Edited version of private advice

Authorisation Number: 1051884887193

Date of advice: 12 October 2021

Ruling

Subject: Assessable income and work related travel expenses

Question

Is an Expat\Repat Lump Sum payment shown on your statement of employment, received as part of foreign employment income assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)

Answer 1

Yes

Question

Is travel repatriation expenses incurred in returning to Australia deductable under section 8-1 of the Income Tax Assessment Act 1997(ITAA97)?

Answer 2

Yes

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are a xxxx for an xxxx company.

The xxxx company is an international company with sites all over the world including Australia.

You were sent on assignment, internationally to country A as part of duties as a xxxx for extended period of time.

Your employment contract under clause four-travel, moving & relocation includes provision for expatriation and repatriation travel to and from your home.

You were paid an expat repatriation allowance of $X and a meal allowance of $X as shown on your 20XX earnings statement.

You spent the allowance on flights, accommodation and food in returning to Australia from Country A between the XX Xxxx 20XX and XX Xxxx 20XX.

Your employer did not provide for the expenses incurred in your repatriation travel and accommodation other than via the expat repatriation allowance included as part of your assessable income.

You had your employment terminated on the successful completion of your contract on the XX Xxxx 20XX and you did not arrive home until XX Xxxx 20XX.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5(2)

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Issue 1

Assessable Income

Question

Is an Expat\Repat Lump Sum payment shown on your statement of employment, received as part of foreign employment income assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997)

Detailed reasoning

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year.

Salary and wages and allowances are regarded as ordinary income and therefore assessable under subsection 6-5(2) of the ITAA 1997.

All allowances must be shown as assessable income in the employee's tax return, except where all the following conditions are satisfied:

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

•        the allowance received is a bona fide overtime meal allowance or 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 for expatriation and repatriation travel was included as part of your earnings statement for the 20XX financial year from your employer and as a consequence would need to be included as part of your assessable income as foreign employment income.

Issue 2

Work Related Travel Expenses

Question

Is travel repatriation expenses incurred in returning to Australia deductable under section 8-1 of the Income Tax Assessment Act 1997(ITAA97)?

Detailed reasoning

Section 8-1 of the ITAA 1997 allows a deduction for a loss or an outgoing to the extent to which it is incurred in gaining or producing assessable income, except where the loss or outgoing is of a capital, private or domestic nature.

An employee can only deduct a transport expense under section 8-1 to the extent that:

•        they incur the expense in gaining or producing their assessable income

•        the expense is not of a capital, private or domestic nature

•        the expense is not incurred in gaining or producing exempt income or non-assessable non-exempt income, and

•        a provision of the Act does not prevent it from being deducted.

While transport expenses will only be deductible if they satisfy the requirements of section 8-1, the following factors (based on relevant case law) would support a characterisation of transport expenses as being incurred in gaining or producing assessable income:

•        the travel fits within the duties of employment, that is, the obligation to incur transport expenses arises out of the employment itself and not the employee's personal circumstances

•        the travel is relevant to the practical demands of carrying out the employee's work duties or role, that is, the transport expenses are a necessary consequence of the employee's income-producing activity.

In you case you were required to relocate to Country A as part of your employment contract (international assignment). The location of your home and the requirement of the travel does not represent a personal choice. Your employer recognised that overseas travel to Country A would be fundamental to your employment and provided for this as per clause four of your employment contract made provision for the flights and associated travel in returning you to your home location in the form of a repatriation/expat allowance. The allowance which is assessable under subsection 6-5(2) of the Income Tax Assessment Act 1997 forms part of your assessable incomefor the 2020 income tax year. Therefore, travel costs (inclusive of flights, accommodation, meals and incidentals), incurred in your repatriation to your home in Australia are considered deductable under section 8-1 of the ITAA 1997.