Private ruling: Travel Allowances - FBT, income and deductions
Published: May 2013
Ruling period: 1 July 2011 to 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Is the allowance paid subject to fringe benefits tax as a living away from home allowance? | A1: No | Q2: Is the allowance received included in your assessable income as a travel allowance? | A2: Yes | Q3: Is there an entitlement to a deduction for work related travel expenses incurred? | A3: Yes

Relevant facts and circumstances: The employee was employed by a supplier to maintain energy stations on various sites. The employee was required to travel to various locations around Australia to attend to jobs varying in duration. The employee was required to obtain their own temporary accommodation at a nearby locality and accommodation and meal expenses were at the employee's expense. For the relevant financial year the client received allowances for X periods, dates were provided. Although there were periods over 21 days, the nature of employment and periods of engagement as noted above were on a job completion basis and therefore time away was not fixed and always for a short period, generally under 21 days. The employee maintained a usual place of residence and family did not accompany the employee at any jobs. Employment with this employer was not full time and the employee worked for other business in between these jobs. The employee has been working with this particular employer for more than ten years under the same arrangement and all years have required travel to varying sites for short periods. The employee has not completed a living away from home declaration for any of the trips. The allowance was paid at a daily rate for the increased cost of accommodation and meals, and the taxable value of the living away from home allowance was nil; the amount was therefore not reported on the employee's relevant payment summary. The fringe benefit taxable value to be reported and paid by the employer is nil. The employee produced a year to date payslip showing the amount of $Y in allowances.

Relevant legislative provisions: Income Tax Assessment Act 1936 23L, | Income Tax Assessment Act 1997 15-2, | Income Tax Assessment Act 1997 8-1, | Income Tax Assessment Act 1997 900-50 and | Fringe Benefits Tax Assessment Act 1986 30.

Reasons for decision: Summary: As the employee was travelling in the course of performing their job, all allowances paid to the employee are a travel allowance. | Detailed Reasoning - Difference between a living-away-from-home allowance and a travelling allowance.: Because they are subject to different taxation treatments, it is important to determine whether an allowance paid by you to your employee is a LAFHA or a travelling allowance. Living-away-from-home allowances are benefits under section 30 and may be taxable to the employer whereas travelling allowances form part of the employee's assessable income against which appropriate deductions may be allowed for the cost of meals, accommodation and incidental expenses incurred while the employee is travelling in the course of carrying out their duties of employment. Our publications, Miscellaneous Taxation Ruling MT 2030 and Fringe benefits tax: a guide for employers, discuss the distinction between a living-away-from-home allowance and a travelling allowance. The following table sets out some of the indicators of whether the allowance is a LAFHA or travelling allowance: | Detailed Reasoning - Travelling allowances: This is paid where an employee has taken up temporary residence away from their usual place of residence in order to carry out duties at a new, but temporary, workplace. This is paid because an employee is travelling in the course of performing their job. There is a change of job location in relation to paying the allowance. There is no change of job location in relation to paying the allowance. Where an employee is living-away-from-home, it is more common for that employee to be accompanied by their spouse and family. Where an employee is travelling, they are generally not accompanied by their spouse and family. They are paid for longer periods. They are paid for short periods. They change residence (temporarily) in relation to the payment of the allowance. They have no change of residence. A further indicator that an allowance is an assessable allowance and not subject to fringe benefits tax is where the allowance paid bore little relation to the actual costs incurred by the employee (See Roads & Traffic Authority of NSW v FCT (1993) 26 ATR 76, 93 ATC 4508). The indicators above are guidelines only and no one indicator determines the nature of the allowance received. For example, a travelling allowance might be paid to a commercial traveller almost continuously, whereas another employee may receive a LAFHA for only a month or so. Paragraph 40 of MT 2030 states that the nature of an allowance is not to be determined by reference solely to the period for which it is paid. It is not appropriate to simply apply the practical general rule that, where the period away does not exceed 21 days, the employee is living away from home. A closer examination of the taxpayer's situation reveals that it contains more of the indicators that support the conclusion that the allowance is a travelling allowance, not a LAFHA. The employee has been receiving the allowances because they: · were travelling in the course of performing their job · were not accompanied by family · were paid for relatively short periods · had no change of residence, and · there was no change to the employee's job location in relation to paying the allowance. | Summary: The travel allowance the employee received is to be included as assessable income in their the relevant tax return. | Detailed Reasoning - Detailed reasoning: Section 15-2 of the Income Tax Assessment Act 1997 (ITAA 1997) states: Your assessable income includes the value to you of all allowances, gratuities, compensation, benefits, bonuses and premiums provided to you in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by you (including any service as a member of the Defence Force). It has been established that the allowance is not subject to fringe benefits tax, as it is not a living away from home allowance. Therefore Section 23L of the ITAA 1997 will not apply to prevent the allowance being assessable to the employee. Therefore as the allowance the employee received was in direct connection to their employment, it is included in their assessable income. | Summary: The employee is entitled to a deduction for work related travel expenses incurred. | Detailed Reasoning - Detailed reasoning: Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income. Travel allowance expenses are work expenses if they are incurred for travel, food or drink and are covered by a travel allowance. A travel allowance is an amount that an employer pays an employee to cover accommodation or food or drink expenses you incur when travelling in the course of your duties as an employee. As a general rule, written evidence is required to substantiate any expense you wish to claim as a deduction (for example, receipts or invoices of the expenses). Section 900-50 of the ITAA 1997 states an exception to this rule applies if you receive a travel allowance to cover accommodation or food and drink and the expenses do not exceed the amounts the Commissioner deems reasonable. Taxation Ruling TR 2004/6 discusses the conditions when the substantiation exception applies. The substantiation exception will only apply to those expenses covered by a bona fide travel allowance paid by your employer. Any expenses not covered by the allowance must be supported by written evidence before they can be claimed as a deduction. Please note even when the substantiation exception applies, you are still required to be able to show how you calculated your expenses using a reasonable basis. To be entitled to claim a deduction for travel expenses, in addition to including the travel allowance as assessable income, the expenses must be actually incurred. In this case, the allowance received by the employee is considered to be an assessable travel allowance paid to cover accommodation and meal expenses. Therefore the employee is entitled to deduct work related accommodation and meal expenses incurred.