It is not uncommon for an employee to take out a travel insurance policy in his/her own name for a period when he/she will be travelling on business.
If the employer reimburses the expense, is the benefit treated as otherwise deductible, or is it of a private nature and therefore subject to FBT?
The type of events normally covered by such travel insurance would include loss of baggage, airfare costs for cancelled flights, certain medical costs or compensation for personal injury or death and so on.
Is it arguable that if it were not for the requirement to travel on business, the insurance would not be required? Therefore, even though something such as medical costs would normally be of a private or domestic nature, where the medical attention is required solely because the employee is travelling on business can the insurance cost be treated as otherwise deductible, with no FBT impost.
Tax Office View
Unfortunately, the Tax Office have advised that the cost of a travel insurance policy taken out by an employee in his/her name when he/she will be travelling on business is expenditure that is private in nature.
The decision in ATO Interpretative decision ATO ID 2001/615 is based upon a decision of the Administrative Appeals Tribunal (AAT).
In Case T78 86 ATC 1094 the AAT allowed a deduction to a barrister for airfares to attend a work related course. However, the Tribunal held that his claim for travel insurance was expenditure of a private and domestic nature. Expenses such as insurance policies invariably cover items that are generally private in nature, for example illness, loss of baggage, and theft or damage to belongings.
Accordingly, where an employer reimburses an employee for the cost incurred in obtaining travel insurance, the employer cannot rely on the ‘otherwise deductible rule’ to reduce the taxable value of the expense payment fringe benefit.
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