Article

FBT Article ‘ Commissioners draft travel ruling: Part II

The Commissioner of Taxation has recently issued an extensive draft ruling on the deductibility of travel expenses. When finalised the ruling will replace a number of existing rulings on the topic. This article considers some commonly encountered factual situations and complements the overview of travel expense deductibility set out in Part 1.

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TR 2017/D6 – Deductibility of employees’ travel expenses (Part II)

In this second part of our discussion of TR 2017/D6, we summarise the numerous examples contained within the draft ruling.

The proposed binding section of the draft Ruling contains 18 detailed examples illustrating the principles discussed above.

Example 16 which considers the followings types of travel is reproduced in full below:

  • special demands travel (deductible);
  • co-existing work locations travel (deductible); and
  • living away from home accommodation (non-deductible). 

Example — Working at a different location for an extended period (4 months)

Yumi works as a senior executive for an employer based in Brisbane and is paid a salary that recognises all aspects of her position, including the requirement for her to travel to fulfil her duties.

Yumi’s employer requires her to travel to Townsville to set-up a new office for the employer. Yumi will be in Townsville for four months after which she will return to her usual employment in the Brisbane office. During this period, Yumi will have occasional, one or two-day business trips to Brisbane and Sydney.

The following arrangements have been agreed to between Yumi and her employer for the period that Yumi is in Townsville:

  • Yumi’s employer will fund her airfare to Townsville at the start of the four-month work assignment and her return flight;
  • Yumi will live in a two-bedroom apartment in Townsville which has been leased by her employer. The apartment has a fully equipped kitchen, laundry, and other amenities associated with a home;
  • Yumi’s family will remain in the family home in Brisbane during the period Yumi works in Townsville; and
  • Yumi’s employer agrees that, because of the specific demands of her work in Townsville, including the length of her stay there and her remoteness from Brisbane and her family, airline travel between Townsville and Brisbane each week will be arranged and paid for by the employer. Under the arrangements, Yumi will be subject to the direction of the employer during the period when she undertakes this travel.

The cost of Yumi’s flights between Townsville and Brisbane are otherwise deductible to her employer under the FBTAA. The travel is attributable to Yumi having co-existing work locations and her employer has determined that the special demands associated with her working away from home for an extended period reasonably require that the travel is part of her work.

Yumi will be living away from home for the four-month period of the work assignment because, even though she is required to stay in Townsville, she:

  • will be staying away from her permanent home at one work location for an extended period;
  • will be staying in home-like accommodation when she is in Townsville; and
  • will not be travelling regularly for work.

Therefore, the meal and incidental expenses Yumi will incur in Townsville will not be deductible.

Any allowance Yumi receives from her employer to cover the costs of her meal and incidental expenses while she is in Townsville will be a living-away-from-home allowance which is exempt income.

Alternatively, assume that Yumi’s employer decided that her weekly flights between Townsville and Brisbane during the period Yumi works away from home will not be part of her work and will be undertaken in Yumi’s own time. In this case, the cost of these trips travelling between Townsville and Brisbane each week would not be deductible (or otherwise deductible to the employer), since the travel would not be undertaken in the performance of Yumi’s work activities. However, the cost of flights between Brisbane and Townsville at the start and end of the work assignment are attributable to co-existing work locations and would remain otherwise deductible to the employer under the FBTAA.

Example 16 in the draft Ruling


Summary of main features of the other examples

The main features of the other 17 examples in the draft Ruling are summarised below.

Example in draft ruling Explanation
1.   Travel between home and a regular work location

Employee lives 30 kms from her office and travels to work by train

Ordinary home to work travel (non-deductible)

Considers whether the transport expenses incurred by an employee who is on-call to manage work problems out of hours, is required to work extended hours and sometimes deals with work matters while travelling on the train to work are deductible.

The travel is not deductible because it is not undertaken by the employee in performing her work.

2.   Travel between home and an alternative but regular work location

Employee accountant who lives 15 minutes from his regular office receives an allowance to cover costs of travelling — under a temporary arrangement — to another city office requiring one hour’s travel from home.

Ordinary home to work travel (non-deductible)

The employee is required to attend the city office for the same time that he would usually attend his regular place of work. He is paid a travel allowance of $300 per week for the three months period. He is not required to stay overnight.

The travel between home and the temporary work location is non-deductible travel between home and work.

The allowance to compensate for the extra travel does not make the travel deductible.

3.   Travel between home and remote location — fly-in fly-out (FIFO) employee

Employee living in the city and working at a mine site on a FIFO basis for 12 months, with a roster of 20 days on, 7 days off. Rostered period starts when employee arrives at worksite.

Shared accommodation is provided by employer near the mine site and only available to the employee during the roster period.

Ordinary home to work travel (non-deductible)

Travel from home to the airport is at employee’s cost — non-deductible private travel.

Employer pays for flight to project site and for bus to accommodation near mine site — travel is to and from work and is not undertaken in performing his duties — non-deductible, therefore not otherwise deductible to the employer.

Work-related accommodation (deductible)

Accommodation, meal and incidental expenses are otherwise deductible to his employer under the FBTAA.

 

4.   FIFO employee — travel in the performance of work activities from point of hire

Employee living in regional town and working at a mine site on a FIFO basis for 12 months, with a roster of 20 days on, 7 days off. Rostered period starts when employee arrives at city airport. It ends when employee is returned to the city airport.

Shared accommodation is provided by employer near the mine site and only available to the employee during the roster period.

Special demands travel (deductible)

Travel from home to the airport is at employee’s cost — non-deductible private travel.

Employer pays for flight to project site and for bus to accommodation near mine site. Employee is paid for the time he travels between the airport and the mine site i.e. travel is to and from work and is undertaken in performing his duties — deductible, therefore otherwise deductible to the employer.

Work-related accommodation (deductible)

As in example 3 and for the same reasons, accommodation, meal and incidental expenses are ‘otherwise deductible’ to his employer under the FBTAA.

5.   Working at new locations every few weeks and staying away from home

Employee in road construction is mainly based and required on site anywhere in the State. He is paid a daily travel allowance where site is more than 100 kms from his home and can choose whether or not to return home each day.

Special demands travel (deductible)

The employee’s cost of travel between project locations and his home during the week and on weekends is not deductible. It is not undertaken in performing his duties, and occurs by choice for personal reasons.

Work-related accommodation (deductible)

Accommodation, meals and incidentals for the periods he spends away from home on projects are deductible because the travel is required by his work and he is not living away from home.

6.   Day trip to alternative work location

Employee living in regional city flies — at employer’s expense — to capital city each fortnight to attend a work meeting, returning home on the same day.

Co-existing work locations travel (deductible)

Employee’s travel costs are otherwise deductible under the FBTAA. His travel is attributable to his having co-existing work locations and is part of his work activities.

7.   Short-term travel to a temporary alternative work location — private component —apportionment

Health professional living in regional city travels interstate to a five-day work-related training course. She is accompanied by her spouse and they stay on an extra two days. She is paid her usual salary while on the course. Choice of accommodation was not influenced by accompanying spouse.

Co-existing work locations travel (deductible)

The cost of the interstate travel to the training course is attributable to the employee having co-existing work locations and is therefore deductible.

No apportionment is required. Spouse’s travel is not deductible.

Work-related accommodation (partially deductible)

Full cost of the accommodation and incidental costs for the first five days of employee’s stay are deductible:

  • she was required to work away from home and stay away overnight because of travel undertaken in the course of performing her work activities; and
  • choice of room and the cost of the room were not affected by her spouse accompanying her.

The cost of the accommodation for the two days after the course is a private expense.

8.   Short-term travel to a temporary alternative work location (4 days) — private component — apportionment

Government employee travels interstate to a four-day training course from Tuesday to Friday. Employer pays for airfares and provides an allowance to cover accommodation and meals. Employee permitted to stay on until Sunday after the course.

Co-existing work locations travel (deductible)

The cost of the employee’s travel is otherwise deductible under the FBTAA. It is attributable to the employee having co-existing work locations and is part of his work activities. The private arrangement is incidental to the work travel and was able to be accommodated as part of that travel at no additional cost to the employer,

Work-related accommodation (partially deductible)

Employee’s accommodation, meals and incidental costs are deductible for the period he was working — i.e. on the training course. He declares his travel allowance as income in his tax return and claims a deduction for these expenses.

Costs of accommodation, meals and incidental expenses from Friday night until Sunday are non-deductible private expenses.

9.   Longer-term travel to temporary work location — training course (6 weeks)

Graduates sent by employer on a six-week training course away from their home cities. Employer pays for travel, accommodation and meals.

Co-existing work locations travel (deductible)

The cost of the graduates’ travel is otherwise deductible to their employer under the FBTAA. It is attributable to the graduates having co-existing work locations and is part of their work activities.

Work-related accommodation (deductible)

Accommodation and meal expenses for the period of the training course are otherwise deductible because the travel is required by the graduates’ work and they are not living away from home

10.        Ongoing travel to an alternative work location (car)

Employee lives near and works in employer’s country office but is required to attend the city office — 200 km away — two days per week on Thursday and Friday. He stays in a hotel on Thursday to save having to travel 200 km each way.

Co-existing work locations travel (deductible)

Employee’s travel is deductible because it is attributable to his having co-existing work locations and is part of his work activities. His salary package recognises that he must travel regularly between the two offices.

Work-related accommodation (deductible)

Employee’s accommodation, meal and incidental costs are deductible — he is required to work away from home and stay away overnight because of travel undertaken in the course of performing his work activities.

11.         Ongoing travel to an alternative work location — lease of property by employer for use at alternative work location

Employee works 2­3 days in one capital city and 2-3 days interstate where her employer leases an apartment that she can use while she is there.

She also travels to other capital cities on an ad hoc basis. Employer pays the airfares.

Co-existing work locations travel (deductible)

Employee’s travel is deductible because it is attributable to her having co-existing work locations and is part of her work activities. Her salary package recognises that she must travel regularly between the offices around the country.

Work-related accommodation (deductible)

Accommodation costs are ‘otherwise deductible’ to her employer under the FBTA Act, as the employee is required to work away from home and stay away overnight in performing her work activities and she is not living away from home.

The employee can deduct her meal and incidental costs.

12.         Ongoing travel to an alternative work location —additional property — employee rents accommodation from spouse

Project manager living in a capital city required to work in a regional town on four-week roster — three weeks on the project and one week in the city. He receives a travel allowance. Employee’s spouse purchases a townhouse in the regional town and he pays rent of $280 per week when he stays in the townhouse.

Co-existing work locations travel (deductible)

Travel is deductible — it is attributable to the employee having co-existing work locations and is part of his work activities.

Work-related accommodation (deductible)

The rent the employee pays to his wife is deductible as a travel expense because it is not disproportionate to the cost of suitable commercial accommodation — based on ATO’s reasonable travel expense rates — for the periods he is required to stay in the town for work.

Meals and incidental costs are also deductible to the employee as he is required to work away from home and stay away overnight because of travel undertaken in the course of performing his work activities, and he is not living away from home.

13. Ongoing travel to alternative work location — additional property that needs to be apportioned

Employee must travel between several locations in performing her duties but up to 20 weeks in a capital city for which she receives a travelling allowance. She purchases an apartment in the capital city and uses it only when she is in the city for work purposes. She rents out the apartment on a commercial basis in the weeks she is not there.

Co-existing work locations travel (deductible)

Travel is deductible — it is attributable to the employee having co-existing work locations and is part of his work activities.

Work-related accommodation (deductible)

Meals and incidental costs are deductible, as she is required to work away from home and stay away overnight in the course of performing her work activities.

Employee’s costs of financing, holding and maintaining the apartment are deductible if they are not disproportionate to the cost of suitable commercial accommodation for the periods she is working there.

If the costs are disproportionate, then the disproportion may be explained by factors unrelated to her employment — e.g. property investment. In this case, apportionment would be necessary to limit her deduction to the costs of suitable commercial accommodation for the period of her work.

The costs for the period when the apartment is rented out are also deductible.

14. Short-term travel to a temporary, alternative work location (3 weeks)

Employee living in capital city is required to travel to a regional city to train new staff there for a three-week period. She travels to the regional office on Mondays for a 10.30 am start but is paid from her usual start time of 9am, stays in motel until the Thursday and returns home on Friday after the session.

She is paid an allowance to cover the cost of the travel — this is assessable income.

Special demands travel (deductible)

Cost of travel between city and regional offices is deductible as travel between co-existing work locations and the employer has determined that the travel is part of the employee’s work.

Co-existing work locations travel (deductible)

Cost of travel to and from the city and regional offices is deductible as travel between co-existing work locations and the employer has determined that the travel is part of the employee’s work.

Work-related accommodation (deductible)

Accommodation expenses are deductible because the employee is:

·               required to stay away overnight because of travel undertaken in the course of performing her work activities; and

·               not living away from home.

15. Working temporarily at a different location for an extended period (2 months)

IT consultant working for a consultancy firm is required to work required to work interstate on a two-month assignment.

Employer pays for the interstate travel at the start and end of the assignment and on a weekly basis to home at the end of the two months.

Employee receives daily travel allowance to cover costs during the week — he rents an apartment in the project location.

 

Special demands travel (deductible)

Costs of interstate flights are otherwise deductible to his employer under the FBTAA — extended period away from home reasonably requires that travel is part of his work.

Co-existing work locations travel (deductible)

Costs of interstate flights are otherwise deductible to his employer under the FBTAA as travel between co-existing worksites.

Work-related accommodation (deductible)

Accommodation, meals and incidentals for the periods while working interstate are deductible because the employee is:

·               required to work away from home and stay overnight because of travel undertaken in the course of performing his work activities; and

·               not living away from home — employee declares his travel allowance as income in his tax return and claims a deduction for these expenses

17. Secondment to Australia for between 90 and 120 day project work — accommodation, meal and incidental expenses

Australian resident company employer — part of a global consulting business — engages overseas based employees on secondment for pre-determined time of between 90 and 120 days.

Australian company pays the employees’ overseas employer for salaries etc. as well as meeting costs e.g. visas, travel fares to and from Australia and accommodation.

Relocation travel (non-deductible)

Employer’s costs of flying the employees between their place of origin and Australia are relocation expenses and would not be otherwise deductible to the employer under the FBTAA.

Living away from home accommodation (non-deductible)

The FBT concessions potentially apply to the provision of LAFH allowances, or the provision of accommodation or reimbursement of accommodation expenses, where employees are LAFH.

No concession on the provision of accommodation because the employees are not maintaining a normal residence in Australia.

18. Rudimentary accommodation — LAFH accommodation

Train driver is temporarily based at different locations in the State for periods of up to three months. He receives a daily allowance to cover accommodation and meal costs.

He rents a caravan for the period of his stay in each location.

Living away from home accommodation (non-deductible)

The employee is LAFH for each of his three-month work placements. Therefore, his accommodation and meal expenses while he is at the work location are not deductible.

The allowance that the employee receives from his employer to cover the costs of his accommodation and meals while in the work placements a LAFH allowance which is exempt income — he does not have to include it in is return as income and he cannot claim a deduction for his accommodation and meal expenses when on his work placements.

 

Important — Apportionment of expenses

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.

Concluding comments

The draft ruling is extremely long and contains new approaches towards the analysis of the deductibility of travel expenses.

Members should not hesitate to the call the contact officer named at the end of the ruling to clarify any issues with, or sections within the ruling.

Disclaimer: Information provided in this article, while correct at time of publishing, is subject to change.