Case X41

Members:
GL McDonald DP

Tribunal:
Administrative Appeals Tribunal

Decision date: 30 March 1990.

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G.L. McDonald (Deputy President)

The applicant is applying for a review of a decision of the respondent disallowing $5,912 as a deduction from the applicant's assessable income for the year ended 30 June 1988. The applicant claims the amount is an allowance and constitutes a fringe benefit and is therefore not assessable under the provisions of sec. 26(e)(iv) of the Income Tax Assessment Act 1936 (``the Income Tax Act''). The respondent claims the amount is part of the applicant's gross assessable income and is not exempt income under the provisions of sec. 23L of the Income Tax Act.

The documents filed for the purposes of sec. 37 of the Administrative Appeals Tribunal Act 1975 along with other exhibits were admitted into evidence. The applicant and a taxation

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officer gave evidence. The applicant's former employer produced documents relating to the applicant's terms of employment. A statement of agreed facts was tendered.

I am satisfied that the facts are as follows.

The applicant is an accountant. From the end of 1977 onward apart from a period from January 1985-February 1986 the applicant lived outside the Perth metropolitan area in the following locations. Carnarvon (1978-1983), Busselton (January-October 1983), Karratha (October 1983-January 1985, and February 1986 onwards). For the period January 1985-February 1986 whilst in Perth the applicant lived in rented accommodation in Mt Hawthorn, a Perth suburb. The applicant is married and his wife accompanied him to each of the above locations. Throughout the period in question the applicant and his wife had returned to Perth for holidays to see their children and other members of their family. When in Perth they generally stayed with members of their family.

The applicant was employed by Z Pty. Ltd. on 5 March 1985 and until 20 February 1986 was located at their Perth office. He was then assigned to the company's Karratha office and remained employed with them at Karratha until October 1989. Z Pty. Ltd. is a large firm and is engaged in providing professional services connected with the North West Gas Shelf. Karratha is a town 1,500 kilometres north of Perth where a large number of personnel connected with the development of the North West Gas Shelf are located.

On 4 February 1986 the applicant was offered an assignment to the Karratha office of the employer. A letter of assignment, acknowledged as being accepted by the applicant signing it (ex. 1), estimated the assignment as lasting for 42 months. An attachment to the letter of assignment (ex. B folios 18-27) set out the terms applicable to the applicant and included the following:

• • Salary package and location allowance. The amount of salary was set out and the location allowance which was payable fortnightly was described in the following terms:

• ``You will be paid a Location Allowance equivalent to 20% of your Base Salary. This Allowance is compensation for the remoteness and conditions prevailing at the Assignment Location. The Location Allowance will continue to be paid on approved absences from the Assignment Location either for leave or work purposes.''

• • Acknowledgement that Perth was the applicant's point of origin for purposes of the assignment.
• • The amounts the company would pay to cover the applicant in relocating to Karratha and in commencing work there including mobilisation and departure allowances, travel expenses from point of origin (Perth) to Karratha, provision of safety equipment, incidental relocation allowance (being one-half of a month's salary for miscellaneous expenses with moving from Perth to Karratha), an allowance of $600 for the purchase of white goods upon arrival at Karratha and the cost of moving the applicant's personal effects to Karratha.
• • Ongoing amounts the company would pay during the period in which the applicant remained in Karratha including subsidised rental for company provided furnished accommodation, maintenance of accommodation (excluding garden), electricity and water at concessions, contribution to medical expenses, air fares for holidays (Karratha to Perth return), rest and recreation leave expenses at the company's discretion which were in fact enjoyed by the applicant.

The location allowance was paid to all employees of the company located in Karratha regardless of their usual place of residence (with the exception of employees based in Perth but transferred to Karratha for short-term assignments of less than three months). Thus, if a person already living in Karratha were employed by the company that person would be provided with a location allowance of 20% of the base salary but would not receive the other benefits outlined above.

The applicant told the Tribunal that he and his wife incurred extra expense living in Karratha compared to living in Perth and gave as an example doctors' standard fees as being $25 for a short consultation as opposed to $18 in the Perth metropolitan area. He incurred increased telephone expenditure with respect to contacting his children and family who lived in

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Perth. He estimated the cost of fuel to be more expensive in Karratha than in Perth and that food costs were 15% higher in Karratha than in Perth. He estimated that clothing and general expenses were greater in Karratha than in the Perth metropolitan area. He based these estimates on newspaper articles, reports which he had read and his own experience.

Whilst the applicant's assignment to Karratha was estimated to last 42 months there was no guarantee that it would last that length of time and there was also a possibility that he may be employed during a further phase of the development of the North West Gas Shelf and therefore remain in Karratha for a longer period of time. The applicant told the Tribunal that when he went to Karratha in February 1986 it was not his intention to reside there on a permanent basis. He said towards the end of 1988 since he and his wife found living in Karratha congenial, he formed the intention to stay there on a permanent basis providing employment could be procured. A memorandum from the applicant to an officer in the employer's personnel department dated 2 June 1988 (ex. 2) stated inter alia:

``... I am sure you are already aware of my desire to settle in Karratha, and remain with the company.

To this end I wish to advise you that I am most interested in any possibility of employment during the interim period between stages 2 and 3.

... failing any form of continuous employment here in Karratha would the company perhaps give favourable consideration to me renting the property on a private basis during the interim period.''

The applicant expressed a similar desire to remain in Karratha in a letter dated 16 October 1989 (ex. 3). The letter was in response to his period of employment with the company coming to an end and stated inter alia:

``This is a very big disappointment to me and my wife, as we have both enjoyed our time here and have come to love living in Karratha. It is our hope to see Phase III of the LNG Project to its conclusion by which time I will be 55 years old. We then propose to take early retirement and settle in the district. It is therefore with extreme regret that things have turned out differently for us.''

As it transpired the applicant obtained other employment in Karratha and continues to live there.

In 1988 the applicant bought a home unit in Perth in which he has not lived and which has remained rented.

The applicant told the Tribunal that, whilst he preferred to remain in Karratha, if he had not been able to obtain employment there he would have returned to Perth. He told the Tribunal that he wrote to a large number of firms seeking employment in Perth at the time he thought his employment with the company was coming to an end. He anticipated if he had returned to Perth he would live in the home unit which he had purchased. The applicant told the Tribunal that at least up until towards the end of 1988, he had regarded Perth as being his ``place of residence''.

To be categorised as a ``fringe benefit'' the location allowance payment must fall within the terms of sec. 30 of the Fringe Benefits Tax Assessment Act 1986 (``the Fringe Benefits Tax Act''). Section 30 of that Act is in the following terms:

``30 Where -

• (a) at a particular time, in respect of the employment of an employee of an employer, the employer pays an allowance to the employee; and
• (b) it would be concluded that the whole or a part of the allowance is in the nature of compensation to the employee for -
  • (i) additional expenses (not being deductible expenses) incurred by the employee during a period; or
  • (ii) additional expenses (not being deductible expenses) incurred by the employee, and other additional disadvantages to which the employee is subject, during a period,

  by reason that the employee is required to live away from his or her usual place of residence in order to perform the duties of that employment,

the payment of the whole, or of the part, as the case may be, of the allowance

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constitutes a benefit provided by the employer to the employee at that time.''

It is not disputed that the location allowance (supra) is ``an allowance'' for the purposes of subsec. (a).

The applicant claims that the allowance should be categorised as coming within subsec. (b)(ii). The respondent disputes this and says that even if the applicant is successful in having a location allowance categorised under the provisions of subsec. (b)(ii) the applicant does not in any event qualify because he does not have ``a usual place of residence'' other than Karratha and that therefore the allowance is not applicable in his circumstances.

In
Atwood Oceanics Australia Pty. Ltd. v. F.C. of T. 89 ATC 4808 (Atwood's case) Mr Justice Lee held that the test in determining whether sec. 30(b) applied was how a reasonable person would objectively categorise the allowance. His Honour went on to say (p. 4816):

``The required character of the allowance was that it be a payment to an employee in the nature of compensation for additional expenses incurred by the employee during a period of employment, or for additional expenses so incurred and other additional disadvantages to which the employee was subject during that period by reason of the fact that the employee was required to live away from his usual place of residence. It may be accepted that the words `other additional disadvantages' were not intended to be restricted to disadvantageous pecuniary results.''

His Honour drew a distinction between an allowance in the nature of compensation for an applicant incurring additional expenses (sec. 30(b)(i)) or for additional expenses and for additional disadvantages (sec. 30(b)(ii)) and a situation where an allowance was paid by way of compensation for additional disadvantages alone. In the latter case an allowance would remain as assessable income in the hands of the employee.

Mr Owen-Conway for the Commissioner submitted that:

• 1. A plain reading of the terms on which the location allowance (supra) was to be paid made it clear that the payment was purely a remoteness allowance and was not related to the applicant incurring any additional expenditure.
• 2. The fact that the allowance was paid to all employees including those who lived in Karratha at the time they commenced employment with the company in Karratha did not suggest that the location allowance was paid by way of a living-away-from-home allowance. Rather it suggested that the allowance was paid to attract employees to go to or remain and work in a remote area.
• 3. The additional expenditure connected with living in a remote area was covered by the additional payments outlined in the attachment to the applicant's letter of assignment (supra).
• 4. That even if the applicant incurred extra expenditure purchasing food and clothes and extra expenditure in paying his telephone account that is irrelevant because the allowance was not paid to cover that extra expenditure.
• 5. The allowance was based on a payment of 20% of an employee's base salary and that did not bear any relationship to actual costs incurred. If it was to be based on extra costs incurred. If it was to be based on extra costs incurred then it would be based on the type of study undertaken in Case 106,
  12 C.T.B.R. (N.S.) 616 (i.e. an assessment of the actual additional expenditure incurred would be undertaken).

It is not so much the words used to describe the allowance by the employer but rather, when judged objectively, whether the location allowance is paid by way of compensation for extra expenditure incurred by the applicant as a result of living away from home which the Tribunal must examine.

In the instant case because the allowance is paid to all employees including those who lived in Karratha at the time of joining the company and, because the company pays various subsidies to cover not only initial but ongoing extra expenditure which an employee would otherwise face as a result of higher expenses on certain items in Karratha suggest to me that it is a payment not so much in the nature of a compensation payment but rather a payment made to attract employees to live in or continue to live in a remote area where the conditions may not be as favourable as they may be in a

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less remote area. The arguments led by the applicant that the specified allowances paid by the company did not cover all additional expenditure incurred by an employee living in Karratha as distinct from expenditure which would otherwise not be incurred if the employee lived in Perth is not, of itself, sufficient to discharge the onus of proof which the applicant bears in convincing me that the location allowance is covered by sec. 30 of the Fringe Benefits Tax Act. In my view the allowance is paid for ``other additional disadvantages'' alone and therefore cannot be categorised as an allowance under the provisions of sec. 30(b)(i) or (ii) of the Fringe Benefits Tax Act.

Even if I am wrong in the above then in my view the applicant cannot claim Perth as his ``usual place of residence''. There is a distinction to be drawn between a person's ``point of origin'' as identified in his letter of assignment and a place where a person has his ``usual place of residence''. Probably Perth may be the place to which the applicant habitually returns for his holidays and for purposes of seeing his children, relations and friends. That however does not necessarily make Perth his ``usual place or residence''. Nor does the fact that he regards Perth as his ``usual place of residence'' make it so. That also must be judged objectively in accordance with the well-known principles set out by Lord Campbell C.J. in
R. v. Hammond (1852) 17 Q.B. 772 at p. 781 where his Lordship said:

``A man's residence where he lives with his family and sleeps at night, is his place of abode in the full sense of that expression.''

The places where the applicant has lived and worked since 1978 are outlined above. They show that the applicant spent only from January 1985 to February 1986 living in Perth during that period of time. He no doubt can be considered to be resident in Perth for the period January 1985 to February 1986. Outside the period January 1985 to February 1986 the applicant did not maintain any particular connection to Perth other than he left some furniture which was distributed to those of his children who live in Perth. The furniture has remained with them ever since. The fact that he remained in Perth from January 1985 to February 1986 does not qualify him to be considered as a resident of Perth for the entire period. Rather it seems to me on the facts of this case that the applicant's usual place of residence is equated to where he works at any particular time rather to any fixed location. In any event the memo signed by the applicant and dated 2 June 1988 (ex. 2) (i.e. at the commencement of the tax year in question) evidences a strong attachment which the applicant had to remaining in Karratha. Whilst this may not be absolute (i.e. depending on his obtaining employment) it establishes Karratha as his preferred location for residence and tends to negate an implication of attachment to Perth which may otherwise arise as the result of his purchasing a home unit in Perth. The purchase of the home unit does not per se make Perth his place of residence. This is particularly so in a case where he has not ever resided in that home unit.

Having regard to the totality of the applicant's circumstances I am of the view that his usual place of residence during the year in question was Karratha. Thus if the location allowance could be categorised as falling within the terms of sec. 30(b)(ii) it could not be said to be paid by reason that the applicant was required to live away from his usual place of residence as I find his usual place of residence is Karratha.

I should add that the applicant told the Tribunal that he had successfully claimed a living-away-from-home allowance in the tax year ended 30 June 1987. The evidence of the taxation officer to the Tribunal was that, depending on the outcome of this application, the respondent would reassess the applicant's liability for the payment of tax on the amount claimed as a deduction. In the view of the respondent, the allowing of the deduction in the 1987 tax year was an error. This is not a matter that the Tribunal can take into account. The Tribunal must reach its own decision on the facts before it for the tax year in question, regardless of the rights or wrongs which may surround previous assessments.

For the reasons outlined above the decision under review is affirmed.