determine if the allowance Jeremy receives is a LAFHA benefit. Employer Co may, based on full consideration of the facts and circumstances of Jeremy's travel (by analysing the factors in paragraph 43 of TR 2021/4), determine that he is travelling on work.