On 28 June 2017, the Commissioner issued TR 2017/D6 entitled Income tax and fringe benefits tax: when are deductions allowed for employees’ travel expenses?.
The draft ruling sets out the Commissioner’s preliminary views on the general principles for determining whether an employee can deduct travel expenses under s. 8-1 of the ITAA 1997. It discusses:
TR 2017/D6 is a consolidation of seven rulings and determinations which will be withdrawn once the draft ruling is finalised. The draft ruling, which contains 255 paragraphs, includes 18 examples and we strongly recommend members read the examples to determine whether any may apply in their circumstances.
It should be noted that the principles dealing with the deductibility of travel expenses under s. 8-1 apply equally to deductibility of car expenses under Division 28 of the ITAA 1997.
For the purposes of the draft Ruling, a travel expense is an expense relating to:
An employee can deduct a travel expense under s. 8-1 to the extent that:
Transport expenses — i.e. travel by airline, car, bus etc.
A transport expense is deductible where the travel is undertaken in performing the employee’s work activities. Travel may be said to be undertaken in performing an employee’s work activities if:
Travel arrangements that are contrived to make private travel appear to be work travel may be determined by regard to whether the work involves special demands and whether the employee has co-existing work locations.
The above-mentioned principles are applied to four categories of transport expenses and illustrated by way of examples. Refer to the table below:
| Category | Commissioner’ preliminary views |
| Ordinary home to work travel — i.e. travel between home and a regular work location
Not deductible |
This travel is required for an employee to commence work or to depart after work is completed and is usually evident without referring to specific terms of employment.
The specific terms of employment may be relevant to determining deductibility of travel between home and a regular work location which is temporary or remote. See examples 1, 2 and 3 in the ruling. |
| Special demands travel — i.e. travel between home and a regular work location but part of the journey is an express or implied requirement or demand of the job
Deductible |
Part of the journey may be special demands travel. Special demands are specific physical or logistical requirements of the work activity, including:
|
| Co-existing work locations travel — i.e. travel which can be attributed to the employee having to work in more than one location
Deductible |
The travel is directly between work locations or between home and an alternative work location; and it is reasonable to conclude that the travel is undertaken in performing the employee’s work activities because of the requirement to work in more than one location. Such travel includes:
(i) travel that takes up a large part of the day; (ii) short-term travel to a temporary alternative work location — see examples 7 and 8; (iii) longer-term travel to a temporary alternative work location — see example 9; (iv) ongoing travel to an alternative work location — see examples 10 to 13; (v) travel required under other circumstances involving terms of employment or special demands — see examples 14 to 16. |
| Relocation travel — i.e. travel undertaken in relocating for work
Not deductible |
Relocation travel is preliminary to work and the cost of such travel is not incurred in performing an employee’s work activities. It also has a private or domestic nature, often reflecting the employee’s choice about where to live. This can be concluded without referring to specific terms of employment.
See example 17. |
Employee expenditure for accommodation, meal and incidentals e.g. the ordinary costs of maintaining a home and consuming food and drink to go about their daily activities, such as to attend work is:
Likewise, expenditure incurred in relocating to a place of work or in living away from home is preliminary to the work and is not deductible.
Accommodation, meal and incidental expenses that are incurred by an employee in performing an employee’s work activities, and are therefore deductible, only where:
(a) the employee’s work activities require them to undertake the travel;
(b) the work requires the employee to sleep away from home overnight;
(c) the employee has a permanent home elsewhere; and
(d) the employee does not incur the expenses in the course of relocating or living away from home.
The draft Ruling contain examples to show how the above principles apply to two categories of accommodation, meal and incidental expenses. These categories are as follows:
| Work-related accommodation
Deductible |
Accommodation, meals and incidental expenses which satisfy these conditions:
|
| Relocation or ‘living away from home’ (LAFH) accommodation
Not deductible |
Relocation travel is preliminary to work and not incurred in performing an employee’s work. It also has a private or domestic nature in that it often reflects and employee’s choice about where to live.
The fact that an employer has required the employee to relocate or live away from home does not alter the private nature of the expenditure. The fact that an employer has required the employee to relocate or live away from home does not alter the private nature of the expenditure. |
Expenses must be apportioned to the extent that they are of a private nature or are not incurred in producing assessable income. This includes where the employee or members of their family stay in the accommodation for recreational or other private purposes — except where the private use is merely incidental.
Discussion continues in Part II
This concludes Part 1 of this month’s article on TR 2017/D6. Having provided an overview of the Commissioner’s views on the principles applying to deductibility of travel, the discussion continues in Part II with consideration of some commonly encountered factual situations where these principles are applied.
This article provides a general summary of the subject covered as at the date it is published. It cannot be relied upon in relation to any specific instance. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use. It is not intended to be, nor should it be relied upon as, a substitute for professional advice.