Crane and Commissioner of Taxation
[2005] AATA 872
•8 September 2005
Administrative
Appeals
Tribunal
DECISION AND REASONS FOR DECISION [2005] AATA 872
ADMINISTRATIVE APPEALS TRIBUNAL )
) No WT2004/371 - 377
Taxation Appeals DIVISION ) Re Darryl Bruce Crane Applicant
And
Commissioner of Taxation
Respondent
DECISION
Tribunal Associate Professor G Barton, Member Date8 September 2005
PlacePerth
Decision The Tribunal affirms the reviewable objection decisions under review
..............(sgd G Barton)..............
Member
CATCHWORDS
Income tax - assessable income - hardlying allowances - non-assessable fringe benefits - living-away-from-home benefits - benefit to offshore oil and gas rig workers - expressed to be paid as a living-away-from-home allowance
Income Tax Assessment Act 1936
s.23 L(1)
s.25(1)
Income Tax Assessment Act 1997
s. 6-5
Fringe Benefits Tax Assessment Act 1986
s.30
Taxation Administration Act 1953
s.14ZZK(b)(i)
Atwoods Oceanics Australia Pty Ltd v FCT (1989) 89 ATC 4808
REASONS FOR DECISION
8 September 2005 Associate Professor G Barton, Member 1. The applicant, Mr Darryl Bruce Crane, has applied for review of the respondent’s decisions to disallow his objections to his assessments to income tax for the years ending 30 June 1995, 1996, 1997, 1998, 1999, 2000 and 2002 (‘the assessments’). He objected to the assessments because they were made on the basis that hardlying allowances paid to him in connection with his employment on self-propelled drilling vessels constituted assessable income for the purposes of s.25(1) of the Income Tax Assessment Act 1936 (‘the Act’) or s. 6-5 of the Income Tax Assessment Act 1997 (‘the 1997 Act’) whereas, according to the applicant, they are non-assessable living-away-from-home allowance fringe benefits pursuant to s.23 L(1) of the Act.
2. The applicant, who lodged a statement of facts and contentions and gave evidence, was represented by Mr G Hedges of G Hedges and Associates. The applicant tendered documentary exhibit A1 consisting of 2 typed pages containing excerpts from workplace agreements and awards.
3. Ms M Brennan of counsel represented the respondent who lodged a statement of facts and contentions, a statement of issues, a list of cases and written submissions. The respondent called the evidence of Mr Paul Nunn and Ms Mandy Cutts and tendered the following documentary exhibits: a copy of the agreement known as the Total Marine Services Pty Ltd – Integrated Ratings, Cooks, Caterers and Seafarers Agreement of 1996 as certified by the Australian Industrial Relations Commission on 3 February 1997 (R1); a copy of the agreement known as the Total Marine Services Pty Ltd – Integrated Ratings, Cooks, Caterers and Seafarers Agreement 1999 – 2002 as certified by the Australian Industrial Relations Commission on 1 March 2000 (R2); the affidavit of Paul Nunn of 25 May 2005 (R3) and the affidavit of Mandy Cutts of 27 may 2005 (R4).
4. Documents T1 to T22 were before the Tribunal pursuant to s. 37 of the Administrative Appeals Tribunal Act 1975.
Agreed facts
5. The applicant admitted, and the Tribunal finds, the facts in the respondent’s statement of facts and contentions set out in paras. 6 to 16 of these reasons.
6. During the years of the assessments the applicant was employed by Total Marine Services Pty Ltd (‘TMS’) which employment was covered by the following workplace agreements:
From 14 August 1996 to 23 February 1998
Total Marine Services Pty Ltd – Integrated Ratings, Cooks, Caterers and Seafarers Agreement 1996 (the 1996 Agreement)
From 24 February 1998 to 31 December 1998
Total Marine Services Pty Ltd – Integrated Ratings, Cooks, Caterers and Seafarers Agreement 1997 (the 1997 Agreement)From 24 February 2000 to 1 July 2002
Total Marine Services Pty Ltd – Integrated Ratings, Cooks, Caterers and Seafarers Agreement 1999 – 2002 (the 1999 – 2002 Agreement)
7. The relevant agreements for the periods 1 July 1995 to 13 August 1996 and 1 January 1999 to 23 February 2000 were not before the Tribunal but the parties were agreed that the rights and obligations of the employer and the employee during those periods were not substantially different from those in the above agreements.
8. Clause 12(c) of the 1996 Agreement, clause 22(c) of the 1997 Agreement and clause 28.3 of the 1999 – 2002 Agreement state:
Hard lying allowances will be agreed between the employer and the MUA (Maritime Union of Australia) having regard to the standard of and the requirement to share accommodation.
9. Under schedule 4 of the 1996 Agreement, crew members, sharing a four berth cabin on self-propelled drilling vessels, are entitled to a hard lying allowance of $40 per day and, those sharing a two berth cabin $25 per day. Under schedule 4 of the 1997 and the 1999 – 2002 Agreements, crew members on certain vessels are entitled to a hard lying allowance of $45 per day. Under schedules 1 and 5 of the 1997 and the 1999 – 2002 Agreements, crew members on certain vessels are entitled to a shared accommodation allowance of $25 for each day a crew member, who was not otherwise in receipt of any monetary consideration for sharing accommodation, was required to share a cabin.
10. The relevant workplace agreements provide that 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 and that the allowances cover all circumstances associated with living on board a self-propelled drilling vessel.
11. Clause 5 of the 1996 Agreement provides that the Agreement comes into effect from the beginning of the first pay period commencing on or after 14 August 1996. Clause 5 of the 1997 Agreement provides that the Agreement comes into effect from the beginning of the first pay period commencing on or after the date of certification of the Agreement. The 1997 Agreement was certified on 24 February 1998. Clause 5 of the 1999 – 2002 Agreement provides that the agreement operates from the date of certification of the Agreement. The 1999 – 2002 Agreement was certified on 24 February 2000.
12. Clause 3 of the 1996 Agreement, 1997 Agreement and 1999 – 2002 Agreement provides that “day” means 12 midnight to 12 midnight.
13. The applicant has provided, by way of Engagement Forms and personal leave records, evidence of his sea duty on a self-propelled drilling vessel as set out below. He has claimed hardlying allowance calculated at $40 per day for each day of sea duty.
Year ended 30 June 1995
30/09/94 to 04/11/94
02/06/95 to 11/06/95
Year ended 30 June 1996
13/07/95 to 11/08/95
01/09/95 to 28/09/95
02/11/95 to 01/12/95
28/12/95 to 24/01/96
22/02/95 to 20/03/96
13/06/96 to 30/06/96
Year ended 30 June 1997
01/07/95 to 10/07/96
08/08/96 to 04/09/96
03/10/96 to 28/10/96
28/11/96 to 25/12/96
23/01/97 to 19/02/97
20/03/97 to 16/04/97
15/05/97 to 11/06/97
Year ended 30 June 1998
10/07/97 to 06/08/97
04/09/97 to 23/09/97
30/10/97 to 26/11/97
27/12/97 to 21/01/98
19/02/98 to 19/03/98
16/04/98 to 14/05/98
04/06/98 to 30/06/98
Year ended 30 June 1999
01/07/98 to 02/07/98
06/08/98 to 03/09/98
14. The applicant has provided, by way of payslips, evidence of various amounts received as hardlying or shared accommodation allowance whilst on sea duty on various vessels as follows:
Year ended 30 June 1999
14 day period ended 26/08/98
14 day period ended 25/10/98
14 day period ended 08/11/98
14 day period ended 22/11/98
14 day period ended 03/01/99
14 day period ended 17/01/99
14 day period ended 23/05/99
14 day period ended 06/06/99
14 day period ended 20/06/99
Year ended 30 June 2000
14 day period ended 04/07/99
14 day period ended 31/08/99
14 day period ended 26/09/99
14 day period ended 21/11/99
14 day period ended 05/12/99
14 day period ended 19/12/99
14 day period ended 30/01/00
14 day period ended 13/02/00
14 day period ended 27/02/00
Year ended 30 June 2002
14 day period ended 24/02/02
14 day period ended 06/05/02
14 day period ended 16/06/02
15. The applicant stated in his notice of objection that his gross salary from “TMS” included a hardlying allowance for sharing accommodation in the following amounts totalling $30,155:
Year ended 30 June 1995 $1,800
Year ended 30 June 1996 $6,280
Year ended 30 June 1997 $7,080
Year ended 30 June 1998 $7,640
Year ended 30 June 1999 $3,680
Year ended 30 June 2000 $2,325
Year ended 30 June 2002 $1.350
16. For the years in question the applicant disclosed salary payments from “TMS” as follows:
Year ended 30 June 1995 $31,566
Year ended 30 June 1996 $66,850
Year ended 30 June 1997 $73,494
Year ended 30 June 1998 $81,318
Year ended 30 June 1999 $77,527
Year ended 30 June 2000 $55,174
Year ended 30 June 2002 $69,479
17. It was common ground between the parties that the amounts of hardlying allowance set out in paragraph. 15 above (‘the hardlying allowances’) were included in the applicant’s gross salary for income tax purposes and so included in his assessable income for the purpose of the assessments.
18. The evidence of Mr Paul Nunn, the Marine Coordinator of ‘TMS’, is that the term ‘hardlying’ is used within the maritime industry to describe payments for hardship experienced on board vessels or ships, such as excessive noise, inadequate ablution facilities or broken air conditioning and, prior to the last workplace agreement, the necessity to share accommodation. Currently a separate allowance is paid for shared accommodation. He stated that it was his understanding and the common understanding within the personnel area of ‘TMS’, that a hardlying allowance and a living away from home allowance are different and that ‘TMS’ has never described a hardlying allowance as a living-away-from-home allowance(R3).
19. Mr Nunn testified that he was familiar with the agreements referred to in paragraph 6 of these reasons and that employees covered by them are not entitled to a living away from home allowance and that ‘TMS’ has never called the hardlying allowances referred to in the agreements (see paragraph 8 above) living-away-from-home allowances.
20. A copy of the following 2002 memorandum to ‘TMS’ employees was attached to R3:
“Below is an outline of the tax guidelines for allowances and in particular hardlying.
The first thing that must be taken into consideration is the wording as per your awards in relation to payments for hardlying. In the award it clearly refers to this payment as an “allowance” This is an industry specific allowance.
As per the taxation guidelines for payment of various allowances I quote the following;
Allowances
In addition to the ordinary rate of pay most awards provide for payment of various allowances. Typically these are to compensate employees for some particular feature of their working conditions.
Industry Allowance
An industry allowance is generally paid to employee in a particular industry because of particular features within that industry.
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 on the group certificate.
Please note hardlying allowance in 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.”
21. The evidence of Ms Mandy Cutts who held the position of Payroll Manager at TMS from 1998 to 2004 is that she drafted and circulated the above memorandum to staff to make it clear to them that “TMS” considered a hardlying allowance to be different from a living away from home allowance. She too testified that employees covered by the agreements referred to in paragraph 6 of these reasons are not entitled to a living away from home allowance and that ‘TMS’ has never referred to hardlying allowances as such (R4).
22. S.23L(1) of the Act provides that “[I]ncome derived by a taxpayer by way of the provision of a fringe benefit within the meaning of the Fringe Benefits Tax Assessment Act 1986 is not assessable income and is not exempt income of the taxpayer.”
23. It was not disputed that the hardlying allowances were part of the applicant’s income and the only issue raised by this application is whether they were not assessable to income tax in the hands of the applicant pursuant to s. 23L(1) of the Act because they were living-away-from-home allowance fringe benefits for the purpose of s.30 of the Fringe Benefits Tax Assessment Act 1986 (‘the FBT Act’) which provides as follow:
“SECTION 30 LIVING –AWAY-FROM-HOME ALLOWANCE BENEFITS
30(1) [Provision of benefit] 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 form 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 maybe, of the allowance constitutes a benefit provided by the employer to the employee at that time;
30(2) [Benefit to offshore oil and gas rig workers] 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 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.”
24. The Tribunal finds that it would not be concluded from the evidence that the hardlying allowances were, wholly or in part, in the nature of compensation to the applicant for additional expenses incurred by reason that he was required to live away from his usual place of residence and so the Tribunal finds that they do not constitute benefits for the purpose of s. 30(1) of the FBT Act 1986; Atwood Oceanics Australia Pty Ltd v Federal Commissioner of Taxation 89 ATC 4808. It follows from this finding that the Tribunal finds that no part of any of the hardlying allowances is covered by s.30(1) for the purpose of sub-paragraph 30(2) (e).
25. By the express terms of s.30(2) of the FBT Act, the hardlying allowances will constitute benefits for the purpose of that sub-section if they were paid to the applicant in circumstances that satisfy all of the requirements in sub-paragraphs (a) to (f). It was not disputed and the Tribunal finds that the hardlying allowances were paid to the applicant in circumstances that satisfy sub-paragraphs (a), (b), (c) and (f) of s.30(2) of the FBT Act and so the only remaining issue to be determined is whether they were paid in circumstances that satisfy s.30(2)(d).
26. Not surprisingly, the words ‘express’ or ‘expressed’ are not defined in the FBT Act and so must be given their ordinary dictionary meaning of ‘stated explicitly, not merely implied’, Oxford Dictionary of English, 2nd edition 2003. Sub-paragraph (d) of s. 30(2) unambiguously requires that the allowance be expressed to be paid as a living-away-from-home allowance, a requirement that will be met in circumstances where the payer has stated explicitly that the payment is as a living-away-from-home allowance, something which, on the evidence, did not occur in relation to the hardlying allowances. Contrary to the applicant’s contention in this regard, s.30(2)(d) refers to ‘the allowance’ (not ‘an allowance’), a clear reference to an allowance paid by the employer to the employee mentioned in s.30(2)(a). The meaning of sub-paragraph 30(2)(d), within the context of s.30(2), is clear and it is equally clear from the evidence that “TMS” did not, at the time of payment or at any stage, tell the applicant, orally or in writing, that the hardlying allowances were paid to him as living-away-from-home allowances. So the Tribunal finds that they do not constitute benefits, for the purpose of s.30(2) of the FBT Act, provided by “TMS” to the applicant.
27. The Tribunal finds that the hardlying allowances were not income derived by the applicant by way of the provision of a fringe benefit within the meaning of the FBT Act for the purpose of s.23L(1) of the Act and so the applicant has not discharged the burden, imposed by s.14ZZK(b)(i) of the Taxation Administration Act 1953, of proving that the assessments are excessive.
28. The Tribunal affirms the reviewable objection decisions under review.
I certify that the 28 preceding paragraphs are a true copy of the reasons for the decision herein of Associate Professor G Barton, Member
Signed: ................(sgd E M Jordan).................................
AssociateDate of Hearing 31 May 2005
Date of Decision 8 September 2005
Counsel for the Applicant Mr Gavin Hedges
Solicitor for the Applicant G Hedges & Associates
Counsel for the Respondent Ms Madeline Brennan
Solicitor for the Respondent Ms Fiona Parcell
Australian Taxation Office
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