Mr Lee C v Cls Pty Ltd

[2009] FWA 779

[2009] FWA 779

FAIR WORK AUSTRALIA

DECISION

Fair Work Act 2009
s.394 - Application for unfair dismissal remedy

Mr Lee C
v
CLS Pty Ltd
(U2009/10839)

SENIOR DEPUTY PRESIDENT ACTON MELBOURNE, 23 OCTOBER 2009

Jurisdiction – earnings.

Introduction

[1] Mr Lee C (Mr C) was dismissed from his employment with CLS Pty Ltd (CLS), a company involved in providing consultancy and coaching services in the use of “lean tools” being techniques to allow business to reduce waste and become more efficient. Mr C commenced employment with CLS in September 2007 and was dismissed on 16 July 2009. Mr C made an application for an unfair dismissal remedy to Fair Work Australia (FWA) on 30 July 2009.

Jurisdictional Objection

[2] CLS objects to Mr C’s unfair dismissal remedy application on the basis that at the relevant time Mr C was not protected from unfair dismissal by the Fair Work Act 2009 (Cth) (the FW Act). This is because at that time the sum of Mr C’s annual rate of earnings and such other amounts worked out in accordance with the Fair Work Regulations 2009 (the regulations) was more than the high income threshold. Mr C contests this objection.

Relevant sections

[3] Section 394(1) of the FW Act provides that a person who has been dismissed may apply to FWA for an order under Division 4 of Part 3-2 of the FW Act granting a remedy. Section 396(b) of the FW Act provides that FWA must decide whether the person was protected from unfair dismissal before considering the merits of a s.394(1) application. Section 390(1) of the FW Act provides that FWA may order the person’s reinstatement or the payment of compensation to the person if FWA is satisfied the person was protected from unfair dismissal at the time of being dismissed and the person has been unfairly dismissed.

[4] In respect of protection from unfair dismissal, s.382 of the FW Act provides:

“382 When a person is protected from unfair dismissal

A person is protected from unfair dismissal at a time if, at that time:

(a) the person is an employee who has completed a period of employment with his or her employer of at least the minimum employment period; and

(b) one or more of the following apply:

(i) a modern award covers the person;

(ii) an enterprise agreement applies to the person in relation to the employment;

(iii) the sum of the person’s annual rate of earnings, and such other amounts (if any) worked out in relation to the person in accordance with the regulations, is less than the high income threshold.

Note: high income threshold indexed to $108,300 from 1 July 2009”

[5] In respect of earnings, s.332 of the FW Act provides:

“332 Earnings

(1) An employee’s earnings include:

(a) the employee’s wages; and

(b) amounts applied or dealt with in any way on the employee’s behalf or as the employee directs; and

(c) the agreed money value of non-monetary benefits; and

(d) amounts or benefits prescribed by the regulations.

(2) However, an employee’s earnings do not include the following:

(a) payments the amount of which cannot be determined in advance;

(b) reimbursements;

(c) contributions to a superannuation fund to the extent that they are contributions to which subsection (4) applies;

(d) amounts prescribed by the regulations.

Note: Some examples of payments covered by paragraph (a) are commissions, incentive-based payments and bonuses, and overtime (unless the overtime is guaranteed).

(3) Non-monetary benefits are benefits other than an entitlement to a payment of money:

(a) to which the employee is entitled in return for the performance of work; and

(b) for which a reasonable money value has been agreed by the employee and the employer;

but does not include a benefit prescribed by the regulations.

(4) This subsection applies to contributions that the employer makes to a superannuation fund to the extent that one or more of the following applies:

(a) the employer would have been liable to pay superannuation guarantee charge under the Superannuation Guarantee Charge Act 1992 in relation to the person if the amounts had not been so contributed;

(b) the employer is required to contribute to the fund for the employee’s benefit in relation to a defined benefit interest (within the meaning of section 292-175 of the Income Tax Assessment Act 1997) of the employee;

(c) the employer is required to contribute to the fund for the employee’s benefit under a law of the Commonwealth, a State or a Territory.”

[6] Regulation 3.05(6) of the regulations provides:

“Benefits other than payment of money

(6) If:

(a) the person is entitled to receive, or has received, a benefit in accordance with an agreement between the person and the person’s employer; and

(b) the benefit is not an entitlement to a payment of money and is not a non-monetary benefit within the meaning of subsection 332 (3) of the Act; and

(c) FWA is satisfied, having regard to the circumstances, that:

(i) it should consider the benefit for the purpose of assessing whether the high income threshold applies to a person at the time of the dismissal; and

(ii) a reasonable money value of the benefit has not been agreed by the person and the employer; and

(iii) FWA can estimate a real or notional money value of the benefit;

the real or notional money value of the benefit estimated by FWA is an amount for subparagraph 382(b)(iii) of the Act.”

[7] The high income threshold is provided for in s.333 of the FW Act and at the relevant time was $108,300 per annum.

Submissions and facts

[8] Mr C was born and raised in the United Kingdom. He came to Australia in September 2007 on a class 457 visa sponsored by CLS. He is married and has two children. His wife and children came to Australia on 18 October 2008 on visas also sponsored by CLS. The family home in the United Kingdom was sold in October 2008.

[9] The parties agree that Mr C does not fall within s.382(b)(i) or (ii) of the FW Act.

[10] With respect to s.382(b)(iii) of the FW Act, CLS submits that, in the 12 months preceding the termination of his employment, the sum of Mr C’s annual rate of earnings and other amounts worked out in accordance with the regulations amounted to $109,133 per annum, some $833 above the high income threshold of $108,300 per annum.

[11] The $109,133 per annum is said by CLS to be made up of $105,000 per annum in earnings ($78,900 in wages as described in s.332(1)(a) of the FW Act and $26,100 in living away from home allowance (LAFHA) being an amount ”applied or dealt with in any way on the employee’s behalf or as the employee directs” as described in s.332(1)(b) of the FW Act) and $4,133 per annum in health insurance being a benefit other than payment of money as described in regulation 3.05(6).

[12] In respect of LAFHA, CLS maintains the original contract of employment between Mr C and CLS did not provide for LAFHA. The original contract of employment provided for Mr C to be paid a salary of $95,000 per annum. In June 2008, Mr C sent the following email to CLS:

“Hi Andy,

I have been doing some homework on the above subject with support from a couple of accountants (and an immigration officer personal friend) and would like to know from you why you have never made me aware of lafha? (Which is a loophole in the tax system for people who are still residents of the UK which I still am but work in Australia) and also any other tax benefits that I should be receiving.

I look forward to your reply (bearing in mind you are not a [sic] accountant or a financial advisor). I have been told I should be able to get substantial tax relief.

Also do you think I should be paying 30% tax month on month seems a bit high to me?

Kind Regards

Lee”

[13] From 1 July 2008 Mr C was paid a base salary of $78,900 per annum and LAFHA of $26,100 per annum by CLS.

[14] The Australian Taxation Office (ATO) Miscellaneous Taxation Ruling MT 2030 deals with fringe benefits tax and LAFHA benefits. The ruling states:

“Section 136 of the Fringe Benefits Tax Assessment Act 1986 (the Act) defines a living-away-from-home allowance benefit as a benefit referred to in section 30 of the Act. Section 30 sets out the circumstances in which an allowance paid by an employer to an employee will qualify as a living-away-from-home allowance.

2. A living-away-from-home allowance exists where it is reasonable to conclude from all the surrounding circumstances that some or all of the allowance is in the nature of compensation to the employee for additional expenses incurred, or additional expenses incurred and other disadvantages suffered, because the employee is required to live away from his or her usual place of residence in order to perform the duties of employment. Additional expenses do not include expenses for which the employee would be entitled to an income tax deduction.

3. The whole or such part of the allowance as satisfies these tests is a living-away-from-home allowance fringe benefit, the taxable value of which is calculated in accordance with the rules contained in section 31. The taxable value is so much of the allowance as qualifies as a living-away-from-home allowance fringe benefit reduced by either or both of two components being the ‘exempt accommodation component’ and the ‘exempt food component’. Both of these terms are defined in section 136 of the Act.

4. The exempt accommodation component is so much of the allowance as it is reasonable to conclude is in the nature of compensation for additional expenses on accommodation that the employee could reasonably be expected to incur.

5. The exempt food component is so much of the allowance as is reasonable compensation for additional expenses on food. It is arrived at by first ascertaining the ‘food component’ of the allowance, as defined in section 136. The food component is so much of the allowance as is in the nature of compensation for expenses the employee could reasonably be expected to incur on food and drink…

11. As mentioned, section 30 specifies that the elements of a living-away-from-home allowance paid by an employer to an employee are that -

● it is in the nature of compensation for additional expenses incurred by the employee or additional expenses and other disadvantages suffered; and

● those additional expenses and other disadvantages are due to the employee being required to live away from his or her usual place of residence in order to perform the duties of his or her employment.

‘Place of residence’ is defined in section 136. It means, in relation to a person, a place at which the person resides or a place at which the person has sleeping accommodation, whether on a permanent or temporary basis and whether or not on a shared basis...

14. As the decisions illustrate, the question whether an employee is living away from his or her usual place of residence normally involves a choice between two places of residence, i.e., the place where the employee is living at the time or some other place. A person is regarded as living away from a usual place of residence if, but for having to change residence in order to work temporarily for his employer at another locality, the employee would have continued to live at the former place. It would be relevant in reaching that view that there is an intention or expectation of the employee returning to live at the former place of residence on cessation of work at the temporary job locality. This would be relevant even if the employee is living in temporary quarters close to a temporary job site. Reference is made to the following decisions by way of illustration…

22. Examples of employees on appointments of finite duration who will generally be living away from their usual place of residence are foreign nationals employed in Australia on a temporary basis and Australian residents (e.g., export consultants, diplomats, immigration officials, etc.) stationed in a foreign country for a time. Provided the appointment is for a limited period and the employee can be expected in the normal course to return to the same city or district of the home country to live, the employee may be treated as living away from his or her usual place of residence…

26. The question has been asked whether, before an allowance paid to an employee may qualify as a living-away-from-home allowance, the employee must actually have incurred additional expenses on accommodation and food and drink, etc.

27. It is in the nature of an allowance that it will not ordinarily be a precise measure of actual expenses of the recipient. Rather, as mentioned in paragraph 2, a living-away-from-home allowance is an allowance in the nature of compensation for additional expenses incurred, or additional expenses incurred and other disadvantages suffered, by an employee through having to live away from his or her usual place of residence.

28. That is, an employer will pay an allowance - perhaps on the basis of a survey of accommodation and living costs at the employee's temporary work location - in order to compensate the employee for accommodation and additional living expenses that the employee might be expected to incur. The allowance may also contain a component to compensate for general disadvantages such as the employee having to put up with isolation, harsh climatic conditions, changed lifestyle etc. Where there are a number of employees, e.g., accommodation at or near a construction site, identical amounts are often paid to employees on the same wage scale without regard being paid to any individual employee's actual outlays…

30. The Act does not express a requirement, for a person to qualify as having a ‘usual place of residence’, that it be established that he or she actually have such a residence. If the employee is one of a class of employees, (e.g., diplomats posted overseas, foreign experts employed in Australia, construction workers at a remote construction site, etc.) who could reasonably be expected by the employer to satisfy the tests set out in paragraphs 11-25 of living away from the usual place of residence, and the allowance is paid to compensate for additional costs (as explained in paragraph 28) that the employees could be expected to incur through having to live away from home, the allowance will constitute a living-away-from-home allowance in terms of section 30…

44. Instead of paying a cash living-away-from-home allowance, employers may provide equivalent benefits in a non-cash form where an employee is living away from home.

45. For example, the employee's actual accommodation expenses may be reimbursed by the employer, or the employee and (where applicable) the employee's family may be permitted to occupy residential accommodation owned by the employer.

46. In such circumstances, section 21 of the Act would operate to exempt the reimbursement which would otherwise be an expense payment fringe benefit taxable in accordance with section 23, and sub-section 47(5) would operate to exempt the accommodation which would otherwise be a residual fringe benefit taxable in accordance with section 49 or 51.

47. The employer may also reimburse an employee's actual food costs or provide the employee and (where applicable) the employee's family with food. The reimbursement would constitute an expense payment fringe benefit while the provision of food would be a property fringe benefit. In either circumstance, however, section 63 applies to reduce the taxable value of both kinds of fringe benefit to the extent that they would exceed the statutory food amounts discussed in paragraph 6. For example, if an employee living away from home with his wife and one child, under 12, expended $150 per week on food and had that sum reimbursed by his employer, the taxable value of the resultant expense payment fringe benefit would be reduced by $45, being the difference between the reimbursement ($150) and the statutory food amounts ($42 + $42 + $21).”

Consideration

[15] CLS maintains that at the relevant time the sum of Mr C’s annual rate of earnings and other amounts worked out in accordance with the regulations was $109,133 per annum, being $78,900 per annum in wages, $26,100 per annum in LAFHA and $4,133 per annum in health insurance, and therefore was some $833 above the high income threshold of $108,300 per annum.

[16] In my view, however, it is relevant that an allowance paid to an employee by an employer is regarded as LAFHA where it is reasonable to conclude from all the surrounding circumstances that some or all of the allowance is in the nature of compensation to an employee for additional expenses incurred because the employee is required to live away from their usual place of residence in order to perform their duties of employment. 1 It is also relevant that so much of the allowance as it is reasonable to conclude is in the nature of compensation for additional expenses on accommodation that the employee could reasonably be expected to incur is tax exempt.2

[17] For the period from 17 July 2008 to 17 October 2008, being a period of 93 days or 13.3 weeks starting at the beginning of the 12 month period to the termination of Mr C’s employment and ending on the day before his wife and children came to Australia, Mr C was a foreign national employed in Australia on a class 457 visa sponsored by CLS with a wife and children living in the family home in the United Kingdom.

[18] I think it is reasonable to conclude from the surrounding circumstances that for that 13.3 weeks Mr C incurred additional accommodation expenses because he was required to live away from his usual place of residence in the United Kingdom in order to perform his duties of employment with CLS in Australia. Further, I think it is reasonable to conclude the additional accommodation expenses he could reasonably be expected to incur over that period were more than $833 or more than $62.63 per week. Accordingly, I think it is reasonable to conclude that more than $833 of the LAFHA that CLS paid to Mr C over that 13.3 weeks was in the nature of compensation to Mr C for the additional accommodation expenses he reasonably incurred because he was required to live in Australia away from his usual place of residence in the United Kingdom in order to perform the duties of his employment with CLS.

[19] Moreover, I consider this more than $833 in LAFHA was not earnings within the meaning of s.332 of the FW Act or for the purposes of s.382(b)(iii) of the FW Act. Nor was it other benefits worked out in accordance with the regulations, as described in s.382(b)(iii) of the FW Act.

[20] In considering the scope of “earnings” within the meaning of s.332 of the FW Act or for the purposes of s.382(b)(iii) of the FW Act, it is relevant that s.332(2)(b) of the FW Act provides that reimbursements do not constitute such earnings.

[21] The ATO Miscellaneous Taxation Ruling MT 2030 points out:

“44. Instead of paying a cash living-away-from-home allowance, employers may provide equivalent benefits in a non-cash form where an employee is living away from home.

45. For example, the employee's actual accommodation expenses may be reimbursed by the employer, or the employee and (where applicable) the employee's family may be permitted to occupy residential accommodation owned by the employer.” (Underlining added.)

[22] I think it unlikely the Parliament intended that tax exempt amounts paid by an employer to an employee by way of LAFHA as compensation for additional accommodation expenses reasonably expected to be incurred because the employee is required to live away from their usual place of residence in order to perform their duties of employment should be regarded as earnings, whereas tax exempt reimbursements by the employer of the employee’s actual accommodation expenses are not to be regarded as earnings. It is unlikely the Parliament intended the method of payment by an employer of such an expense should determine whether or not the payment is regarded as part of an employee’s earnings.

[23] With respect to “other amounts … worked out … in accordance with the regulations” as described in s.382(b)(iii) of the FW Act, it is relevant that regulation 3.05(6), which is the only relevant regulation, concerns benefits other than payment of money. Clearly LAFHA is not such a benefit.

[24] Since at the relevant time more than $833 of the LAFHA CLS paid to Mr C was not part of Mr C’s annual rate of earnings or other amounts worked out in accordance with the regulations, as described in s.382(b)(iii) of the FW Act, then at that time the sum of Mr C’s “annual rate of earnings” 3 and “other amounts … worked out … in accordance with the regulations”4 was less than the high income threshold of $108,300 per annum.

[25] Mr C’s unfair dismissal remedy application in this matter, therefore, does not fall foul of s.382(b)(iii) of the FW Act.

[26] I add that even if the health insurance paid by CLS in accordance with its contract with Mr C has been underestimated because CLS did not pay it for part of September and October 2008, I would still be satisfied that at the relevant time the sum of Mr C’s annual rate of earnings and other amounts worked out in accordance with the regulations was less than the high income threshold given the likely value of his tax exempt LAFHA for the period 17 July 2008 to 17 October 2008, if not beyond that period to the termination of his employment.

Conclusion

[27] The jurisdictional objection of CLS is, therefore, dismissed and Mr C’s s.394 application will be further dealt with by FWA.

SENIOR DEPUTY PRESIDENT

 1  Appearances:

G. McKeown, Counsel, for the applicant.

M. Bare with P. O’Halloran, for the respondent.

Proceeding details:

2009.

Melbourne:

September 11.

Australian Taxation Office Miscellaneous Taxation Ruling MT 2030 at paragraph 2.

 2   Ibid at paragraph 4.

 3   Fair Work Act 2009 (Cth), s.382(b)(iii).

 4   Ibid.

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