Best and Commissioner of Taxation

[2005] AATA 560

Administrative

Appeals

Tribunal

 

DECISION AND REASONS FOR DECISION [2005] AATA 560

ADMINISTRATIVE APPEALS TRIBUNAL      )

)          QT2004/171-174

TAXATION APPEALS DIVISION		)
Re		STEPHEN BEST

Applicant

And COMMISSIONER OF TAXATION

Respondent

DECISION

Tribunal Ms M.J. Carstairs, Member

Date14 June 2005

PlaceBrisbane

Decision The Tribunal affirms the decisions under review.

...........[Sgd]..............

M.J. Carstairs
  Member

CATCHWORDS

TAXATION – Fringe Benefits Tax – objection decisions – treatment of ‘hardlying allowance’ payments included in applicant’s gross salary – whether payments were in nature of living-away-from-home allowance – payments were to compensate aspects of inconvenience of life on board an oil rig – payments were not a living-away-from-home allowance – applicant did not discharge onus to show objection decisions should not have been made – decision under review affirmed

Taxation Administration Act 1953 s 14ZZK

Fringe Benefits Tax Assessment Act 1986 s30

Atwood Oceanics Australia Pty Ltd v FCT (1989) 89 ATC 4808

Roads and Traffic Authority of New South Wales v Federal Commissioner of Taxation (1993) 26 ATR 76; (1993) 116 ALR 482

REASONS FOR DECISION

14 June 2005   Ms M.J. Carstairs, Member

1.      The applicant Stephen Best asked the Tribunal to review objection decisions in relation to the years of income ending 1996, 1997, 1998 and 1999 (the relevant tax years).  The applicant claims that the Australian Taxation Office has treated incorrectly certain payments which he received when working as a seaman on off-shore rigs.  He says that the payments, which were included by his employer in his gross salary, were in the nature of a living-away-from-home allowance and under the Fringe Benefits Tax Assessment Act 1986 (the Act) were not assessable income.

2.      At the hearing the applicant represented himself.  The respondent was represented by Ms M Brennan of counsel instructed by the Australian Taxation Office Legal Practice section.  

3. The Tribunal had before it the documents lodged under s37 of the Administrative Appeals Tribunal Act 1975 numbered T1-T16 as well as exhibit marked A1 for the applicant and R1-R3 for the respondent.

BACKGROUND

4.      During the tax years in dispute the applicant was employed by Total Marine Services Pty Ltd on self-propelled drilling rigs, living on board and sharing a four berth cabin on 28-days-on/28-days-off rosters.  The applicant lodged tax returns for the relevant tax years.   

5.      The applicant’s employment during the relevant period was covered by two workplace agreements settled between Total Marine Services Pty Ltd and the Maritime Union of Australia (the MUA).

§  From 14 August 1996 to 23 February 1998 by the Total Marine Services Pty Ltd – Integrated Ratings, Cooks, Caterers and Seafarers Agreement 1996 (the 1996 Agreement) (exhibit R3)

§  From 24 February 1998 to 31 December 1998 by the Total Marine Services Pty Ltd – Integrated Ratings, Cooks, Caterers and Seafarers Agreement 1997 (the 1997 Agreement)(T14).

6.      Both the 1996 and 1997 Agreements referred to the payment of a hardlying allowance.  The applicant’s receipt of this allowance in the relevant tax years was not separately recorded by his employer on his group certificate.  That is, its receipt was included in his gross salary and taxed accordingly. 

7.      The applicant seeks to have his assessments for the relevant tax years amended by excluding from his assessable income the amounts paid as hardlying allowance on the basis that these amounts were a living-away-from-home allowance..  The issue for the Tribunal is whether hardlying allowance comes within the definition of living-away-from-home-allowance benefits as provided for in s30 of the Act.

EVIDENCE

8.      The facts largely were not disputed between the parties.  The applicant said that he had learned some eighteen months ago that others in a similar position to himself had successfully amended tax returns to claim the allowance as being a living-away-from-home allowance on which no tax was payable by the employee.

9.      The applicant stated in his notice of objection that he had received a total of $20,250 in the relevant tax years as hardlying allowance, but agreed that he had miscalculated the total by failing to take account of the date of an increase in the daily rate paid as hardlying allowance when undertaking sea-going duties during the relevant period.

10.     In the 1996 and 1997 Agreements (clauses 12(c) and 22(c) respectively) hardlying allowance was an amount agreed between the employer and the MUA having regard to the standard of, and requirement to share, accommodation.

11.     In the Schedules to the 1996 and 1997 Agreements dealing with self-propelled drilling vessels the hardlying allowance was referred to further in the following terms:

As appropriate, the parties will negotiate a hardlying allowance having regard to the accommodation and recreation facilities and all other conditions associated with living on board a self propelled drilling vessel.  In this regard an allowance of $25 per day ($30 in the 1997 Agreement) will be payable to crew members accommodated on board in a two berth cabin; and allowance of $40 per day ($45 per day in the 1997 Agreement) will be payable to crew members accommodated on board in a four berth cabin.  These allowances cover all circumstances associated with living on board a self propelled drilling vessel.

12.     In an affidavit dated 1 March 2005 (exhibit R2) Mr P Nunn, Marine Coordinator with Total Marine Services stated that hardlying is a term used in the maritime industry to describe payments for hardship experienced on board ship including such matters as the possible inconvenience of excessive noise, or of electrical breakdowns which might result in air-conditioning failures.  He said that in an earlier Agreement hardlying payments were made for the necessity to share accommodation on board but that these days a separate allowance is paid for sharing accommodation. 

13.     Mr Nunn stated that in 2002 a staff memo was circulated by Total Marine Services which set out that hard-lying was an allowance intended by the certified Agreements to compensate for feature of working conditions.  That memo (attachment 1 to exhibit R2) had described the company’s understanding of the taxation effects as follows:

Taxable Allowances

Taxable allowances must be included in employees’ gross pay when determining the amount of PAYE tax to be deducted.  This is because the allowance merely represents additional pay, either as compensation for particularly arduous, hazardous or adverse conditions.  These allowances should be included as part of the salary and wages total in the group certificate.

Please note hardlying allowance is NOT leaving (sic) away from home allowance.  LAFHA is as per taxation guidelines a payment to compensate employees for additional costs of having to live away from their homes.  LAFHA is a fringe benefit and as such is treated in a different tax manner.

14.     Mr Nunn stated his belief that Total Marine Services’ personnel section distinguished between the two kinds of allowances and would not refer to the hardlying allowance as a living-away-from-home allowance.  He said that Total Marine Services’ employees covered by the 1996 and 1997 Agreements were not entitled to a living-away-from-home allowance.  In his oral evidence he said that on rigs members of the AWU received living-away-from-home allowance because it was part of their award, but maritime workers operated under a different award and did not.

CONSIDERATION OF THE ISSUES

15. Section 30 of the Fringe Benefits Tax Assessment Act 1986 (the Act) provides:

(1)       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 constitutes a benefit provided by the employer to the employee at that time.

(2)       If:

(a)at a particular time after 10 October 1991, in respect of the employment of an employee of an employer, the employer pays an allowance to the employee; and

(b)the employee’s usual place of employment is on an oil rig, or other petroleum or gas installation, at sea; and

(c)the employee is provided with residential accommodation at or near that usual place of employment; and

(d)the allowance is expressed to be paid as a living-away-from-home allowance; and

(e)       no part of the allowance is covered by subsection (1); and

(f)it would be concluded that the whole or a part of the allowance is in the nature of compensation to the employee for 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 of the allowance constitutes a benefit provided by the employer to the employee at that time.

16. Section 30(2) of the Act was introduced into the Act in response to the effect of the decision of the Federal Court in Atwood Oceanics Australia Pty Ltd v Federal Commissioner of Taxation (1989) 89 ATC 4808 (Atwood’s case).

17.     The applicant submitted that hardlying allowance was provided as compensation for the disadvantages of being away from home and in the 1996 and 1997 Agreements was indistinguishable from the living-away-from-home allowance provided for in the Australian Workers Union (AWU) Oil Drilling Rig Workers’ (Offshore Mobile Drilling Rigs) Agreement. He submitted that the wording of s30(2)(d) of the Act was ambiguous and it was necessary to look at the Explanatory Memorandum introducing the provision into the Act to gain an understanding of its intended operations.

18.     The applicant referred to the Explanatory Memorandum at Clause 1.4 and 1.5 which stated:

Clause 1.4

Some LAFHA’s paid to offshore oil and gas rig workers are paid solely to compensate the employee for additional disadvantages of living away from home. Because these allowances do not include a component for additional expenses incurred by the employee they do not fall within the definition of a LAFHA in section 30 of the FBTAA.

Clause 1.5

The proposed amendment will widen the definition of a LAFHA to include those allowances paid to offshore oil and gas rig workers where they are only paid for additional disadvantages of living away from home. 

19. The applicant submitted that s30(1) and s30(2) of the Act should not be read conjunctively, because it is clear from s30(2)(e) of the Act that s30(2) comes into play where s30(1) does not cover the relevant allowance. He also submitted that the Federal Court authorities, particularly Atwood’s case and Roads and Traffic Authority of New South Walesv Federal Commissioner of Taxation (1993) 26 ATR 76; (1993) 116 ALR 482, establish that the payment’s substance , not its form, must govern whether an allowance is a living-away-from-home allowance or not. . He submitted that the substance of the payment that he received was reflected in the Agreements’ use of the words living on board (twice used in the quoted material from the Agreements at para 11 above) and as a result s30(2)(d) was met. Referring to the respondent’s acknowledgement in submissions that words to that effect of living-away-from-home could be used and still satisfy the sub-section, he said this meant that the words used in the Agreements satisfied s30(2)(d).

20.     Ms Brennan submitted that the Agreements stated that the hardlying allowance concerned the standard of and the requirement to share accommodation and as such was not paid as compensation for additional expenses incurred by the employee in living away from home: Atwood’s case at 4817-4818.  She submitted that the use of the conjunctive and between sub-paragraphs in the section meant that all parts of s30(2) must be satisfied, some parts of s30(2) addressing matters of form relating to these payments on rigs, others to matter of substance, or characteristics, of the payment. She said the respondent’s case primarily rested upon the applicant’s inability to satisfy s30(2)(d) of the Act.

21. Ms Brennan submitted that there were important reasons why matters that might be regarded as form only must prevail, and an understanding of these reasons explained the need for s30(2)(d). Ms Brennan referred to the need for certainty between employer and employee, including the necessity for employers to be aware of the basis on which an allowance is paid so as to be in a position to correctly collate information for group certificates, and for employers to ascertain their own liabilities to tax and for superannuation purposes. She said that the evidence in this case all pointed one way: the Agreements did not refer to hardlying allowance as a living-away-from-home allowance; the evidence confirmed that the employer did not regard hardlying allowance as a living-away-from-home allowance; and the applicant’s group certificates did not show the payment as living-away-from-home allowance. Mr Brennan submitted therefore that the applicant had not discharged the onus upon him under s14ZZK(b) of the Taxation Administration Act 1953 to show that the objection decisions were wrong. 

22.     The Tribunal reached its decision taking into account the evidence and submissions of the parties.  Neither party argued that hardlying allowance came within s30(1) of the Act and the Tribunal was satisfied, applying Atwood’s case and taking into account that no part of the allowance was compensation for additional expenses, that the payment was not a living-away-from-home fringe benefit within the meaning of s30(1) of the Act.

23. The Tribunal accepts the submission of Ms Brennan that s30(2) of the Act should be read conjunctively and that all sub-paragraphs of the section must be satisfied. The use of and between each of the sub-paragraphs indicates the conjunctive and it is a rare case where a statutory provision expressed this way will be construed otherwise. That is, all sub-paragraphs (a) to (f) in s30(2) of the Act must be satisfied. The Tribunal does not accept the applicant’s submission that there is ambiguity in s30(2)(d) that requires recourse to the Explanatory Memorandum. Rather, the meaning is quite plain and requires that express language is used to refer to the payment being a living-away-from-home allowance.

24.     The Tribunal does not accept the submission that the words living on board used in the two Agreements is equivalent to the term living away from home so as to satisfy the requirement for express language in s30(2)(d).  The Agreements show that hardlying allowance is focussed on aspects of inconvenience of life on board.  Whilst employees would not be living on board except that the nature of their employment requires that they live away from home to undertake the employment, the two are conceptually distinct and should not be merged, as the applicant here suggests. 

25.     The Agreements have a history of negotiation between the employers and relevant unions and in the case of these Agreements the allowance negotiated is for aspects of the accommodation and unanticipated events of inconvenience in off-shore life.  Given that the Agreements do not adopt express language referring to living-away-from-home, and taking into account the evidence of the employer’s treatment of the allowance for taxation purposes, the Tribunal is satisfied that s30(2)(d) is not met and the applicant has not discharged the onus upon him under s14ZZK of the Taxation Administration Act 1953 to show that the taxation decisions should not have been made.

DECISION

26.     The Tribunal affirms the decisions under review.

I certify that the 26 preceding paragraphs are a true copy of the reasons for the decision herein of Ms M.J. Carstairs, Member

Signed:         Denise Burton

Administrative Assistant

Date/s of Hearing  17 March 2005
Date of Decision  14 June 2005

The Applicant was unrepresented and appeared in person       
Counsel for the Respondent     Ms M Brennan
Solicitor for the Respondent     Mr Aftanas, ATO