Edited version of your written advice

Authorisation Number: 1013031792714

Date of advice: 9 June 2016

Ruling

Subject: Travel allowance

Questions and answers

1. Is the payment of 50% of the daily rate for the first and last day travel considered to be a Bona Fide travel allowance?

Yes

2. Are you required to include the travel allowance as assessable income in your tax return if the deductible expense is less than the allowance received?

Yes

This ruling applies for the following periods:

Year ending 30 June 2016

Year ending 30 June 2017

Year ending 30 June 2018

Year ending 30 June 2019

The scheme commences on:

1 July 2015

Relevant facts and circumstances

You are employed as an employee.

Your employer provides a Per Diem payment for each full day of overnight travel and 50% of the daily rate for the first and last day of travel.

Your typical travel includes same day travel and overnight travel up to 4 nights away.

You will have around 40% of some day trips which will not attract Per Diem payment.

Your travel allowance is not shown on your payment summary.

You state that your deductible expense for your work-related travel is less than the allowance received occasionally.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Section 900-50

Income Tax Assessment Act 1997 Section 900-55

Reasons for decision

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for a loss and outgoing to the extent that it is incurred in gaining or producing assessable income. However, a loss or outgoing is not deductible if it is of a capital, private or domestic nature, or it is incurred in gaining or producing exempt income.

The cost of meals is normally considered to be a private expense and is not an allowable deduction under section 8-1 of the ITAA 1997. However, where you are required to sleep away from home in the performance of your duties, expenditure on food and drink is considered to have been necessarily incurred in the performance of your duties and a deduction is allowable.

In addition to the above, most work related travel expenses must also satisfy the substantiation requirements.

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.

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.

Section 900-55 of the ITAA 1997 provides that you can deduct a travel allowance expense for travel outside Australia without getting written evidence under the same conditions as for domestic travel allowances, except that you still have to get written evidence for losses or outgoings for accommodation.

The Commissioner's view on how the exception from substantiation rule for travel expenses should be applied is set out in Taxation Ruling TR 2004/6 Income tax: substantiation exception for reasonable travel and overtime meal allowance expenses.

TR 2004/6 states at paragraph 12 that all allowances must be declared as assessable income in the employee's tax return. However, where

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

• the allowance received is a bona fide travel allowance;

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

• the allowance has been fully expended on deductible expenses,

the allowance received is not required to be show as assessable income and a deduction for the expenses cannot be claimed.

TR 2004/6 further states at paragraph 16 that where a taxpayer receives a bona fide travel allowance and incurs deductible expenses in relation to it:

• where the deduction claimed is more than the reasonable amount, the whole claim must be substantiated with written evidence, not just the excess over the reasonable amount.

• Where the allowance received is not shown on the employee's payment summary and is not greater than the reasonable amount and it is fully expended on deductible expenses, the allowance received is not required to be shown as assessable income in the employee's tax return. Where it is not shown, a deduction for the expense cannot be claimed in the tax return

• Where the allowance paid by the employer is greater than the reasonable amount the taxpayer may still use the exception from substantiation if the claim for deduction is not greater than the reasonable amount. In that case the allowance must be shown as assessable income and written evidence is not required to support the claim.

• Where the deductible expense is less than the allowance received, the taxpayer must show the allowance as assessable income in the tax return, and only claim the amount of the deductible expenses incurred.

In your case, your employer provides a Per Diem payment for each full day of overnight travel and 50% of the daily rate for the first and last day of travel. It is considered that the 50% payment for the first and last day of travel is part of your whole travel payment, which is the amount could reasonably be expected to cover your travel expenses. Accordingly, it is accepted that the 50% of the daily rate for the first and last day travel is a Bona Fide travel allowance.

You state that the travel allowance is not shown on the payment summary and your deductible expense for your work-related travel is less than the allowance received occasionally. You are required to include the travel allowance as assessable income in your tax return and only claim the amount of the deductible expenses incurred.

Further issues for you to consider

Where you rely on the exception from substantiation, you may still be required to show the basis for determining the amount of your claim and that the expense was actually incurred. That is, you must have a reasonable basis for determining the amount you incurred.

You could obtain a breakdown of all allowances paid from your employer at the end of the financial year.

You can find more details about keeping travel expense records on www.ato.gov.au by searching QC 31952.

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