Private ruling: Travel costs deductible pursuant to section 24 of the Fringe Benefits Tax Assessment Act 1986
Date of advice: 14 February 2020
Published: May 2020
Ruling period: FBT year ending 31 March 2019 | FBT year ending 31 March 2020 | FBT year ending 31 March 2021
Date scheme commenced: April 2018

Ruling: Q1: For each of the employees, will travel costs (inclusive of transport, accommodation, meals and incidentals), either reimbursed or otherwise provided, be considered otherwise deductible pursuant to section 24 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986) for each of the following travel: | A1: 1. Employee A: No Employee B: Yes Employee C: Yes Employee D: No 2. Employee A: Yes Employee B: Yes Employee C: Yes Employee D: Yes

Relevant facts and circumstances: · The company maintains business premises in different states. · The company employees located at the City Y office include national executives, legal, business development, finance and marketing operations staff. · City Y is considered the normal place of work for executive and senior management employees with national responsibilities (encompassing employees A, B and C discussed below). · Employees located in the City X office similarly include national executives, key sales and brand managers, marketing operations, national account executives and customer support staff. · The employees subject to this ruling, in undertaking their roles, each have national responsibilities and are required to frequently provide services and support in both the City X and City Y offices. · Each of the employees subject to this ruling is expected to be away from their permanent residence for a period of typically x days per week. · Each of the employees subject to this ruling is also required to work elsewhere interstate and overseas when necessary. · The accommodation provided to each of the employees subject to this ruling away from their permanent places of residence is typically short-term and temporary in nature (for example hotel or serviced apartment) and may not be the same accommodation each week. · None of the employees subject to this ruling are accompanied by family members (except on rare occasions) and the company makes no additional provisions for any accompanying family members. · Each of the employees subject to this ruling maintain a permanent home and reside at that home when they are not required to undertake travel in the course of their employment. · Each of the employees subject to this ruling return to their permanent home each week and are not required to stay in the alternative location on weekends unless it would be unreasonable for the employees to return home (for example in connection with an overseas trip). · None of the employees subject to this ruling receive a travel allowance for travel between City X and City Y. Summary of employee circumstances Employee A Employee B Employee C Employee D Place of residence City X City X City X City X Normal place of work according to Letter of Offer City Y City Y City X & City Y City X Percentage of time split between offices 20% City X 50% City Y 30% other 40% City X 35% City Y 25% other 50% City X 35% City Y 15% other 25% City X 65% City Y 10% other Detail of employee circumstances Employee A · Employee A's Letter of Offer stipulates that the City Y office is Employee A's normal place of work and contemplates that Employee A may need to travel to other locations (interstate and overseas) in accordance with the needs of the company. · It is expected that Employee A will split their time between the relevant company offices as follows, subject to operational business requirements: i) 20% City X office; ii) 50% City Y office; and iii) 30% other. · Employee A resides in City X. · Airfares, car rental and hotel accommodation required to perform the role will be centrally booked and paid by the company. Travel class, choice of airline, rental car or accommodation is at the discretion of the company in accordance with the travel policy. · The Letter of Offer provides for Employee A to be reimbursed for all reasonable out-of-pocket travelling expenses (including hotel or equivalent arrangements as agreed to facilitate the performance of Employee A's duties in City Y) reasonably and necessarily incurred by Employee A in the proper performance of their duties. Employee B · Employee B's agreement stipulates that Employee B will be based at the City Y office and contemplates that Employee B may need to travel to other locations (interstate and overseas) in accordance with the needs of the company. · The Company has agreed that Employee B should maintain their principal place of residence in City X. · It is expected that Employee B will split their time between the relevant company offices as follows, subject to operational business requirements: i) 40% City X; ii) 35% City Y; and iii) 25% other. · The agreement provides for Employee B to be reimbursed for all reasonable out-of- pocket travelling expenses (including hotel or equivalent arrangements as agreed to facilitate the performance of Employee B's duties in City Y) reasonably and necessarily incurred by Employee B in the proper performance of their duties. Employee C · Employee C's Letter of Offer stipulates that they will be employed in City X and that both the City X and City Y offices will be their normal places of work, as needed. · Employee C resides in City X. · Employee C's Letter of Offer provides that Employee C will be required to perform duties and responsibilities in such other places as the company may from time to time require and that the company may require Employee C to travel to other locations from time to time including interstate and overseas. · It is expected that Employee C will split their time between the relevant company offices as follows, subject to operational business requirements: i) 50% City X; ii) 35% City Y; and iii) 15% other. · The Letter of Offer provides that the company will pay or reimburse all reasonable expenses, including reasonable travel and accommodation expenses, properly incurred in the exercise of Employee C's duties. Employee D · Employee D's Letter of Offer stipulates that the City X office will be Employee D's normal place of work and contemplates that Employee D will be required to work in other places, including but not limited to the City Y office, as needed. · It is expected that Employee D will split their time between the company offices as follows, subject to operational business requirements: i) 25% City X; ii) 65% City Y; and iii) 10% other. · Employee D resides in City X. · Employee D's Letter of Offer provides that Employee D will be required to perform duties and responsibilities in such other places as the company may from time to time require and that the company may require Employee D to travel to other locations from time to time including interstate and overseas. · The Letter of Offer provides that the company will pay or reimburse all reasonable expenses, including reasonable travel and accommodation expenses, properly incurred in the exercise of Employee D's duties.

Relevant legislative provisions: Section 24 of the Fringe Benefits Tax Assessment Act 1986 | Section 20 of the Fringe Benefits Tax Assessment Act 1986 | Subsection 136(1) of Fringe Benefits Tax Assessment Act 1986 | Section 8-1 of the Income Tax Assessment Act 1997

Reasons for decision: Detailed Reasoning - Employee D: Between home (City X) & City Y office No Yes Yes No Between City X office and City Y office Yes Yes Yes Yes Each employee receives an expense payment fringe benefit because the company pays for or reimburses their travel expenses (including flights, accommodation, meals and other incidentals) when they travel between City X and City Y. Determining whether the taxable value of this fringe benefit can be reduced under the 'otherwise deductible rule' (ODR) requires a judgment to be made about the deductibility of the travel expenses for each employee if the company had not paid or reimbursed them. In deciding whether the travel expenses would be otherwise deductible, we firstly have to determine the location of each employee's 'regular place of work'. Weighing up the circumstances presented to us and having regard to the broader nature of the employment arrangement, we have determined the following: | Detailed Reasoning - Employee A: Employee A's regular place of work is considered to be City Y because the Letter of Offer stipulates this, they are expected to spend 50% of their time in the City Y office and are only expected to spend 20% of their time in the City X office. | Detailed Reasoning - Employee B: Employee B's regular place of work is considered to be both City X and City Y (i.e. multiple regular places of work) because although the Letter of Offer stipulates the City Y office as the base, they are expected to spend almost equal amounts of time in both locations. | Detailed Reasoning - Employee C: Employee C's regular place of work is considered to be both City X and City Y (i.e. multiple regular places of work) because the Letter of Offer stipulates both locations as normal places of work and they are expected to spend almost equal amounts of time in both locations. | Detailed Reasoning - Employee D: Employee D's regular place of work is considered to be City Y because although the letter of offer stipulates City X as the base, they are expected to spend 65% of their time in the City Y office and are only expected to spend 25% of their time in City X. | Detailed Reasoning - Q1. Travel between the employees' homes in City X and the City Y office: Employees A and D would not be able to claim a tax deduction for the travel expenses incurred between their homes in City X and the City Y office if the company had not paid or reimbursed them. Therefore; the taxable value of the fringe benefit cannot be reduced for these travel expenses under the 'otherwise deductible rule'. Employees B and C would be able to claim a tax deduction for the travel expenses incurred between their homes in City X and the City Y office if the company had not paid or reimbursed them. Therefore; the taxable value of the fringe benefit can be reduced for these travel expenses under the 'otherwise deductible rule'. | Detailed Reasoning - Q2. Travel between the City X office and the City Y office: All employees (i.e. Employees A, B, C and D) would be able to claim a tax deduction for the travel expenses incurred between the City X office and the City Y office if the company had not paid or reimbursed them, provided that employment duties are required to be carried out in the City X office prior to the travel to City Y is undertaken. Therefore, the taxable value of the fringe benefit can be reduced for these travel expenses under the 'otherwise deductible rule'. | Detailed Reasoning - Detailed reasoning: A 'fringe benefit' as defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986 (FBTAA) is a benefit provided to an employee (or associate) by an employer (or associate) or a third party under an arrangement with the employer (or associate) in respect of the employee's employment and such benefit is not otherwise exempted. Where an employer pays a third party to satisfy a debt incurred by an employee or reimburses an employee for expenses they incur, an expense payment benefit arises under section 20 of the FBTAA. Section 20 of the FBTAA provides that a benefit will be provided when: ... a person (in this section referred to as the "provider"): (a) makes a payment in discharge, in whole or in part, of an obligation of another person (in this section referred to as the "recipient") to pay an amount to a third person in respect of expenditure incurred by the recipient; or (b) reimburses another person (in this section also referred to as the "recipient"), in whole or in part, in respect of an amount of expenditure incurred by the recipient; Under the arrangement, the company will make a payment on behalf of the employees or reimburse their employees for accommodation and travel expenses. This will be a benefit under section 20 of the FBTAA. The taxable value of an expense payment fringe benefit may be reduced in accordance with the 'otherwise deductible rule' (ODR) under section 24 of the FBTAA. Broadly, this means that the taxable value may be reduced to the extent that the employee would have been entitled to an income tax deduction for the expenses if the employer had not paid or reimbursed them. The ODR only applies where the employee would have been entitled to a once-only deduction for the expenditure paid or reimbursed by the employer. A once-only deduction means one that is wholly or partly allowable under the income tax law in only one year (this would exclude deductions for depreciation expenses). Travel expenses are generally considered to be once-only deductions because they are allowable in only one year. For an employer to reduce the taxable value of a fringe benefit under the otherwise deductible rule, an employee would have had to incur the expense solely relating to the performance of their employment related duties and that expense would have to be wholly deductible to that employee for income tax purposes. Draft Taxation Ruling TR 2019/D7 Income tax: When are deductions allowed for employees' transport expenses? sets out the ATO's view on when an employee can deduct transport expenses. It also outlines the ATO's view in determining whether such travel expenses paid by the employer would have been 'otherwise deductible' if incurred by the employee. | Detailed Reasoning - Deductibility of expenses: An employee can only deduct a transport expense under Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) to the extent that: · they incur the expense in gaining or producing their assessable income · the expense is not of a capital, private or domestic nature · the applicable substantiation requirements are satisfied. For an expense to be incurred 'in' gaining or producing assessable income it is both sufficient and necessary that the occasion of the expense should be found in whatever is productive of the assessable income (paragraphs 6 - 7 of TR 2019/D7). | Detailed Reasoning - Deductibility of transport expenses - general principles: It has long been established that the term 'incurred in gaining or producing assessable income' is understood as meaning incurred 'in the course of gaining or producing' assessable income. Other ways that this has been expressed in the context of transport expenses, is that the employee is travelling 'on work', the travel is part of the employment or the travel is an incident of the employment. Conversely, a close connection between a journey and the employee's private or domestic life is a strong indication that the journey occurs outside of the employee's income-producing activity and is not deductible. Where the employee is travelling between home and a regular place of work, the transport expenses are usually a prerequisite to, rather than being incurred in, gaining or producing the employee's assessable income, and are simply a necessary consequence of living in one place and working in another (paragraphs 9 - 10 of TR 2019/D7). | Detailed Reasoning - Incurred in gaining or producing assessable income: Determining whether a particular transport expense is incurred in gaining or producing assessable income will involve consideration of the proper scope of the particular employee's work activities to determine if the circumstances of the transport expense have a sufficiently close connection to earning the employment income. It is important to have regard not just to the duties in the contract of employment, but to the nature of the work as a matter of substance. The following factors may support a characterisation of transport expense as being incurred in producing assessable income: · the travel occurs on work time · the travel occurs when the employee is under the direction of the employer · the travel fits within the duties of employment · the travel is relevant to the practical demands of carrying out the work duties · the employer asks for the travel to be undertaken. The factors need to be considered in the context of both the form and substance of the employment arrangement. No single factor on its own will necessarily support a conclusion that an expense is deductible. For instance, the mere fact that an employer asks the employee to attend their regular place of work on a particular day does not change the conclusion that such travel is a prerequisite to the employment, rather than being incurred in gaining or producing assessable income. Reaching a conclusion as to the deductibility of a transport expense requires an assessment of the relationship between the employment and the expense (paragraphs 11 - 13 of TR 2019/D7). | Detailed Reasoning - Private travel to a regular place of work: With limited exceptions, an employee's costs of travelling between home and a regular place of work are not deductible. This is because such costs are explained by where the employee lives in relation to where they report for work. They are not incurred in the course of gaining or producing an employee's assessable income. This expenditure is merely a prerequisite to earning an employee's assessable income and is private in nature. This is not changed by the fact that the employee performs work-related tasks at home as a matter of choice or for their convenience. Nor does the conduct of some work activities whilst travelling (for example, answering emails on the train) convert the travel to being part of the employment if it is otherwise private. This is because the travel itself is a prerequisite to commencing the work duties. Similarly, where the employee travels to their regular place of work from another location in which they undertake private activities, for example a café or a holiday location, the cost of the travel is not deductible. Such expenses are not deductible as they are not incurred in the course of earning assessable income and are private in nature (paragraphs 15 - 17 of TR 2019/D7). | Detailed Reasoning - Regular place of work: 'Regular place of work' is a concept used in TR 2019/D7 to assist in identifying whether certain travel is incurred in gaining or producing assessable income or instead is private in nature. Most employees have a regular place of work, being a usual or normal place where the employee starts and finishes their work duties with a particular employer. In most cases identifying an employee's regular place of work is clear. In circumstances where it isn't clear, it may be necessary to consider in more depth the contract of employment, customary practice, the nature of the work duties, where these duties commence and at what point in time the employee is under the direction and control of their employer in order to determine where the employee's regular place of work is. The usual position that the cost of travel between home and the employee's regular place of work is not deductible does not change merely because: · the employee's home is very distant (for example, requiring a flight) from their regular place of work. For example, an employee takes a job based wholly in Sydney but chooses to continue to live in Brisbane with their family and flies to their work in Sydney each week · a second or subsequent regular place of work is distant to the employee's home · the employee needs to travel to and from their regular place of work more than once a day. · the location of the employee's home or their regular place of work limits the choices of travel, for instance if no public transport is available or their regular place of work can only be reached by a particular mode of transport such as a boat · the employee receives an allowance related to travel · the employee works overtime or works shift hours that begin or end during the night · the employee stops en route to their regular place of work to fulfil an incidental work task. (paragraphs 18 - 22 of TR 2019/D7). | Detailed Reasoning - Application to employees' circumstances: Weighing up the circumstances presented to us, we determined each employee's regular place of work is as follows: 1. Employee A 's regular place of work is City Y because the Letter of Offer stipulates this and they are expected to spend 50% of their time in City Y and only 20% in City X. 2. Employee B 's regular place of work is both City X and City Y (i.e. multiple regular places of work) because although the letter of offer stipulates City X as the base, they are expected to spend similar amounts of time in both City X and City Y. 3. Employee C 's regular place of work is both City X and City Y (i.e. multiple regular places of work) because the letter of offer stipulates this and they are expected to spend similar amounts of time in both City X and City Y. 4. Employee D 's regular place of work is City Y because although the letter of offer stipulates City X as the base, they are expected to spend 65% of their time in City Y and only 25% in City X. | Detailed Reasoning - Employees A and D - Travel between employees' homes in City X and the City Y office: Paragraph 42 of TR2019/D7 states: The mere fact that an employee lives a significant distance from their regular place of work does not make their transport expenses deductible, for example, if they are required to fly to attend work. In such instances, the transport expenses are incurred because the employee lives at a distance from their regular place of work, rather than the employment itself being the occasion for the expenses. The expenses are explained by where the employee lives in relation to where their regular place of work is located and are private expenses. Example 8 of TR 2019/D7 has an employee taking on a leadership role with a company that has offices all around Australia. Her role is based interstate from where she lives and she is expected to be there at least three days a week. She has an arrangement to work up to two days at an office situated near her home at her discretion. The interstate travel is attributable to her private circumstances and relates to her choice about where to live and is therefore not able to be deducted. The circumstances surrounding the travel expenses incurred by Employees A and D between their homes in City X and the City Y office are similar to those outlined in paragraph 42 and Example 8 of TR 2019/D7, that is, the travel expenses are incurred as a result of the employees choosing to live in City X when their regular place of work is based in City Y. This is because: · The company expects Employees A and D to spend the majority of their time (50% and 65% respectively) in the City Y office; · The company expects Employees A and D to only spend a small portion of their time (20% and 25% respectively) in the City X office. · City Y is stipulated as Employee A's regular place of work in the Letter of Offer. · Despite City X being listed as Employee D's regular place of work, City Y has become their normal or routine place where the employee works as per paragraph 21 of TR 2019/D7 due to the amount of time they are expected to work there. As such, the travel expenses incurred between Employees A's and D's homes in City X and the City Y office (being their regular place of work) would not be deductible if they were not paid or reimbursed by the company. The travel expenses are a prerequisite to gaining or producing assessable income rather than for the purposes of their employment (i.e. the travel expenses between their homes in City X and the City Y office are a necessary consequence of living in one place and working in another). The expectation that Employees A and D continue performing their services of employment whilst travelling does not amount to an arrangement where the employee's duties can be construed as having substantively commenced at their home (paragraph 64 of TR 2019/D7). | Detailed Reasoning - Employees B and C - Travel between employees' homes in City X and the City Y office: Example 7 of TR 2019/D7 has a tourism company employee working in one location for 24 weeks at the company's head office near where she lives but also working in another location interstate where a significant office is situated for 20 weeks. She stays overnight when working in the other location and the travel between the employee's home and the location interstate is considered to be deductible. The circumstances surrounding the travel expenses incurred by Employees B and C between their homes in City X and the City Y office are similar to those outlined in Example 7 of TR 2019/D7, that is, the travel is better characterised as a consequence of the employment requiring duties to be performed in more than one location (i.e. multiple regular places of work) and hence the travel expenses are deductible. This is because: · The company expects Employees B and C spend similar amounts of time in both the City Y and City X offices · Both the City Y and City X offices are stipulated as Employee C's regular places of work in their Letter of Offer. · The employees each have national responsibilities, and are required to frequently provide services and support in both the City X and City Y offices. The travel undertaken by Employees B and C between their homes in City X and the City Y office is relevant to the practical demands of carrying out their duties in more than one location, is undertaken at the request of the company and involves overnight stays. The distance between City X and City Y creates the need for the travel to be part of the role for which they are employed. These circumstances contribute to the business character of the travel in contrast to the travel being a mere private matter of getting to work and would therefore be considered deductible if they were not paid for or reimbursed by the company. | Detailed Reasoning - All employees (A, B, C and D) - Travel between City X office and the City Y office: Paragraph 33 of TR 2019/D7 states: Expenses of travelling between work locations, neither of which are the employee's home are deductible provided that the employment is the occasion for the expenses . This includes different workplaces of the same employer, clients of the employer and other locations where the employee carries out their employment duties. Where Employees A, B, C and D carry out employment duties in the City X office prior to travel being undertaken to the City Y office, the travel expenses between the workplaces would be considered occasioned by their employment duties and would support the characterisation of the travel expenses being incurred in producing assessable income. Note: Where an employee works at one of their employer's other workplaces for part of the day for private purposes (for example, they have a private appointment in the morning nearby that office) and then they travel to their normal office and work there for the rest of the day, the outgoings for transport for travel between the two offices is not occasioned by the employee's employment and is therefore not deductible. | Detailed Reasoning - Employees A and D: Travel costs (inclusive of transport, accommodation, meals and incidentals), either reimbursed or otherwise provided by the company for travel between Employee A's and D's homes in City X and the City Y office, are not considered otherwise deductible pursuant to section 24 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986). | Detailed Reasoning - Employees B and C: Travel costs (inclusive of transport, accommodation, meals and incidentals), either reimbursed or otherwise provided by the company for travel between Employee B's and C's homes in City X and the City Y office, are considered otherwise deductible pursuant to section 24 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986). | Detailed Reasoning - All employees subject to this ruling: Travel costs (inclusive of transport, accommodation, meals and incidentals), either reimbursed or otherwise provided by the company for travel between the City X office and the City Y office by all employees subject to this ruling (i.e. Employees A, B, C and D) are considered otherwise deductible pursuant to section 24 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA 1986) provided that employment duties are required to be carried out in the City X office immediately prior to the travel to City Y being undertaken.

Between the employee's home in City X and the City Y office?