Edited version of private advice

Authorisation Number: 1052283642688

Date of advice: 2 August 2024

Ruling

Subject: Travel allowances

Question 1

Is the total travel allowance for meal, accommodation and incidental expenses assessable income?

Answer

Yes.

Question 2

If the answer to Question 1 is Yes, is only the amount used in gaining or producing assessable income deductible?

Answer

Yes. If you used an amount less than what you received as a travel allowance, only the amount used in gaining or producing assessable income is deductible.

Question 3

Is the cents per kilometre amount your employer provides to you a taxable allowance?

Answer

Yes.

Question 4

If the answer to Question 3 is Yes, can the amount provided be claimed as a deduction?

Answer

Yes.

Question 5

Is the taxable allowance that corresponds to the cents per kilometre method subject to pay as you go withholding?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are an employee of your own business.

You took a trip to meet potential clients. You were unaccompanied on the trip.

You received an allowance from your employer to cover costs relating to the trip.

The estimated costs were made to cover accommodation, meal and incidental expenses.

Your employer did not withhold tax on the payment as it was expected you would spend the entire amount, that the travel allowance was going to be shown separately in accounting records and the amounts were less than the Commissioner's reasonable limits.

You used your motor vehicle to travel in the trip, and your employer will pay you the ATO approved cents per kilometre rate after the trip has been completed.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6-5

Income Tax Assessment Act 1997 section 15-2

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 900-30

Reasons for decision

Question 1

Is the total travel allowance for meal, accommodation and incidental expenses assessable income?

Summary

Yes.

Question 2

If the answer to Question 1 is Yes, is only the amount used in gaining or producing assessable income deductible?

Summary

Yes. If you used an amount less than what you received as a travel allowance, only the amount used in gaining or producing assessable income is deductible.

Detailed reasoning

Section 900-30 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that a travel allowance is an allowance your employer pays 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. Allowances to cover travel expenses are prima facie assessable income under either section 6-5 or section 15-2 of the ITAA 1997.

If a taxpayer is liable to tax on an allowance, relief from tax may be obtained by the taxpayer demonstrating that the travel expenditure to which the allowance relates is deductible under section 8-1 ITAA 1997. The Commissioner's view is that travel expenditure is not necessarily deductible just because the taxpayer receives an allowance to help cover the expenditure. In all cases, the expenditure will only be deductible if it satisfies the normal tests for deductibility in section 8-1. Where the full amount of an allowance has not been expended, or that it has been expended in a manner that would render it deductible, a deduction for an amount that is less than the allowance is allowable. The amount that is deductible is the actual amount incurred in gaining or producing the assessable income and this may be either more or less than the amount of the allowance granted.

Question 3

Is the cents per kilometre amount your employer provides to you a taxable allowance?

Summary

Yes.

Question 4

If the answer to Question 3 is Yes, can the amount provided be claimed as a deduction?

Summary

Yes.

Detailed reasoning

Providing an allowance equal to the cents per kilometre is not a reimbursement because generally reimbursements are for actual expenses (i.e. a receipt for fuel) as opposed to an estimation of expenses (cents per km). The allowance is fully assessable to the employee and the travel allowance is deductible for the same reasons stated in Question 1 and 2 above.

Question 5

Is the taxable allowance that corresponds to the cents per kilometre method subject to pay as you go withholding?

Summary

No.

Detailed reasoning

The taxable allowance corresponding to the cents per kilometre method is subject to Pay As You Go (PAYG) withholding where employers pay car allowances above the approved rate set by the Australian Tax Office (ATO). Employers are required to withhold from any amount above that rate.

You will be paid equal to the ATO's set rate for cents per kilometre in the relevant financial year. Therefore, PAYG withholding does not apply to the taxable allowance.