Edited version of your written advice

Authorisation Number: 1012816182919

Ruling

Subject: Maintaining travel diaries

Issue 1

Do tour escorts need to keep travel diaries to provide to the Trust for the purposes of sections 24, 44 and 52 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)?

Answer

Yes

Issue 2

Does the trust need to keep travel diaries for the purposes of Division 900 of the Income Tax Assessment Act 1997 or section 262A of the Income Tax Assessment Act 1936?

Answer

No, however the record keeping requirements of section 262A of the ITAA 1936 must be satisfied.

This ruling applies for the following periods:

FBT year ending 31 March 2015

FBT year ending 31 March 2016

FBT year ending 31 March 2017

and

Income tax year ending 30 June 2015

Income tax year ending 30 June 2016

Income tax year ending 30 June 2017

The scheme commences on:

1 April 2014

Relevant facts and circumstances

The Trust operates a travel business trading under the name of X.

X provides its clients escorted group tours to international destinations of more than five nights duration (the tours).

Tour escorts are Australian residents, and employees of the Trust or directors of the trustee company. The primary responsibilities of tour escorts throughout the duration of the tours include:

• Ensuring the tour runs smoothly by co-ordinating all arrangements such as checking into hotels, organising departure and arrival times at various venues and events, and re-confirming services and bookings with local operators;

• Providing advice to clients in relation to tour destinations such as local attractions, available optional sightseeing excursions and recommending cafes and restaurants; and

• Assisting clients with any special needs that may arise during the course of the tour.

As detailed in the 'X Tour Escort role description' document, tour escorts are required to:

• Ensure the welfare and safety of the group throughout the duration of the tour.

• Assist guests with illness recovery if required and any other special needs that may arise.

• Ensure that all members of the tour party are accounted for (e.g. complete head counts prior to departures)

• Organise daily briefings and updates for members of the tour group (e.g. discussing the next day's activities and any other essential tour information including the provision of general advice regarding local attractions).

• Plan daily briefings in advance.

• Answer questions from group members and pre-empt any issues that might arise.

• Handle complaints (e.g. as to accommodation or food) in a timely manner.

• Escort guests onto flights including helping them with checking in and guiding them through customs, security and immigration.

• Liaise with drivers and local guides.

• Liaise with hotel staff in relation to check in, wake up calls, baggage handling and meals.

• Reconfirm services with local operators (e.g. for hotels and transfers).

• Obtain and distribute ferry tickets, luggage tags and brief guests on ferry journeys.

• Phone and book optional day sightseeing excursions and communicate relevant details to guests.

• Manage any delays (e.g. flights, ferries, trains or transfers) and handle with the support of the Australian office any resulting consequences.

• Assist guests in locating cafes, restaurants, supermarkets, laundry facilities and local transfers.

• Organise group dinners including liaising with restaurants.

• Provide suggestions and/or direction for leisure day activities (e.g. relating to possible short walks of interest or particular attractions to visit).

• Pay any necessary gratuities (e.g. to drivers and local guides) and accurately record the amounts paid.

• Report daily to the Australian office on the progress of the tour including any issues that have arisen.

• Make recommendations on any possible future tour improvements and foreseeable opportunities.

At all times throughout the duration of the tours, tour escorts are carrying on business activities of X as employees for the purpose of their employment as described in the 'X Tour Escort role description' document.

Prior to departure, X prepares 'Tour Leaders itinerary and notes' documents that specify the duration of the tours, and times and locations of various activities to be undertaken by guests and tour escorts.

X pays all travel, accommodation and other expenses (excluding food and incidentals) for tour escorts in relation to the tours.

X pays tour escorts an allowance, based on the Commissioner's determination of the reasonable overseas travel allowance amounts in each year, to compensate for food and other incidentals incurred by tour escorts in relation to the tours.

X intends to use sections 24, 44 and 52 of the FBTAA to reduce the taxable value of the fringe benefits it provides to tour escorts.

On occasion, a tour escort may continue on a private holiday overseas following the departure of guests and completion of the tour.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 section 24

Fringe Benefits Tax Assessment Act 1986 subparagraph 24(1)(c)(i)

Fringe Benefits Tax Assessment Act 1986 subparagraph 24(1)(c)(ii)

Fringe Benefits Tax Assessment Act 1986 paragraph 24(1)(d)

Fringe Benefits Tax Assessment Act 1986 paragraph 24(1)(e)

Fringe Benefits Tax Assessment Act 1986 section 44

Fringe Benefits Tax Assessment Act 1986 paragraph 44(1)(d)

Fringe Benefits Tax Assessment Act 1986 section 52

Fringe Benefits Tax Assessment Act 1986 paragraph 52(1)(d)

Fringe Benefits Tax Assessment Act 1986 subsection 132(1)

Fringe Benefits Tax Assessment Act 1986 subsection 136(1)

Income Tax Assessment Act 1936 section 262A

Income Tax Assessment Act 1997 Division 900

Income Tax Assessment Act 1997 section 900-5

Income Tax Assessment Act 1997 section 900-150

Income Tax Assessment Act 1997 Section 900-195

Income Tax Assessment Act 1997 Subdivision 900-F

Reasons for decision

Issue 1

Summary

Tour escorts must maintain travel diaries or similar documents for the Trust to be able to reduce the taxable value of fringe benefits in relation to the employment activities of the tour escorts overseas.

Detailed reasoning

Travel expenses

Under the Fringe Benefits Tax Assessment Act 1986 (FBTAA), a number of different types of fringe benefits may arise where an employer provides travel, accommodation and recreational benefits to an employee in connection with their employment. Recreational benefits include providing amusement, sport and leisure-time pursuits such as access to theatrical events, sight-seeing tours, and holiday activities.

'Eligible incidental travel expense payment benefits' are payments or reimbursements in the nature of compensation to the recipients for such expenditure that the recipients might reasonably be expected to have incurred in respect of the travel.

Record keeping for FBT purposes

There are two requirements in respect of record-keeping under the FBTAA. Firstly, subsection 132(1) requires employers to keep sufficient records to enable their FBT liability to be assessed, and to identify and explain all transactions and acts relevant to ascertaining their FBT liability.

Secondly, various specific provisions require 'statutory evidentiary documents', such as travel diaries, and enable employers to take advantage of an exemption or concession reducing their FBT liability.

Sections 24, 44 and 52 of the FBTAA allow a reduction of the taxable value of expense payment fringe benefits, property fringe benefits, or residual fringe benefits by the amount the employees would have been entitled to claim as an income tax deduction had the employee paid for the benefit themselves.

Paragraphs 24(1)(d), 44(1)(d) and 52(1)(d) require the recipient of a benefit provided in relation to travel outside Australia of more than five nights duration to maintain a 'travel diary'. A 'travel diary' is defined in section 136(1), and verifies the extent to which the travel involved activities undertaken for employment purposes.

Where there is an eligible incidental travel expense payment benefit for food and drink on a trip outside Australia, the employee does not have to produce receipts, invoices, and so on in accordance with subparagraphs 24(1)(c)(i) or (ii) of the FBTAA, or a declaration on the income-producing purpose of the expense in accordance with paragraph 24(1)(e). Eligible incidental travel expense payment benefits are exempted completely from the documentary requirements.

As X intends to use sections 24, 44 and 52 of the FBTAA to reduce the taxable value of the fringe benefits provided to the tour escorts, the tour escorts must maintain travel diary records or similar documents.

Issue 2

Summary

X is not required to keep 'travel diaries' under Division 900 of the Income Tax Assessment Act 1997 (ITAA 1997) as this Division does not apply to trust entities.

X is not required to keep 'travel diaries' under section 262A of the Income Tax Assessment Act 1936 (ITAA 1936) as the expenses in connection with the tours are incurred for the sole purpose of earning business income.

As discussed below, other documentation regarding the expenses must be retained to satisfy section 262A of the ITAA 1936.

Detailed reasoning

Division 900 of the Income Tax Assessment Act 1997 (ITAA 1997) requires a travel diary or similar document, as specified in section 900-150, to be maintained in relation to overseas travel expenses that involve the taxpayer being away from their ordinary residence for six or more nights in a row.

Section 900-5 of the ITAA 1997 provides that this requirement applies to individuals, sole proprietor business operators, and partnerships that include at least one individual. However, does not apply to companies or trusts.

Taxation Ruling TR 96/7 Income tax: record keeping - section 262A - general principles (TR 96/7) provides the Commissioner's view regarding business record keeping requirements for income tax purposes.

TR 96/7 clarifies that section 262A of the Income Tax Assessment Act 1936 (ITAA 1936) requires every taxpayer carrying on a business to keep records that record and explain all transactions and acts that are relevant for tax purposes, including:

• any documents that are relevant for the purpose of ascertaining the taxpayer's income and expenditure, and

• documents containing particulars of any election, estimate, determination or calculation made by the taxpayer and the basis on which any estimate, determination or calculation was made.

Where an expense is incurred for the main purpose of producing business income, the expense is fully deductible, notwithstanding the existence of an incidental private purpose. However, where expenses incurred serve both an income producing purpose and a private purpose, some fair and reasonable division on the facts of each case is required to determine the proportion attributable to each purpose (Taxation Ruling TR 98/9).

X is a business carried on by the Trust and incurs travel expenses in connection with providing the tours to the general public.

As Division 900 of the ITAA 1997 does not apply to trust entities, X is not required to maintain travel diaries as specified in section 900-150. However, the record keeping requirements of section 262A of the ITAA 1936 must be satisfied.

On occasions where a tour escort undertakes a private holiday in an overseas location following completion of the tour and the departure of tour clients, the air travel to and from the overseas tour destination serves both an income-earning purpose and the employee's private purpose.

On these occasions, X pays for the air travel in full, and is providing a fringe benefit to the tour escort by way of the air travel. FBT is payable to the extent to which the air travel fringe benefit is provided for the employee's private purposes. As such, for income tax purposes, X incurs the whole of the air travel expense as a business expense and it is fully deductible.

As the expenses incurred by X in connection with the tours are incurred for the sole purpose of earning business income, X is not required to keep travel diaries to show the extent to which the travel was undertaken for a deductible purpose.

As discussed above, other documentation to satisfy section 262A of the ITAA 1936 must be retained.

ATO view documents

Miscellaneous Taxation Ruling MT 2038 FBT: Travel diaries

Taxation Ruling TR 96/7 Income tax: record keeping - section 262A - general principles

Taxation Ruling TR 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business