Edited version of your private ruling

Authorisation Number: 1012551889037

Ruling

Subject: travel expenses

Question 1

Is the monthly allowance you receive in relation to work related travel between city A and city B assessable income that needs to be specifically disclosed in your taxation return?

Answer

Yes.

Question 2

Is the nature of the allowance you receive in relation to your work related travel between city A and city B such that you do not need to substantiate any deductions against this allowance?

Answer

No.

Question 3

Are you entitled to a deduction for your substantiated work related travel expenses incurred in relation to your work related travel between city A and city B?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

Year ended 30 June 2017

The scheme commenced on:

1 July 2012

Relevant facts and circumstances

You are an employee.

You were initially assigned to city B, but shortly thereafter, you were permanently reassigned to the city A.

Your sole and principal place of residence is in city A.

Your employer provides for payment of travel expenses at a specified rate where you travel on official business which requires an overnight absence.

At the time of your reassignment, it was recognised that you would need to travel extensively for your position.

Your entitlements were to be a fixed sum, calculated with reference to a likely travel pattern (indicative only) of staying three consecutive days in city B. You will be paid a fixed amount a year.

You use your own funds for your work related accommodation expenses when on official business.

When you travel on official business exclusively between city A and city B you use your own funds. When you otherwise travel on official business your flights are paid for by your employer.

Each month you receive a pro-rata amount of the calculated amount from your employer.

An amount described as 'travel allowance' has always appeared on your monthly payment advices from your employer.

Your employer did not include the amounts in your PAYG Summary, for the 2012-13 financial year, That is, these amounts did not appear either as an allowance or as part of your salary and wages figure. Your employer has advised you that they were under no obligation to include these amounts in your PAYG Summary.

Travel expenses including flights, accommodation, meals and incidental expenses incurred by you for your work related travel between city A and city B vary month to month depending on the work load requirements. Sometimes the amount incurred exceeds the monthly amount paid and sometimes is less than the monthly amount paid.

Travel between city A and city B are relatively short trips, usually for three consecutive days or less and not exceeding 21 days.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 subsection 30(1)

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 15-2

Income Tax Assessment Act 1997 Division 900

Reasons for decision

Fringe benefits

In your private ruling application you refer to a payment under subsection 30(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Section 23L of the Income Tax Assessment Act 1936 provides that the receipt of a fringe benefit is not assessable income or exempt income. If the amount of the allowance received is not a fringe benefit, it will be assessable income. Accordingly, it is necessary to consider whether the amounts received represent fringe benefit amounts. Whether your payments are exempt payment benefits or living away from home allowance benefits needs to be considered.

An expense payment benefit is a fringe benefit. Taxation Ruling TR 92/15 sets out the distinction between an allowance and a reimbursement. A payment is an allowance when a person is paid a definite predetermined amount to cover an estimated expense. It is paid regardless of whether the recipient incurs the expected expense. The recipient has the discretion whether or not to expend the allowance.

A payment is a reimbursement when the recipient is compensated exactly for an expense already incurred although not necessarily disbursed. In general, the provider considers the expense to be its own; and the recipient incurs the expenditure on behalf of the provider. A requirement that the recipient vouch expenses lends weight to a presumption that a payment is a reimbursement rather than an allowance. A requirement that the recipient refunds unexpended amounts to the employer adds further weight to that presumption.

The payments that you received are considered to be an allowance rather than a reimbursement. Accordingly, the payments are not expense payment fringe benefits and the amounts are not excluded from assessable income as being expense payment fringe benefits.

Subsection 30(1) of the FBTAA defines living away from home allowance benefits and states:

 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 duties of that employment require the employee to live away from his or her normal residence;

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.

If all these conditions are met the allowance is a living away from home allowance and subject to FBT and not part of your assessable income.

Miscellaneous Taxation Ruling MT 2030 provides guidance in relation to the distinction between a living away from home allowance and a travel allowance. While the expenses that they are intended to compensate for may be similar - meals and accommodation - the circumstances in which the allowances are paid are essentially different.

A living away from home allowance is paid where an employee has moved and taken up temporary residence away from his or her usual place of residence so as to be able to carry out employment duties for a time at the new (but temporary) workplace. There is a change of job location and an actual change of residence to a place at or near that location.

Therefore, for an allowance to be considered and accepted as a living away from home allowance, the employer must determine whether the employee is bona fide living away from home during the period of his employment because of the nature of their duties.

If an employer determines that an employee is required to live away from home to carry out his employment duties and the employee does not have a transitory lifestyle referred to in MT 2030, then any payments or reimbursements by way of a living away from home allowance will be subject to taxation obligations under the FBT legislation. Such FBT obligations remain the responsibility of the employer and all necessary records must be kept.

A travel allowance, on the other hand, is paid because the employee is travelling in the course of performing his or her job. Travel allowances are often paid for comparatively short periods. Where the period away does not exceed 21 days the allowance will generally be treated as a travel allowance.

In your case, you are required to travel in the performance of your duties. The periods that you were away from city A are generally short. It is considered that your allowance is more of the nature of a travel allowance rather than of a living away from home allowance.

Assessable income

Allowances received by employees are generally assessable income. As outlined above, your allowance is not a fringe benefit. Your allowance was paid to you to cover your airfare, accommodation, meals and incidental expenses you incurred for work travel to city B.

Section 15-2 of the Income Tax Assessment Act 1997 (ITAA 1997) states that your assessable income includes the value to you of all allowances, gratuities, compensation, benefits, bonuses and premiums provided to you in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by you.

Your allowance is included in your assessable income under section 15-2 of the ITAA 1997.

Taxation Ruling TR 2004/6 states at paragraph 12 that all allowances must be shown as assessable income in the employee's tax return unless the following exception applies:

§ the allowance is not shown on the employee's payment summary;

§ the allowance received is a bona fide overtime meal allowance or a bona fide travel allowance;

§ the allowance received does not exceed the reasonable amount; and

§ the allowance has been fully expended on deductible expenses.

Therefore we need to determine if your allowance is a bona fide travel allowance. Paragraph 56 of TR 2004/6 states that the travel allowance must be paid for specific journeys undertaken or to be undertaken for work related travel. A travel allowance that is not paid to cover relevant expenses for specific journeys undertaken or to be undertaken for work related travel is not a travel allowance for the purposes of the exception from substantiation.

Paragraph 57 of TR 2004/6 provides examples of expenses relating to allowances that would not qualify for the exception from substantiation because they are not travel allowances paid to cover deductible expenses for specific journeys. These are:

§ where a fixed annual travel allowance amount of, say, $2,000 a year is paid, regardless of how often or even whether travel is actually undertaken; or

§ where a travel allowance is paid at a certain rate per hour for hours worked, even if deductible work-related travel is not undertaken.

Your allowance is not regarded as a bona fide travel allowance, as the allowance is not paid for each specific journey. Accordingly, the allowance received must be declared on your tax return.

Allowable deductions

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which these 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.

A deduction is only allowable if an expense:

§ is actually incurred

§ meets the deductibility tests; and

§ satisfies the substantiation rules.

The receipt of an allowance does not mean that a deduction is automatically allowed. The expenses must meet the criteria for deductibility under section 8-1 of the ITAA 1997 as well as the substantiation provisions.

Expenditure on the daily necessities of life (for example, accommodation, food and drink) is generally not deductible as it is not incurred in gaining or producing assessable income and is also considered to be private or domestic in nature. Exceptions to this include where you are undertaking work-related travel and are required to stay away overnight.

In your case you are away from home overnight for work. The cost of your flights, accommodation and meals incurred in the course of your work-related travel away from home meet the deductibility tests. It is therefore necessary to consider the substantiation requirements.

Substantiation

Division 900 of the ITAA 1997 sets out the substantiation requirements when claiming expenses but also provides some exceptions available for certain work related expenses.

Subdivision 900-B of the ITAA 1997 provides an exception from the substantiation requirements for domestic travel allowance expenses.

Section 900-50 of the ITAA 1997 provides that you can deduct a travel allowance expense for travel within Australia without getting written evidence or keeping travel records if the Commissioner considers reasonable, the total of the outgoings you claim for travel covered by the allowance.

TR 2004/6 discusses the conditions when the substantiation exception for travel allowance expenses applies. The exception from substantiation for travel allowance expenses provided by sections 900-50 of the ITAA 1997 will only apply where all three of the following criteria are met:

§ you received a bona fide travel allowance,

§ your claim for travel expenses does not exceed the reasonable amounts set out by the Commissioner for travel allowance expenses, and

§ you have actually incurred the amount of the expense claimed.

As outlined above, as your allowance is not paid or payable to cover specific work related travel, it is not considered that you received a bona fide travel allowance. Therefore, the exception from substantiation of your travel expenses does not apply in your circumstances. It follows that you cannot use the reasonable allowance amounts for daily travel as outlined by the Commissioner.

To be entitled to claim a deduction for your work related expenses, in addition to including the allowance as assessable income, the expense must be actually incurred and you must have the appropriate written evidence.

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