Do you have staff attending conferences away from their usual place of residence? Attendance at overseas and interstate conferences raises a key issue for FBT: the extent to which the taxable value of benefits provided to the employee in connection with attending these conferences can be reduced under the ‘otherwise deductible rule’. This will particularly be the case where the conference venue is intertwined with recreational and holiday activities that involve the employee staying for a period before or after the conference.
The ATO is focusing on overseas conference claims and will scrutinise these claims closely. Paragraph 17 of TR 2017/D6 provides:
Where travel expenses are incurred in performing the employee’s work activities and no part of them is of a private, domestic or capital nature, expenses are fully deductible. To the extent that any part of the expenses are of a private or domestic nature, the expenses must be apportioned – unless the private or domestic element is merely incidental to gaining or producing the employee’s assessable employment income.
The ATO have the following general approach in relation to apportionment of airfares:
- If the travel is principally to attend the conference and private pursuits are incidental, then 100% of the airfares would be ‘otherwise deductible’.
- If there is a dual purpose of the travel, being conference and holiday, then 50% of the airfares would be ‘otherwise deductible’.
- Where the private pursuits of the travel are significant, then no deduction is available.
Case study: PBR 1051276779415
PBR 1051276779415 (the PBR) examines eight conference travel scenarios and applies the above apportionment principles. The scenarios provide very useful guidance for employers, particularly tax-exempt employers since the rulee in this case was also a tax-exempt entity.
Of course, a private ruling is only binding on the ATO in respect of the rulee, so the principles outlined should only be used as a guide. It is recommended that members with similar employee travel scenarios apply for their own private ruling using the PBR as a base.
The basic background facts presented to the ATO in the PBR are reproduced below:
- The taxpayer is an income tax exempt organisation.
- The taxpayer’s employees travel to various destinations both domestically and overseas in order to impart their knowledge and provide training related to their job.
- The taxpayer pays for the airfares of its employees if the expense is incurred for the employee to fulfil their employment obligation.
- The taxpayer incurs the airfare costs. The taxpayer appoints a travel agent (the Travel Partner) who makes travel arrangements for its staff and the cost of airfares is invoiced to the taxpayer. The travel arrangements have been made on an arm’s length basis.
- The employee of the taxpayer will generally travel in economy class.
- The taxpayer’s internal travel policy requires that no additional costs be incurred if the employee decides to take leave entitlements on route. The taxpayer will not bear any airfare and/or accommodation costs incurred by the employee where the employees choose to undertake any additional travel that it considers private in nature.
- The taxpayer’s internal travel policy allows for the employee to have a recovery day to acclimatise when the employee travels to an overseas location. The policy also provides that where the employee travels on a weekend, the employee receives a day in lieu.
- The employee pays for all meals, accommodation and other costs while on leave from their after-tax income.
- The taxpayer insists on the completion of travel diaries in accordance of the FBTAA.
The scenarios presented to the ATO and the ATO’s response are summarised in the below table:
* O/D: Otherwise deductible
** TEBEFB: Tax-exempt body entertainment fringe benefit
|1||An employee travels to an overseas location to attend a business conference. The employee arrived at the destination nine days before the conference began and took annual leave at his/her own expense. The business conference was conducted over three days. At the completion of the conference, the employee returned to his/her home location.||50% – O/D* 50% – TEBEFB**|
|2||The employee travels to an overseas location to attend a business workshop. The employee took annual leave at his/her own expense and arrived three days before the workshop. The business workshop was conducted over three days. At the completion of the workshop, the employee returned to his/her home location.||100% – O/D|
|3||In this scenario, the employee travels to an overseas location to attend a business conference and workshop. The employee arrived 1 day before the conference. The business conference and workshop were conducted over 6 days. At the completion of the conference, the employee returned to his/her home location.||100% – O/D|
|4||In this scenario, the employee travels to an overseas location to attend a business conference. After the recover day, the employee attended the 5 day conference. At the completion of the conference, the employee remained at the overseas location for three days (consisting of the weekend and one day annual leave at their own expense).||100% – O/D|
|5||In this scenario, the employee travels to an interstate location to attend a business conference for 1 ½ days. The employee remains interstate on the weekend immediately following the conference at his/her own expense.||100% – O/D|
|6||In this scenario, the employee travels to Overseas Location A to attend a 4 day business conference. At the completion of the conference, the employee travels on route to Overseas Location B for a holiday for three days (the weekend and an annual leave day).||50% – O/D 50% – TEBEFB|
|7||In this scenario, the employee initially travels to Interstate Location A to attend a business conference. At the completion of the business conference, the employee travels to Overseas Location B to attend a business workshop. However, the employee arrives a few days before the workshop began and takes annual leave. At the completion of the workshop, the employee travels to Interstate Location C to attend another business conference and takes one day annual leave prior to the commencement of the conference. At completion of the conference the employee returned home.||100% – O/D|
|8||In this scenario, the employee travels to an overseas location to attend a 2 day business conference. At the completion of the conference, the employees took one day annual leave and remained at the overseas location at his/her own expense before returning home.||100% – O/D|
It is interesting to note that in the ATO’s view, to the extent the otherwise deductible rule does not apply, the remaining portion of the airfare subject to FBT is regarded as a tax-exempt body entertainment fringe benefit.
The importance of this in the context of the background facts provided is that the ‘otherwise deductible rule’ cannot apply to a tax-exempt body entertainment fringe benefit. Further, amounts paid for by the employee towards the private component of their travel cannot be treated as an employee contribution.
The ATO notes that, in a situation where the employee incurs and pays for the airfare cost and the taxpayer subsequently reimburses the work-related component of that expenditure to the employee (e.g. 50% of the airfare cost in scenarios 1 and 6), the benefit would be an expense payment fringe benefit under s. 20 of the FBTAA.
Further, provided that the employer only reimburses the work-related portion of the expenditure, the taxable value of the expense payment fringe benefit may be reduced to nil under the otherwise deductible rule under s. 24 of the FBTAA, provided the requirements in that section are satisfied.
PBR 1051276779415 is a very useful contemporary summary of the ATO’s apportionment approach to airfares. It is highly recommended members read the ruling and use its contents in considering apportionment and other internal policies regarding employee conference travel.
Finally, remember that where the travel is more than five nights, a travel dairy must be kept by the employee in addition to other substantiation requirements.