Edited version of private advice

Authorisation Number: 1052209748634

Date of advice: 19 January 2024

Ruling

Subject: Deductions - work related expenses

Question 1

Can the taxpayer claim travel deductions under section 8-1 of the ITAA 1997 when he received a non-taxed allowance?

Answer

No.

Question 2

Can the taxpayer claim separate deductions under section 8-1 of the ITAA 1997 for motor vehicle and caravan holding costs, as well as depreciation on both?

Answer

No.

Question 3

Which of these expenses is substantiation required for - including receipts, logbooks and other calculations as necessary?

Answer

It is not necessary to answer this question, as no deductions are allowable under questions 1 and 2.

The substantiation requirements have been included in this ruling to explain where a taxpayer may be required to show the basis for determining the amount of a claim and that the expense was incurred for work-related purposes.

This ruling applies for the following periods:

Period ended 30 June 2022

Period ended 30 June 2023

The scheme commenced on:

1 July 2021

Relevant facts and circumstances

You are employed as a XX XX for a construction company undertaking fit-out and refurbishment of commercial retail premises.

You travel to various sites for varying periods of time. The periods away can be weeks at a time and on occasion up to three months depending on the work required on that site.

For shorter periods, you travel by airplane stay in rental accommodation.

For longer periods, you have purchased a caravan which you use as your accommodation for longer periods. Your spouse sometimes joins you on the longer periods.

You maintain a permanent home with your spouse in XX. You do not relocate to the location(s) where works may occur.

Your income statement for the year ending 20XX shows:

•         you are paid a meal allowance per day when on overtime

•         you are paid a motor vehicle allowanced based on cents per kilometre

•         you are paid a travelling allowance (named as a Living-away-from-home-allowance, LAFHA).

Allowances for meals and travel are included in your payslip for periods when you are actually required to travel for work.

You have provided payslips for the period ending XX XX 20XX and XX XX 20XX. One of the payslips show payment for a fares allowance and a travelling allowance from which withholding has been applied.

You have advised that allowances for your meals and travel are paid when you are actually required to travel for work.

Your working hours are from 7 am to 5 pm, six days per week. You work mostly outside of business hours.

Your Letter of Offer of employment states that the XX XXXX XXXX XXXX(The Agreement) or other industrial agreement approved under the Fair Work Act 2009 applies to your employment.

Your employment agreement (Appendix G) states that where you are required to live away from home for distant work the Company will provide accommodation as mutually agreed. Further, item 16 Living away from home allowance, in the The Agreement, states "When employees are to be engaged on Distant Work requiring them to live away from home... first class accommodation, including full board shall be provided by the company. In addition, $XX shall be paid for each night the employee is required to be away from home.

Relevant legislative provisions

Fringe Benefits Tax Assessment Act 1986 Subsection 30(1)

Fringe Benefits Tax Assessment Act 1986 Subsection 136(1)

Income Tax Assessment Act 1936 Section 23L

Income Tax Assessment Act 1997 Section 6-15

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Section 15-2

Income Tax Assessment Act 1997 Subsection 900-30(3)

Reasons for decision

Expenses incurred in travelling are deductible expenses under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) where 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 or a provision of the taxation legislation excludes it. That is, there is a requirement for there to be a connection between the expense and an employee's duties and activities.

Generally, accommodation, meal and travel expenses incurred by a person who lives away from home in order to carry out his or her work duties, at a place of work, will not be deductible. Expenses of this nature are private or incurred before or after the activity of earning assessable income.

Accommodation, meal and travel expenses will be allowable where they are incurred by a taxpayer while they are travelling in the course of undertaking their work duties, for example, where the taxpayer's work is itinerant such as in the case of a travelling salesperson or an interstate truck driver.

For a taxpayer's work to be considered itinerant, they must be required to travel between multiple work sites before returning home. It is not sufficient that the taxpayer has different work sites if they are not normally required to travel between the work sites before returning home.

Whilst the travel and accommodation expenses incurred may be to enable you to stay in a close proximity of your work location for convenience to earn an assessable income, it is not necessarily a part of gaining or producing that income.

Paragraph 2 of Miscellaneous Taxation Ruling MT 2030: Fringe benefits tax: living-away-from-home allowance benefits (withdrawn) states that a living-away-from-home allowance exists where it is reasonable to conclude from all the surrounding circumstances that some or all of the allowance is in the nature of compensation to the employee for additional expenses incurred, or additional expenses incurred and other disadvantages suffered, because the employee is required to live away from his or her usual place of residence in order to perform the duties of employment. Additional expenses do not include expenses for which the employee would be entitled to an income tax deduction.

To determine whether the payments would qualify as LAFHA, Section 30(1) of the Fringe Benefits Tas Assessment Act 1986 (FBTAA 1936) states this would be satisfied where:

a)    at a particular time, in respect of the employment of an employee of an employer, the employer pays an allowance to the employee; and

b)    it would be concluded that the whole or a part of the allowance is in the nature of compensation to the employee for:

(i)            additional expenses (not being deductible expenses) incurred by the employee during a period; or

(ii)           additional expenses (not being deductible expenses) incurred by the employee, and other additional disadvantages to which the employee is subject, during a period; by reason that the employee is required to live away from his or her usual place of residence in order to perform the duties of that employment; the payment of the whole, or of the part, as the case may be, of the allowance constitutes a benefit provided by the employer to the employee at that time.

Your Enterprise Agreement states that employees covered by this Agreement shall be paid the fares and travel allowance recorded in Appendix C of the Agreement in lieu of the relevant fares and travelling allowance in the Award. The Agreement also includes a meal allowance for overtime and a daily fares allowance.

Your living-away-from-home allowance is not part of your taxable income as determined by your income statement for the year ending 2023. Consequently, you cannot claim a tax deduction for costs that the LAFHA covers, and you are not entitled to a deduction for travel or accommodation expenses under section 8-1 of the ITAA 1997.

Q2: Can the taxpayer claim separate deductions under section 8-1 of the ITAA 1997 for motor vehicle and caravan holding costs, as well as depreciation on both?

An employee's ordinary costs of travelling between home and work and maintaining a home and consuming food and drink to go about their daily activities, are of a private or domestic nature and are not deductible. Such costs are 'preliminary to the work' and are not incurred in performing the work activities.

In Federal Commissioner of Taxation v. Toms 89 ATC 4373; (1989) 20 ATR 466 (Toms Case) the Federal Court disallowed a forest worker's deduction for the cost of maintaining a caravan and other living expenses. The taxpayer incurred the expenses in providing temporary accommodation at the base camp because the taxpayer had chosen to reside at a place far from the worksite. These expenses were dictated not by work but by private considerations.

Paragraph 130 of Taxation Ruling TR 2021/4 Income tax and fringe benefits tax: employees: accommodation and food and drink expenses, travel allowances, and living-away-from-home allowances analyse the difference between a travel allowance and a LAFHA.

The main difference between a travel allowance and a LAFHA is that a:

•         travel allowance can only be paid to cover deductible accommodation and food and drink expenses and incidental expenses incurred by an employee when they are travelling on work

•         LAFHA is paid to provide compensation to an employee for the additional living expenses incurred by an employee because their duties of employment require them live at location away from their usual residence.

Paragraph 42 of Taxation Ruling TR 2021/4 provides the following guidance for determining whether an employee is living at a location away from their usual residence.

The following factors would support a characterisation of an employee as living at a location away from their usual residence:

•         there is a change in the employee's regular place of work

•         the length of the overall period the employee will be away from their usual residence is a relatively long one

•         the nature of the accommodation is such that it becomes their usual residence

•         whether the employee is, or can be, accompanied by family or visited by family and friends.

As a practical general rule, where the period away does not exceed 21 days the allowance will be treated as a travelling allowance rather than a LAFHA.

The Agreement states that it provides accommodation. You have chosen to purchase a caravan for convenience and for personal use, particularly as your spouse sometimes accompanies you. Therefore, holding costs and depreciation on the purchased caravan would not be an allowable deduction.

You can claim a deduction for an overtime meal if you have the meal while working overtime, and you receive an overtime meal allowance under your enterprise agreement and the overtime meal is shown you're your income statement and you have declared it in your tax return.

Where your employer has included an allowance on your annual income statement, you must include the allowance as income in your tax return.

Q3: Which of these expenses is substantiation required for - including receipts, logbooks and other calculations as necessary?

Different rules apply to the following allowances if your employer has not reported them on your annual income statement:

• a travel allowance to cover expenses you may incur when you travel away from home to perform your employment duties
• an overtime meal allowance paid under an industrial law, award or enterprise agreement.

If your employer doesn't report the allowance on your annual income statement, and you:

• spent the whole allowance amount on deductible expenses, then you

- don't include it as income in your tax return

- can't claim any deductions for the expenses you incur.

If your employer doesn't report the allowance on your annual income statement, and you:

• spent the whole allowance amount on deductible expenses, then you

- don't include it as income in your tax return

- can't claim any deductions for the expenses you incur.

• spent more than your allowance amount on deductible expenses, then you can

- include the allowance as income in your tax return

- claim a deduction for the expenses you incur.

If you can claim a deduction, you must also keep records of your expenses, unless a record keeping exception applies.

Subdivision 900-B of the Income Tax Assessment Act 1997 (ITAA 1997) sets out the substantiation rules for work-related deductions and provides for exception in the case of some types of expenses. If the expenses claimed qualify for exception from substantiation, it is not necessary to keep written evidence that would otherwise be required. However, a taxpayer may still be required to show the basis for determining the amount of their claim and that the expense was actually incurred for work-related purposes.

You can rely on the exception from keeping written evidence of your accommodation, food and drink and incidental expenses and travel records if:

•         you incur the deductive travel allowance expenses

•         you receive a travel allowance from your employer

•         your travel allowance expenses are within the reasonable amounts.

Under Subdivision 900-B of the ITAA 1997, a deduction is not allowable for a work expense, including a meal allowance expense or travel allowance expense, unlessthe expense qualifies as a deduction under a provision of the Act and written evidenceof the expense has been obtained and retained by the employeetaxpayer.

Subdivision 900-B also provides that the substantiation requirement to obtain written evidence does not apply to claims by employee taxpayers for expenses covered by:

•         an overtime meal allowance paid under an industrial instrument; or

•         a domestic travel allowance or overseas travel allowance, whether or not the allowance is paid under an industrial instrument,

if the amount of the claim for losses or outgoings incurred does not exceed the reasonable amounts.

All allowances must be shown as assessable income in the employee's tax return, unless:

•         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.

Where the allowance is not required to be shown as assessable income in the employee's tax return, and is not shown, a deduction for the expense cannot be claimed in the tax return.