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Edited version of your written advice
Authorisation Number: 1012903152923
Date of advice: 28 October 2015
Ruling
Subject: Employer obligations
You as an employer can claim an income tax deduction for meeting the cost of reimbursing airfares and travel expenses for a past employee. The expense was necessarily incurred in gaining or producing assessable income and is deductable under section 8-1 of the ITAA 1997.
Question 1
Are you entitled to claim a deduction for expenses incurred in meeting your employer obligations for an employee on a 457 visa?
Answer
Yes.
Question 2
Are there fringe benefit consequences for expenses you incurred in meeting your employer obligations for an employee on a 457 visa?
Answer
No.
This ruling applies for the following periods:
Year ended 30 June 2014
Year ended 30 June 2015
Year ending 30 June 2016
The scheme commences on:
1 July 2013
Relevant facts and circumstances
Your employee came to Australia on a 457 visa and was sponsored by another employer.
You employed them after your application to become their new sponsor was granted by the Department of Immigration and Border Protection (DIBP).
Your employee later ceased employment with you.
In 20XX they contacted you requesting reimbursement of their travel expenses back to their originating country.
You contacted the DIBP to query if you were required to pay these expenses as their employment had ceased before they incurred them. You were advised that as they had not commenced employment with another employer after ceasing work with you; you have an obligation under the requirements of the 457 visa to pay their travel expenses back to her country of origin.
The Immigration Department and the Chamber of Commerce and Industry confirmed this in writing and stated that this was an employer obligation in accordance with the 457 visa.
Subsequently you incurred the expense of reimbursing your employees airfare and associated travel.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 8-1.
Reasons for decision
Question 1
Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) broadly allows a deduction for any losses or outgoings to the extent to which they are incurred in gaining or producing assessable income except to the extent outgoings are of a capital, private or domestic nature.
Subsection 8-1(1) of the ITAA 1997 allows a loss or outgoing to be deductible, to the extent that:
• it is incurred in gaining or producing your assessable income, or
• it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income.
Subsection 8-1(2) of the ITAA 1997 prevents a loss or outgoing from being deductible, to the extent that it is:
• of capital, or of a capital nature, or
• of a private or domestic nature, or
• used to gain or produce your exempt income, or your non-assessable non-exempt income, or
• prevented from being deducted by a provision of the Act.
A common business expense is the cost of obtaining and retaining employees. Such costs are incurred by a business in gaining or producing its assessable income and are generally deductible.
Taxation Ruling IT 2566 provides the Commissioners view:
'it is considered that an employee who is travelling to commence employment duties at a new work location is not travelling on duty. The employment duties do not commence until the employee reports for work at the new location. If an employer pays the travelling costs of getting the employee, his or her spouse and family to the new work location such costs are allowable income tax deductions to the employer.'
Application to your circumstances
You as an employer can claim an income tax deduction for meeting the cost of reimbursing airfares and travel expenses for a past employee. The expense was necessarily incurred in gaining or producing assessable income and is deductable under section 8-1 of the ITAA 1997.
Question 2
The reimbursement of an employee's taxi and airfare constitute an expense benefit under section 20(b) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986). These expenses also meet the definition of relocation transport, as defined in section 143A of the FBTAA 1986.
Provided the conditions outlined in section 58F of the FBTAA 1986 are satisfied, the expense benefits relating to relocation transport are exempt.
Exempt benefits are excluded under the definition of 'fringe benefit' in section 136(1)(g) of the FBTAA 1986.
Application to your circumstances
The expense benefit meets the conditions outlined in section 58F of the FBTAA 1986; subsequently the benefit is exempt.
There is no FBT payable on the taxi fare and airfare which was reimbursed to the employee.
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