Edited version of private ruling

Authorisation Number: 1011821587289

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Ruling

Subject: Business deductions

Question 1

Is the amount paid to the employee in respect of their travel and accommodation a travel allowance?

Answer

No.

Question 2

Are you entitled to a deduction for remuneration paid to the employee?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

The scheme commences on:

1 July 2010

Relevant facts and circumstances

You are a sole director company.

Your sole director is your only employee.

Your income generation stems from your employee operating a single piece of plant and equipment costing approximately $X,000.

You pay your employee an amount in relation to their travel and accommodation at the work location.

Your employee travels approximately X kilometres to their workplace. They stay there for X days before returning to their permanent residence for four days off.

Your employee has a caravan that they located near their workplace which they stay in on the days that they are working.

Reasons for decision

Summary

The allowance you pay to your employee is not considered to be a travel allowance as your employee's travel is not in the course of carrying out their work duties. You are entitled to a deduction for the amount as it simply forms part of the remuneration paid to your employee and therefore is incurred in the gaining or producing of your assessable income.

However, the allowance may be subject to fringe benefits tax (FBT). If the allowance is not subject to FBT then your employee would have to include the allowance in their assessable income.

Your employee is not entitled to claim any deductions for accommodation, meals or incidentals as they are not considered to be travelling on work. This is the case even if they have to include the allowance in their assessable income.

Detailed reasoning

Question 1

Section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) explains that travel allowance has the meaning given by section 900-30 of the ITAA 1997. Section 900-30 of the ITAA 1997 explains that a travel allowance is paid by an employer to an employee to cover losses or outgoings:

· that you incur for travel away from your ordinary residence that you undertake in the course of your duties as an employee; and

· that are losses and outgoings for accommodation or for food or drink, or are incidental to the travel.

A travelling allowance is paid because the taxpayer is travelling in the course of performing his or her job. The taxpayer does not change job locations but simply travels in order to carry out the requirements of the job.

In considering travel in the course of your duties, a distinction is made between travel to work and travel on work. It is only if the duties of the job require a taxpayer to travel that the taxpayer's expenses can be deducted.

The cost of travel between home and work is generally incurred to put the employee in a position to perform duties of employment, rather than in the performance of those duties (see paragraph 77 of Taxation Ruling TR 95/34).

It should be noted that the mode of transport, the availability of transport, the lack of suitable public transport, the erratic times of employment, the time of travel, the distance of travel and the necessity of travel does not alter the essential character of travel between home and work as being private in nature.

In your case your employee travels because their home is approximately X kilometres from their place of work. Your employee's travel is a prerequisite to the earning of assessable income. It is travelling to work rather than in the course of carrying out their work duties. Therefore any allowance you pay for this travel is not a 'travel allowance'.

Question 2

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

Generally, a company is allowed a deduction for amounts paid to employees as the expense is incurred in the gaining or producing of assessable income.

Taxation Ruling IT 2534 states that a company will become entitled to an income tax deduction for payment of directors fees, bonuses etc. in a year of income when it has definitively committed itself to the payment of a quantified amount.

In this instance, where the company makes a payment to an employee of the company, it is entitled to a deduction under section 8-1 of the ITAA 1997.

Note

The fact that the employee is the sole director and only employee of the company does not preclude the amount from being deductible as a company and an individual are separate entities.

The allowance may be subject to the FBT provisions. If you wish, you may request a private ruling on whether you are liable to pay FBT on the allowance.

If the allowance is not subject to FBT then your employee would have to include the allowance in their assessable income. Your employee is not entitled to claim any deductions for accommodation, meals or incidentals as they are not considered to be travelling on work. This is the case even if they have to include the allowance in their assessable income.

It is noted that you asked for the private ruling to apply for the 2011 income year and onwards. The Commissioner does not rule for indefinite or extended periods as there may be changes to the facts of the arrangement or the law in question. Also, a public ruling may issue which affects the private ruling. Therefore, we have only ruled for the 2011 to 2014 income years.

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