Edited version of your written advice

Authorisation Number: 1051312429498

Date of advice: 30 November 2017

Ruling

Subject: Travel expenses, travel allowances and Fringe Benefits Tax.

Question 1

Are the expenses incurred travelling from your residence in Australia to Country A tax deductable?

Answer

No

Question 2

Are the expenses incurred travelling from Country A to your residence in Australia tax deductable?

Answer

No

Question 3

Are the hypothetical travel expenses from Country A to the employers’ office in Country B tax deductable?

Answer

No

Question 4

Is the commuting allowance of $X assessable income?

Answer

Yes

Question 5

Should the amounts paid by Employer A towards school fees and the home loan repayments be included on the income tax return as assessable income?

Answer

Yes

This ruling applies for the following periods:

Year ending 30 June 2017

The scheme commences on:

1 July 2016

Relevant facts and circumstances

You are employed by Employer A who are based in Country B

Your services are leased to Employer B by your employer

You travel from your residence in Australia to Country A where you provide services on flights out of Country A.

After completing your flights you return home to Australia from Country A

You receive $X per month for commuting support payments

The contract with Employer A requires you to be responsible for any national, state or local taxes including Fringe Benefits Tax

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 8-1

Taxation Determination 2011/1

Taxation Ruling 95/19

Detailed reasoning

Addressing the first three questions focused on deductions for travel expenses, Section 8-1 of the Income Tax Assessment Act 1997 (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.

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

Paragraph 77 of Taxation Ruling 95/34 states “A deduction is generally not allowable for the cost of transport by an employee between home and his or her normal work place as it is generally considered to be a private expense. The cost of travelling 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.”

The fact that certain expenditure, such as travelling to work, must be incurred in order to be able to derive assessable income, does not necessarily mean that the expenditure is incidental and relevant to the derivation of assessable income. It is a prerequisite to the earning of assessable income rather than being incurred in the course of gaining that income.

In your case, you have incurred expenses for travel between your home and your work. This travel is incurred in order to put you in a position to perform your duties of your employment; it is not incurred in the performance of the duties of your employment.

In order to address the question of how to treat the amounts normally subject to Fringe Benefits Tax we must first consider whether or not the non-resident employer, being Employer A, has a Pay As You Go (PAYG) withholding obligation in accordance with Section 12-35 of Schedule 1 of Taxation Administration Act 1953 (TAA) as this is a prerequisite to the Fringe Benefit Tax (FBT) withholding event.

Where a non-resident entity pays an Australian resident for work performed overseas, the non-resident will have a sufficient connection to Australia if they have a physical business presence in Australia however if they lack that connection then the obligation to withhold does not apply.

Employer A does not have sufficient connection to Australia to incur a PAYG withholding obligation and therefore neither can an obligation arise under the Fringe Benefits Assessment Act 1986 (FBTAA). (Taxation Determination 2011/1)

In regard to the $X of commuting allowance, Taxation Ruling 95/19 discusses the assessability of allowances paid to airline industry employees and whether they are deductable.

Although the allowances can fall into different categories, in each case the allowances are fully assessable with the one exception being that the employer is subject to Fringe Benefits Tax.

In your case the employer is not subject to FBT therefore the amounts are assessable.

Conclusion

The travel expenses are not deductable regardless of the direction of travel as it is between your home and place of work and is a private expense.

The hypothetical expenses from Country A to Country B are not deductable as an expense must actually be incurred to be deductible.

The Commuting Allowance is assessable income as explained in Taxation Ruling 95/19 and the only exception does not apply.

Similarly the payments made by Employer A towards the school fees and loan repayments are assessable income.

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