Edited version of your written advice

Authorisation Number: 1013031636104

Date of advice: 9 June 2016

Ruling

Subject: Work related travel expenses

Question 1

Are you entitled to declare travelling allowance and claim work related travel expenses (food and incidentals) up to the limits outlined in TD 2015/14?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2015

The scheme commences on:

1 July 2014

Relevant facts and circumstances

You are frequently required to travel outside your home region by your employment. When you travel your employer pays for all accommodation expenses and also provides a "Per Diem" (per day) allowance to cover food and incidental expenses.

You believe you frequently incur expenses greater than the travel allowance paid by your employer and have requested a Private Ruling to advise whether you are entitled to claim any expenses over and above the travel allowance paid by your employer. You wish to declare the travelling allowance paid and then claim expenses up to the limits outlined in TD 2015/14.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 15-2

Income Tax Assessment Act 1997 section 900-30

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 900-50

Income Tax Assessment Act 1997 subdivision 900-B

Fringe Benefit Tax Assessment Act 1986

Fringe Benefit Tax Assessment Act 1986 Section 30

Reasons for decision

An expense is deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) if and to the extent to which it is incurred in gaining or producing your assessable income or in carrying on a business for that purpose. However you cannot claim a deduction for an expense that is of a capital, private or domestic nature.

A deduction is only allowable if an expense:

• is actually incurred

• meets the deductibility tests

• satisfies the substantiation rules.

Work-related travel expenses you incur that are directly related to your work as an employee include:

• public transport, including air travel and taxi fares

• bridge and road tolls, parking fees and short-term car hire

• meals and incidental expenses you incur while away overnight for work

• expenses for motorcycles and vehicles with a carrying capacity of one tonne or more, or nine or more passengers, such as utility trucks and panel vans

• actual expenses (such as any petrol, oil and repair costs) you incur to travel in a car that is owned or leased by someone else.

Allowances

Section 15-2 of the 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.

An allowance is usually paid to a person who is travelling in the course of carrying out their duties to meet additional expenses. The expenses of travelling may be an allowable deduction if the allowance is assessable to the recipient.

An allowance, as stated in Taxation Ruling TR 92/15 Income tax and fringe benefits tax: the difference between an allowance and a reimbursement, is a payment of a predetermined amount to cover an estimated expense. Unless it is a benefit that is subject to Fringe Benefits Tax in accordance to the Fringe Benefits Tax Assessment Act 1986 (FBTAA), an allowance paid by an employer to their employee falls within the definition of salary and wages and is assessable income under section 6-5 of the ITAA 1997.

Whilst allowances paid by employers under relevant Awards are intended to compensate expenses that may be similar meals and accommodation etc., the circumstances in which those allowances are paid are essentially different.

Allowances may be paid as a travel allowance or paid under other names, the most common being the living-away-from-home allowance (LAFHA) and the camping allowance.

Travel Allowance

Payment of a travel allowance tends to indicate that travel is a necessary element of the employment.

A travel allowance is defined in section 900-30 of the ITAA 1997 as "a travel allowance" is an allowance your employer pays or is to pay to you to cover losses or outgoings:

• that you incur for travel away from your ordinary residence that you undertake in the course of your duties as an employee; and

• that are losses or outgoings for accommodation or for food or drink, or are incidental to the travel'.

Travel allowances are often paid to cover specific expenses such as accommodation, food or drink or incidentals to travel away from the employees' ordinary residence, undertaken in the course of performing duties and involve sleep away from home.

Furthermore, there is generally no change of employment location and therefore no change of residence. The employee simply travels in order to carry out the requirements of the job.

The allowance forms part of the employees' assessable income against which appropriate deductions may be allowed for the cost of meals, accommodation and incidental expenses incurred while the employee is travelling.

Substantiation 

Under subdivision 900-B of the ITAA 1997, a deduction is not allowable for a work expense, unless the expense qualifies as a deduction under a provision of the Act and written evidence of the expense has been obtained and retained by the employee taxpayer.

For the substantiation exception to apply, the allowance must be a bona fide travel allowance. Where such an allowance is received by an employee, he or she is eligible to make a claim to the extent of the reasonable amounts set by the Commissioner in respect of accommodation, or meals or expenses incidental to the travel.

Paragraph 18 of Taxation Ruling TR 2004/6 Income tax: substantiation exception for reasonable travel and overtime meal allowance expenses, states that for domestic or overseas travel allowance expenses to be considered for exception from substantiation, the employee must be paid a bona fide travel allowance. The allowance must be paid to cover work-related travel expenses incurred for travel away from the employee's ordinary residence, undertaken in the course of performing duties as an employee and which involves sleep away from home.

Paragraph 33 of TR 2004/6 states the Commissioner determines the reasonable amount of travel and meal allowance expenses only for the purpose of the tax law. That is, the amount that will be accepted as an exception from the requirement to obtain and keep written evidence for substantiation purposes.

Paragraph 39 of TR 2004/6 states a taxpayer may still be required to show the basis for determining the amount of their claim and that the expenses were actually incurred for work-related purposes. What counts as evidence for a claim subject to the substantiation exception will vary according to individual circumstances and the nature of the expense. If necessary, it is acceptable for a reasonable estimate to be the basis for claims having regard to the taxpayer's occupation and the type of expenses that would be expected to be incurred.

Taxation Ruling TR 2004/6 Income tax: substantiation exception for reasonable travel and overtime meal allowance expenses provides guidance on the substantiation exceptions.

Paragraph 35 states that a deduction is not allowable for a work expense, unless the expense qualifies as a deduction under a provision of the ITAA 1997 and written evidence of the expense has been obtained and retained.

There is however an exception (paragraph 38). If the travel allowance qualifies for an exception, it is not necessary to keep written evidence.

To qualify for this exception, the travel allowance:

• must be for sleeping away from home

• must cover the cost of accommodation, food or drink, or incidentals

• must cover specific journeys

• must be paid as an allowance

• must be for a bona fide travel allowance. Paragraphs 60 and 61 explains further:

60. For the substantiation exception to apply, the allowance must be a bona fide travel allowance. That is, the amount paid must be an amount that could reasonably be expected to cover accommodation, or meals or expenses incidental to the travel.

61. A token amount of allowance, for example $5 per day to cover meals for travel that involves sleeping away from home, would not be considered a payment that is expected to cover the purchase of three meals per day while travelling for work. The payment would not be considered a travel allowance for the purposes of the exception from substantiation.

Conclusion

As you satisfy section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) you are entitled to claim expenses necessarily incurred in the production of your assessable income.

Since you receive a bona fide travel allowance you are entitled to claim expenses incurred over and above the travel allowance. Taxation Ruling TR 2004/6 contains an exemption at paragraph 38 which allows such claims up to the published limits without substantiation. However the Commissioner also requires taxation records to be retained for 5 years should review of business records be necessary.

ATO view documents

TR 2004/6

TR 92/15

Other references (Non ATO view - example court cases, etc):

Macquarie Dictionary, [Multimedia], version 5.0.0, 1/10/01