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Tax Laws Amendment (2012 Measures No. 4) Bill 2012

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2010-2011-2012

THE PARLIAMENT OF THE COMMONWEALTH OF AUSTRALIA

HOUSE OF REPRESENTATIVES

TAX LAWS AMENDMENT (2012 MEASURES N o . 4) Bill 2012

SUPPLEMENTARY EXPLANATORY MEMORANDUM

Amendments to be moved on behalf of the Government

(Circulated by the authority of the

Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP)

 



Table of contents

Glossary.............................................................................................................. 1

General outline and financial impact............................................................ 3

Chapter 1               Reform of the taxation treatment of living-away-from-home allowances and benefits.................................................................................. 5

Index................................................................................................................. 23

 



The following abbreviations and acronyms are used throughout this supplementary explanatory memorandum.

Abbreviation

Definition

Commissioner

Commissioner of Taxation

FBT

Fringe benefits tax

FBTAA

Fringe Benefits Tax Assessment Act 1986

LAFH

Living away from home

LAFHA

Living-away-from-home allowance



Reform of the taxation treatment of living-away-from-home allowances and benefits

Schedule 1 to this Bill amends the Fringe Benefits Tax Assessment Act 1986 to limit the concessional tax treatment of living-away-from-home (LAFH) allowances and benefits to those provided to employees (other than those working on a ‘fly-in fly-out’ or ‘drive-in drive-out’ basis) for a maximum period of 12 months who:

•        maintain a home in Australia (at which they usually reside) for their immediate use and enjoyment at all times while living away from that home for their work; and

•        have provided their employer with a declaration about living away from home.

Special rules apply to employees who are working on a fly-in fly-out or drive-in drive-out basis.  Certain conditions must be satisfied to be one of these employees, and to receive the concessional tax treatment, the employee must provide their employer with a declaration about living away from home.  These employees do not have to maintain a home in Australia and the 12-month limit on concessional tax treatment does not apply.

Date of effect The reforms apply from 1 October 2012.

Transitional rules apply to permanent residents who have employment arrangements for LAFH allowances and benefits in place prior to 7.30 pm (AEST) on 8 May 2012.  These employees are not required to maintain a home in Australia for their immediate use and enjoyment at all times for the concessional treatment to apply and the concession is not limited to a maximum period of 12 months until the earlier of 1 July 2014 or the date a new employment contract is entered into, or the existing contract is varied in a material way. 

Transitional rules also apply to temporary residents who maintain a home in Australia for their immediate use and enjoyment at all times, and have employment arrangements for LAFH allowances and benefits in place prior to 7.30 pm (AEST) on 8 May 2012.  These employees will have until the earlier of 1 July 2014 or the date a new employment contract is entered into or the existing contract is varied in a material way before the concessional treatment is limited to a maximum period of 12 months.

Proposal announced These amendments were announced in the 2011-12 Mid-Year Economic and Fiscal Outlook and the 2012-13 Budget.

Financial impact :  The amendments do not alter the estimated fiscal impact of the measure.  This measure is expected to have a fiscal impact of $1.9 billion over the forward estimates. 

Human rights implications :  Schedule 1 to this Bill is compatible with the recognised human rights and freedoms.  See Statement of Compatibility with Human Rights — Chapter 1, paragraphs 1.161 to 1.168.

Compliance cost impact Low.  Employers will have some compliance costs in familiarising themselves with the reforms, particularly during the transitional period.  There will be some on-going compliance costs for employers in line with their existing obligations under the fringe benefits tax law.

 



Amendment

Outline of amendment

1.1                   This amendment replaces Schedule 1 to the Bill to ensure that the taxation treatment of living-away-from-home (LAFH) allowances and benefits remains in the fringe benefits tax (FBT) system.

1.2                   The Fringe Benefits Tax Assessment Act 1986 (FBTAA) is amended to limit the concessional tax treatment of LAFH allowances and benefits to those provided to employees (other than those working on a ‘fly-in fly-out’ or ‘drive-in drive-out’ basis) for a maximum period of 12 months who:

•        maintain a home in Australia (at which they usually reside) for their immediate use and enjoyment at all times while living away from that home for their work; and

•        have provided their employer with a declaration about living away from home.

1.3                   Employees who are working on a fly-in fly-out or drive-in drive-out basis do not have to maintain a home in Australia and the 12-month limit on concessional tax treatment does not apply to them.  Certain conditions must be satisfied to be one of these employees.

1.4                   The taxable value of LAFH allowance (LAFHA) fringe benefits provided in these circumstances can be reduced by the employer by:

•        the amount of the employee’s actual accommodation expenditure incurred in relation to living away from home that is substantiated; and

•        the amounts incurred by the employee for food or drink costs incurred in relation to living away from home less a statutory amount if applicable.

1.5                   Subject to transitional rules, this amendment generally applies from 1 October 2012.

1.6                   All legislative references are to the FBTAA unless otherwise stated.

Summary of amendment

1.7                   This measure limits the concessional tax treatment of LAFH allowances 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’s reasonable amount).  The concessional treatment is limited to a period of 12 months for an employee at a particular work location.  Employees must provide the employer with a declaration relating to living away from home.

1.8                   Special rules apply to employees who are working on a fly-in fly-out or drive-in drive-out basis.  These employees do not have to maintain a home in Australia for their own use for the concessional treatment to apply in relation to the fringe benefits and the concessional treatment is not limited to a period of 12 months.  These employees still have to substantiate expenses incurred on accommodation, and food or drink (beyond the Commissioner’s reasonable amount), and provide the employer with a declaration relating to living away from home.

1.9                   The treatment of LAFH allowances and benefits under Division 7 of Part III (sections 30 and 31); section 21, subsection 47(5) and section 63 are amended to limit the concessional treatment for LAFH allowances and benefits to certain circumstances.

Comparison of key features of new law and current law

New law

Current law

Concessional treatment for LAFH allowances and benefits is limited to employees (other than those working on a fly-in fly-out or drive-in drive-out basis) who:

•        maintain a home in Australia (at which they usually reside) for their immediate use and enjoyment at all times while required to live away from that home for their work;

•        incur expenses for accommodation and food or drink for a maximum period of 12 months while living away from home at a particular work location; and

•        have provided their employer with a declaration about living away from home.

Special rules apply to employees who are working on a fly-in fly-out or drive-in drive-out basis.  Certain conditions must be satisfied to be one of these employees, and to receive the concessional tax treatment, the employee must provide their employer with a declaration about living away from home.

The taxable value of LAFHA fringe benefits provided to these employees can be reduced by the employer by:

•        the amount of the employee’s actual substantiated accommodation expenditure while living away from home; and

•        the amounts incurred by the employee for food or drink costs while living away from home less a statutory amount if applicable.

Subject to transitional rules, this amendment generally applies from October 2012.

Concessional taxation treatment applies to LAFH allowances and benefits.

The taxable value of the LAFHA fringe benefit is the value of the benefit reduced by either or both of two components, the ‘exempt accommodation component’ and the ‘exempt food component’. 

No FBT is payable on the exempt accommodation or exempt food components of a LAFHA fringe benefit.

Exemptions and concessions apply to accommodation, food or expense payments provided by the employer.

Detailed explanation of new law

LAFHA fringe benefits

1.10               Under section 30, a benefit arises where an allowance has been paid to an employee that is in the nature of compensation for additional expenses incurred, and other disadvantages suffered, because the employee is required to live away from his or her usual place of residence to perform the duties of employment.  The taxable value of this LAFHA fringe benefit is calculated under section 31.  Section 31 currently reduces the taxable value by any exempt accommodation and exempt food components. 

1.11               Section 30 is amended to change the circumstances in which a LAFHA fringe benefit arises from an employee living away from the ‘usual place of residence’ to an employee whose duties of employment require them to live away from their ‘normal residence’.  [Schedule 1, Part 2, items 4 and 5 and section 30]

1.12               Normal residence is defined in subsection 136(1) as:

•        the employee’s usual place of residence if that is in Australia; or

•        if the employee’s usual place of residence is not in Australia, either the employee’s usual place of residence or the place in Australia where the employee usually resides while in Australia.  [Schedule 1, Part 2, item 23, subsection 136(1)]

1.13               ‘Usual place of residence’, as established by case law, does not achieve the desired outcome of the reforms.  Usual place of residence is not a defined term but there are numerous court decisions that have established the principles for determining whether or not an employee is regarded as living away from their usual place of residence.  The customary meaning of the word ‘reside’ is to dwell permanently or for a considerable period of time.  For example, someone who comes to Australia from the United Kingdom for a temporary period of employment will probably have their usual place of residence in the United Kingdom, but the place they usually reside will be in Australia while they are working here.

1.14               By replacing the phrase ‘usual place of residence’ with the broader term ‘normal residence’, a LAFHA fringe benefit can arise regardless of the location of the employee’s usual place of residence.  The location where the employee usually resides in Australia is relevant to the calculation of the taxable value of the fringe benefit.

Example 1.1  

Fiona, a British citizen, comes to Australia to work for three years.  She intends to return to the United Kingdom at the end of the period.  Her usual place of residence is in the United Kingdom.

Fiona rents a home in Sydney for the duration of her employment in Australia.

After Fiona has been in Australia for six months, her employer asks her to work in the Melbourne office for a period for which she will be paid a LAFHA.  For the purposes of determining the taxable value of the LAFHA fringe benefit, Sydney is considered to be her normal residence while in Australia.

However, had Fiona only stayed in Sydney for a few weeks before moving to Melbourne, Sydney would not be considered to be her normal residence in Australia because she had lived there only briefly.

Taxable value of LAFHA fringe benefit

1.15               Division 7 is amended so that the determination of the taxable value of the LAFHA fringe benefit is dependent on the circumstances of the employee to whom the fringe benefit is provided.  Broadly, these circumstances include:

•        the employee maintains a home in Australia at which they usually reside and the fringe benefit relates to the first 12-month period — the taxable value is determined under section 31;

•        the employee is working on a fly-in fly-out or drive-in drive-out basis — the taxable value is determined under section 31A; and

•        all other cases — the taxable value is determined under section 31B.

[Schedule 1, Part 1, item 1, sections 31, 31A and 31B]

Taxable value — employee maintains a home in Australia

1.16               The taxable value of a LAFHA fringe benefit provided to an employee is calculated as the amount of the fringe benefit reduced by:

•        any exempt accommodation component; and

•        any exempt food component ;

[Schedule 1, Part 1, item 1, subsection 31(2)]

where:

•        the employee maintains a home in Australia (at which they usually reside) for their immediate use and enjoyment at all times;

•        the fringe benefit relates to the first 12 months of the employee living away from that home in Australia for the purposes of their employment; and

•        the employee provides the employer with a declaration about living away from home. 

[Schedule 1, Part 1, item 1, subsection 31(1)]

1.17               The taxable value is not reduced for any exempt food component to the extent the fringe benefit relates to a period during which the employee resumes living at his or her normal residence.  This means that if the employee returns to their home for any period, any allowance provided for food during that period is fully taxable.  [Schedule 1, Part 1, item 1, subsection 31(3)]

Exempt accommodation component

1.18               The accommodation component is the amount of the LAFHA fringe benefit that it is reasonable to conclude is compensation for expenses to be incurred by the employee for accommodation while the employee is living away from home.  The accommodation expenses are for both the employee and any eligible family members.  Eligible family member is defined in subsection 136(1) to include the employee and the spouse and any children living with the employee.  [Schedule 1, Part 2, item 12, subsection 136(1)]

1.19               The exempt accommodation component is so much of the accommodation component that equals the accommodation expenses actually incurred by the employee.  Where a family member incurs these expenses on behalf of the employee, that family member is considered to be acting as an agent of the employee and, therefore, the employee is still the person incurring those expenses.  The employee must substantiate these expenses.  If an employee does not fully expend the LAFHA provided in respect of the accommodation component, the excess is not an exempt accommodation component.  [Schedule 1, Part 2, item 16, subsection 136(1)]

Exempt food component

1.20               The food component is the amount of the LAFHA fringe benefit that it is reasonable to conclude is compensation for expenses to be incurred by the employee for food or drink while the employee is living away from home.  The expenses are for food or drink for both the employee and any eligible family members.  [Schedule 1, Part 1, item 1, section 31H and Part 2, item 18, subsection 136(1)]

1.21               The exempt food component is so much of the food component less the applicable statutory food total, for the total food or drink expenses actually incurred by the employee during the period to which the fringe benefit relates.  Where a family member incurs these expenses on behalf of the employee, that family member is considered to be acting as an agent of the employee and, therefore, the employee is still the person incurring those expenses.  [Schedule 1, Part 1, item 1, subsection 31H(1) and Part 2, item 17, subsection 136(1)]

1.22               The applicable statutory food total is:







[Schedule 1, Part 1, item 1, subsection 31H(2)]

1.23               This reflects existing practices where employers may provide an allowance that is net of the statutory food amount to compensate employees for additional food or drink expenses.  Statutory food amount is currently defined in subsection 136(1).

Employee maintains a home in Australia

1.24               An employee’s home in Australia (the place in Australia where the employee usually resides) can be a unit of accommodation as defined in subsection 136(1) of the FBTAA.  This definition is broad and includes a house, flat, home unit, caravan or accommodation in living quarters.  [Schedule 1, Part 1, item 1, section 31C]

1.25               To maintain a home in Australia, the employee, or their spouse, must have an ownership interest in a unit of accommodation and that home must be available for their immediate use and enjoyment at all times while they are living away from it.  It must also be reasonable to expect that the employee will resume living at that home when they are no longer living away from home for the purposes of their employment.  [Schedule 1, Part 1, item 1, subparagraph 31C(a)(i) and paragraph 31C(b)]

1.26               Ownership interest has the meaning given by the Income Tax Assessment Act 1997 .  Section 118-130 of that Act provides that an ownership interest includes both a legal or equitable interest and a licence or right to occupy a dwelling.  Therefore, an employee, or their spouse, can have an ownership interest in a home they own or rent. 

1.27               Adult children living in the family home generally do not have an ownership interest in the home.  Therefore, an employee living with their parents does not have an ownership interest in the home and therefore is not maintaining a home as required.

1.28               For the employee to maintain a home for their immediate use and enjoyment at all times, the home cannot be rented out or sub-let while they are living away from it.  That is, 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.  [Schedule 1, Part 1, item 1, subparagraph 31C(a)(ii)]

1.29               If an individual has a boarder or tenant staying with them in their normal residence, the employee can still be considered to be maintaining the home for their own use and enjoyment.  However, the boarder’s stay must not impinge on the availability of the residence for the individual’s immediate and reasonable use and enjoyment.  Likewise, if an employee has a house-sitter in their home while they are living away from it, they will be maintaining the home when the house-sitter is either required to vacate the residence or their stay does not impinge on the employee’s use and enjoyment of it whenever the employee returns home, for example, during temporary visits.

First 12 months employee is required to live away from home

1.30               The fringe benefit has to relate to all or part of the first 12 months that an employee is living away from home in Australia for the purposes of their employment.  [Schedule 1, Part 1, item 1, subsection 31D(1)]

1.31               The employer may choose to pause the 12-month period.  For example, the employer may choose to pause the period because the employee is taking leave, such as annual leave, long service leave or sick leave.  This provides the employer with flexibility to pause the period when circumstances arise in which it is appropriate and beneficial to do so.  [Schedule 1, Part 1, item 1, subsection 31D(2)]

1.32               If an employer pauses the 12-month period for an employee, the taxable value of the fringe benefit is not reduced for any exempt accommodation component or exempt food component; that is, the full amount of the fringe benefit is the taxable value during the paused period.  [Schedule 1, Part 1, item 1, subsection 31(4)]

Example 1.2  

Jess is receiving a LAFHA from her employer while she is seconded to Brisbane for 12 months.  Her usual place of residence is in Canberra.  She is living in a serviced apartment in Brisbane. 

Part way through the secondment, Jess takes a month’s leave.  Her employer wants her to complete a full 12-month secondment in Brisbane and indicates that he will pause the 12-month period while she is on leave.

During the paused period, Jess does not lease the serviced apartment in Brisbane and her employer does not pay her a LAFHA.

When Jess resumes her secondment in Brisbane, the employer again pays her a LAFHA and her 12-month period recommences.

Had Jess’s employer continued to pay her a LAFHA during the pause in the 12-month period, he would not have been able to reduce the taxable value of the LAFHA.

1.33               A new 12-month period starts if the employee’s work location changes; that is, the employee moves to another location to perform the duties of employment.  It must also be unreasonable to expect the employee to commute to the new location from the earlier location for which a LAFHA fringe benefit was provided.  [Schedule 1, Part 1, item 1, paragraph 31D(2)(b)]

Example 1.3  

Frank lives and works in Canberra.  His employer asks him to work in Sydney for a period of nine months for which a LAFHA will be paid.  After that period of employment in Sydney, Frank returns to Canberra.  The LAFHA fringe benefit provided to Frank for the nine months relates to part of the first 12 months that Frank is living away from his Australian home.

At a later time, Frank’s employer asks him to work in Melbourne for a number of months.  Because this is a new location, a new 12-month period starts for any LAFHA paid to Frank during his time working in Melbourne.

1.34               All other changes in the nature of the employee’s employment are irrelevant for the purposes of the 12-month period.  Changes to the conditions of employment, such as a promotion of the employee to a management position, or a change in the employee’s job title, within the same work location, do not affect the 12-month period.  [Schedule 1, Part 1, item 1, paragraph 31D(2)(c)]

1.35               If an employee takes up employment with an associate of their employer, the 12-month period is not affected for the same employment location.  For example, a corporate restructure that transfers the employee from one entity to another associated entity does not affect the calculation of the 12-month period.  [Schedule 1, Part 1, item 1, subsection 31D(2)]

Employee provides a declaration

1.36               An employee receiving a LAFHA fringe benefit is required to give the employer a declaration in a form approved by the Commissioner of Taxation (Commissioner).  Amongst other things, the form must require the employee to provide the following details in the declaration:

•        the address of the place in Australia where the employee usually lives [Schedule 1, Part 1, item 1, subparagraph 31F(1)(a)(i)] ;

•        the address of the place, or places, where the employee actually resided while living away from home [Schedule 1, Part 1, item 1, subparagraph 31F(1)(a)(iii)] ; and

•        a statement that the employee has satisfied the requirements of maintaining a home in Australia for the place in Australia where they usually reside [Schedule 1, Part 1, item 1, subparagraph 31F(1)(a)(ii)] .

1.37               The declaration must be given to the employer before the declaration date for the FBT year in which the benefit was provided.  Declaration date is defined in subsection 136(1) as the date the employer lodges the FBT return for that year or a later date as allowed by the Commissioner.  [Schedule 1, Part 1, item 1, subsection 31F(2)]

Taxable value — fly-in fly-out and drive-in drive-out employees

1.38               The taxable value of a LAFHA fringe benefit for fly-in fly-out or drive-in drive-out (or equivalent) employees is calculated as the amount of the fringe benefit reduced by:

•        any exempt accommodation component; and

•        any exempt food component ;

[Schedule 1, Part 1, item 1, subsection 31A(2)]

where the employee:

•        has residential accommodation at or near the usual place of employment;

•        is considered to be working on a fly-in fly-out or drive-in drive-out basis; and

•        provides the employer with a declaration about living away from home [Schedule 1, Part 1, item 1, subsection 31A(1)] .

1.39               Exempt accommodation component and exempt food component are explained above at paragraphs 1.18 to 1.23.

Employee is working on a fly-in fly-out or drive-in drive-out basis

1.40               The employee is considered to be working on a fly-in fly-out or drive-in drive-out (or equivalent) basis when:

•        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, such as a standard five day working week and weekend [Schedule 1, Part 1, item 1, subparagraph 31E(a)(i)] ;

•        the employee returns to the employee’s normal residence during the days off [Schedule 1, Part 1, item 1, subparagraph 31E(a)(ii)] ;

•        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 days off; for example, miners — the work duties continue to be undertaken by other employees on a rotational basis while any particular employee is on days off [Schedule 1, Part 1, item 1, paragraph 31E(b)] ;

•        it is unreasonable to expect the employee to travel to and from work and the normal residence on a daily basis given the locations of the employment and their home [Schedule 1, Part 1, item 1, paragraph 31E(c)] ; and

•        it is reasonable to expect that the employee will resume living at the normal residence when the employment duties no longer require them to live away from home [Schedule 1, Part 1, item 1, paragraph 31E(d)] .

Employee provides a declaration

1.41               An employee receiving a LAFHA fringe benefit is required to give the employer a declaration in a form approved by the Commissioner.  Amongst other things, the form must require the employee to provide the following details in the declaration:

•        the address of the employee’s usual place of residence [Schedule 1, Part 1, item 1, subparagraph 31F(1)(b)(i)];

•        the address of the place, or places, where the employee actually resided while living away from home [Schedule 1, Part 1, item 1, subparagraph 31F(1)(b)(iii)] ; and

•        a statement that the employee has satisfied the requirement of it being reasonable to expect that the employee will resume living at the normal residence when the employment duties no longer require them to live away from home [Schedule 1, Part 1, item 1, subparagraph 31F(1)(b)(ii)] .

1.42               The declaration must be given to the employer before the declaration date for the FBT year in which the benefit was provided.  Declaration date is defined in subsection 136(1) as the date the employer lodges the FBT return for that year or a later date as allowed by the Commissioner.  [Schedule 1, Part 1, item 1, subsection 31F(2)] 

Taxable value — any other case

1.43               Where an employer provides a LAFHA fringe benefit to an employee who is neither maintaining a home in Australia nor working on a fly-in fly-out or drive-in drive-out (or equivalent) basis, the taxable value of the fringe benefit is the full amount of the fringe benefit.  [Schedule 1, Part 1, item 1, section 31B]

Substantiation

1.44               For the purposes of any exempt accommodation component and any exempt food component, substantiation requirements must be met by the employee.  The accommodation expenses incurred by an employee for living away from home must be substantiated in full; while food or drink expenses need only be substantiated where the expenses incurred while living away from home exceed an amount considered reasonable by the Commissioner.  That is, if the employee’s food or drink expenses incurred exceed the Commissioner’s reasonable amount, the full amount of the expenses incurred needs to be substantiated, not just the excess amount.  The Commissioner will issue advice specifying reasonable amounts for food or drink expenses.  [Schedule 1, Part 1, item 1, subsection 31G(1)]

Example 1.4  

Fred’s employer pays him more than the Commissioner’s reasonable amount for food or drink expenses as part of his LAFHA.  Fred incurs food or drink expenses to the full extent of the allowance provided.  Fred must substantiate all his food or drink expenses incurred, not just the amounts in excess of the Commissioner’s reasonable amount.

1.45               An employee satisfies the substantiation requirements if the employee gives the employer, before the declaration date for the relevant FBT year, either:

•        documentary evidence of the expense — that is, either the actual receipt or other evidence as appropriate (for example, credit card or bank statements), or a copy of these documents; or

•        a declaration in a form approved by the Commissioner setting out information about the expense.  [Schedule 1, Part 1, item 1, paragraph 31G(2)(a)]

1.46               Where the employee provides a declaration to the employer, the employee must retain the relevant documents to substantiate the expenses incurred for a period of five years from the declaration date.  However, this is not required where the employee provides documentary evidence of the expense to the employer.  [Schedule 1, Part 1, item 1, paragraph 31G(2)(b)]

1.47               There are existing penalties for making false or misleading declarations under the tax law (including criminal and administrative penalties).

1.48               The general record keeping rules in section 132 apply to the employer.

Other LAFH benefits

1.49               Section 21, subsection 47(5) and section 63 are also amended to limit the scope of the exemption for the direct provision of LAFH benefits to employees in a similar way as the concessional treatment of LAFHA fringe benefits has been limited.  Additional requirements, consistent with LAFHA fringe benefits, must be met for the LAFH benefits to be exempt benefits or for the taxable value of the benefits to be reduced.

1.50               The additional requirements for an accommodation expense payment benefit to be an exempt benefit under section 21 are:

•        the employee either:

-       satisfies the requirements about maintaining a home in Australia and the first 12-month period (as described at paragraphs 1.24 to 1.35)  [Schedule 1, Part 2, item 3, subparagraph 21(d)(i)] ; or

-       is working on a fly-in fly-out or drive-in drive-out (or equivalent) basis (as described at paragraph 1.40) [Schedule 1, Part 2, item 3, subparagraph 21(d)(ii)]; and

•        the employee provides the employer with a declaration about living away from home (as described at paragraphs 1.36 to 1.37 and 1.41 to 1.42) [Schedule 1, Part 2, item 3, paragraph 21(e)] .

1.51               The additional requirements for residual fringe benefits  consisting of the provision of accommodation and food or drink under subsection 47(5) to be an exempt benefit is:

•        the employee either:

-       satisfies the requirements about maintaining a home in Australia and the first 12-month period (as described at paragraphs 1.24 to 1.35)  [Schedule 1, Part 2, item 9, subparagraph 47(5)(d)(ii)] ; or

-       is working on a fly-in fly-out or drive-in drive-out (or equivalent) basis (as described at paragraph 1.40) [Schedule 1, Part 2, item 9, subparagraph 47(5)(d)(iii)] ; and

•        the employee provides the employer with a declaration about living away from home (as described at paragraphs 1.36 to 1.37 and 1.41 to 1.42) [Schedule 1, Part 2, item 7, paragraphs 47(5)(b) and (ba), and item 9, subparagraphs 47(5)(d)(ii) and (iii)] .

1.52               The additional requirements for the taxable value of LAFH food fringe benefits to be reduced under section 63 are:

•        the employee either:

-       satisfies the requirements about maintaining a home in Australia and the first 12-month period (as described at paragraphs 1.24 to 1.35)  [Schedule 1, Part 2, item 11, subparagraph 63(1)(d)(i)] ; or

-       is working on a fly-in fly-out or drive-in drive-out (or equivalent) basis (as described at paragraph 1.40) [Schedule 1, Part 2, item 11, subparagraph 63(1)(d)(ii)] ; and

•        the employee provides the employer with a declaration about living away from home (as described at paragraphs 1.36 to 1.37 and 1.41 to 1.42) [Schedule 1, Part 2, item 11, paragraph 63(1)(da)] .

Application and transitional provisions

1.53               The reforms apply generally to employees who are living away from their normal residence on or after 1 October 2012 in respect of all allowances and benefits provided in relation to the periods commencing on or after 1 October 2012 regardless of when the allowance or benefit was received or provided.  [Schedule 1, Part 3, item 26]

1.54               Transitional rules apply to:

•        employees who are permanent residents with employment arrangements in place prior to 7.30 pm (AEST) on 8 May 2012 (Budget time); and

•        the employment arrangement was not materially varied or renewed between Budget time and 1 October 2012. 

1.55               In these circumstances, the requirements that the employee must maintain a home in Australia and the fringe benefits must relate to the first 12 months the employee is living away from home do not apply until 1 July 2014.  However, if there is a material change to or renewal of the employment arrangement between 1 October 2012 and 1 July 2014, the new rules apply from the date of the change or renewal.  [Schedule 1, Part 3, subitems 27(1) and (3)]  

1.56               Transitional rules also apply to:

•        employees who are temporary or foreign residents with employment arrangements in place prior to 7.30 pm (AEST) on 8 May 2012 (Budget time);

•        the employment arrangement was not materially varied or renewed between Budget time and 1 October 2012; and

•        they are maintaining a home in Australia for their immediate use and enjoyment at all times. 

1.57               In these circumstances, the requirement that the fringe benefits must relate to the first 12 months the employee is living away from home does not apply until 1 July 2014.  However, if there is a material change to or renewal of the employment arrangement between 1 October 2012 and 1 July 2014, this rule does apply from the date of the change or renewal.  [Schedule 1, Part 3, subitems 27(2) and (3)]  

1.58               For employees who are living away from their normal residence on 1 October 2012, the first 12 months the employee is living away from home is treated as commencing on or after 1 October 2012.  [Schedule 1, Part 3, item 28]  

1.59               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 in 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. 

Consequential amendments

1.60               As a result of the reforms, a number of consequential amendments are required, largely to ensure consistent wording used across the FBTAA in relation to LAFH benefits. [Schedule 1, Part 2, items 2, 3, 6, 8, 10, 12 to 15, 19 to 22, 24 and 25, subsection 21(c)]

Statement of Compatibility with Human Rights

Prepared in accordance with Part 3 of the Human Rights (Parliamentary Scrutiny) Act 2011

Reform of the living-away-from-home allowance and benefit rules

1.61               This Schedule is compatible with the human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Overview

1.62               This Schedule reforms the LAFH allowance and benefit rules.

1.63               The transitional rules in this measure provide for a differentiated treatment of taxpayers, based on their residency status for income tax purposes — that is, between temporary and foreign residents, on the one hand, and permanent residents on the other.

Human rights implications

1.64               Some submissions to the consultation process on the exposure draft argued that the transitional rules are not compatible with international human rights conventions in so far as these prohibit discrimination on the basis of specified grounds, including race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status.  This argument depends on viewing residency for tax purposes as falling within ‘other status’.

1.65               However, there is a well-established body of international law and practice recognising that taxation laws of a State can differentiate between the tax treatment of residents of that State and the tax treatment of non-residents.  For example, treaties to prevent double taxation use residence status as a way to allocate taxing rights between States.  At the same time, discrimination between residents of the same State on the basis of their nationality is prohibited. 

1.66               The different treatment that the transitional rules in this measure give to taxpayers according to their residence status (as opposed to their nationality) is consistent with that body of international law and practice.

1.67               In light of this, there is no basis to conclude that this different treatment amounts to discrimination on the basis of ‘other status’ under the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011 .

Conclusion

1.68               This Bill is compatible with human rights as it does not raise any human rights issues.

 



Schedule 1:  Reform of living away from home allowance and benefit rules

Bill reference

Paragraph number

Part 1, item 1, sections 31, 31A and 31B

1.15

Part 1, item 1, subsection 31(1)

1.16

Part 1, item 1, subsection 31(2)

1.16

Part 1, item 1, subsection 31(3)

1.17

Part 1, item 1, subsection 31(4)

1.32

Part 1, item 1, subsection 31A(1)

1.38

Part 1, item 1, subsection 31A(2)

1.38

Part 1, item 1, section 31B

1.43

Part 1, item 1, section 31C

1.24

Part 1, item 1, subparagraph 31C(a)(i) and paragraph 31C(b)

1.25

Part 1, item 1, subparagraph 31C(a)(ii)

1.28

Part 1, item 1, subsection 31D(1)

1.30

Part 1, item 1, subsection 31D(2)

1.31, 1.35

Part 1, item 1, paragraph 31D(2)(b)

1.33

Part 1, item 1, paragraph 31D(2)(c)

1.34

Part 1, item 1, subparagraph 31E(a)(i)

1.40

Part 1, item 1, subparagraph 31E(a)(ii)

1.40

Part 1, item 1, paragraph 31E(b)

1.40

Part 1, item 1, paragraph 31E(c)

1.40

Part 1, item 1, paragraph 31E(d)

1.40

Part 1, item 1, subparagraph 31F(1)(a)(i)

1.36

Part 1, item 1, subparagraph 31F(1)(a)(ii)

1.36

Part 1, item 1, subparagraph 31F(1)(a)(iii)

1.36

Part 1, item 1, subparagraph 31F(1)(b)(i)

1.41

Part 1, item 1, subparagraph 31F(1)(b)(iii)

1.41

Part 1, item 1, subparagraph 31F(1)(b)(ii)

1.41

Part 1, item 1, subsection 31F(2)

1.37, 1.42

Part 1, item 1, subsection 31G(1)

1.44

Part 1, item 1, paragraph 31G(2)(a)

1.45

Bill reference

Paragraph number

Part 1, item 1, paragraph 31G(2)(b)

1.46

Part 1, item 1, section 31H and Part 2, item 18, subsection 136(1)

1.20

Part 1, item 1, subsection 31H(1) and Part 2, item 17, subsection 136(1)

1.21

Part 1, item 1, subsection 31H(2)

1.22

Part 2, items 2, 3, 6, 8, 10, 12 to 15, 19 to 22, 24 and 25, subsection 21(c)

1.60

Part 2, item 3, subparagraph 21(d)(i)

1.50

Part 2, item 3, subparagraph 21(d)(ii)

1.50

Part 2, item 3, paragraph 21(e)

1.50

Part 2, items 4 and 5 and section 30

1.11

Part 2, item 7, paragraphs 47(5)(b) and (ba), and item 9, subparagraphs 47(5)(d)(ii) and (iii)

1.51

Part 2, item 9, subparagraph 47(5)(d)(ii)

1.51

Part 2, item 9, subparagraph 47(5)(d)(iii)

1.51

Part 2, item 11, subparagraph 63(1)(d)(ii)

1.52

Part 2, item 11, paragraph 63(1)(da)

1.52

Part 2, item 11, subparagraph 63(1)(d)(i)

1.52

Part 2, item 12, subsection 136(1)

1.18

Part 2, item 16, subsection 136(1)

1.19

Part 2, item 23, subsection 136(1)

1.12

Part 3, subitems 27(1) and (3)

1.55

Part 3, subitems 27(2) and (3)

1.57

Part 3, item 26

1.53

Part 3, item 28

1.58

 not remove section break.