Private ruling: Travel Expenses-Business & Private-FBT-Otherwise deductible Rule.
Published: November 2012
Ruling period: 01 April 2012 - 31 March 2017

Ruling: Q1: If an employee spent the weekend in an overseas city in between two business events, can the taxable value of the fringe benefit in relation to the airfare expenses be reduced to nil under the otherwise deductible rule in section 24 or 52 of the FBTAA? | A1: Yes | Q2: If the employee remained in an overseas city for the two weeks between the two business events on annual leave rather than returning home, with all expenses whilst on annual leave paid by the employee, can the taxable value of the fringe benefit in relation to the airfare expenses be reduced to nil under the otherwise deductible rule in section 24 or 52 of the FBTAA? | A2: Yes | Q3: If the employee remained in the overseas city for the four weeks between the two business events, on annual leave rather than returning home, with all expenses whilst on annual leave paid by the employee, can the taxable value of the fringe benefit in relation to the airfare expenses be reduced to nil under the otherwise deductible rule in section 24 or 52 of the FBTAA? | A3: No. The taxable value of the fringe benefit can be reduced by 50%. Scenario 2 : Under this scenario, travel is extended before or after a business event. | Q4: If the employee is required to spend two days in an overseas city before a conference, can the taxable value of the fringe benefit in relation to the airfare expenses be reduced to nil under the otherwise deductible rule in section 24 or 52 of the FBTAA? | A4: Yes | Q5: If the employee arrived four days (including two days annual leave at their own expense) before the conference began, can the taxable value of the fringe benefit in relation to the airfare expenses be reduced to nil under the otherwise deductible rule in section 24 or 52 of the FBTAA? | A5: Yes | Q6: If the employee arrived two weeks (including eight days annual leave at their own expense) before the conference began, can the taxable value of the fringe benefit in relation to the airfare expenses be reduced to nil under the otherwise deductible rule in section 24 or 52 of the FBTAA? | A6: Yes | Q7: If the employee arrived two days before the conference began, attended the conference and then stayed after the conference for an additional week on annual leave (at the employees expense), can the taxable value of the fringe benefit in relation to the airfare expenses be reduced to nil under the otherwise deductible rule in section 24 or 52 of the FBTAA? | A7: Yes | Q8: If the employee arrived two days before the conference began, attended the conference and then stayed after the conference for an additional four weeks on annual leave (at the employees expense), can the taxable value of the fringe benefit in relation to the airfare expenses be reduced to nil under the otherwise deductible rule in section 24 or 52 of the FBTAA? | A8: No. The taxable value of the fringe benefit can be reduced by 50%. | Q9: If the employee arrived two days before the conference began, attended the conference and then stayed after the conference for an additional eight weeks on annual leave (at the employees expense), can the taxable value of the fringe benefit in relation to the airfare expenses be reduced to nil under the otherwise deductible rule in section 24 or 52 of the FBTAA? | A9: No. The taxable value of the fringe benefit can be reduced by 50%. | Q10: If the employee arrived two days before the conference began, attended the conference and then stayed after the conference for an additional two weeks on annual leave (at the employees expense) and returned to their country from a different city/town to the city where the conference was held, but did not incur any additional cost on the return airfare, can the taxable value of the fringe benefit in relation to the airfare expenses be reduced to nil under the otherwise deductible rule in section 24 or 52 of the FBTAA? | A10: Yes Scenario 3 : Under this scenario, the employee has already pre booked annual leave before being requested to attend a conference. | Q11: Can the taxable value of the fringe benefit in relation to the airfare expenses be reduced to nil under the otherwise deductible rule in section 24 or 52 of the FBTAA? | A11: No. The taxable value of the fringe benefit can be reduced by 25%. Scenario 4: Under this scenario, the staff member chooses to fly business class. | Q12: If the staff member chooses to fly business class and they book and pay for the flights, and they seek reimbursement from the employer for just the economy class airfare, can the taxable value of the fringe benefit be reduced by 50% of the benchmark travel amount (in this case, an economy airfare per terms of engagement and terms ordinarily provided in this industry) under subsection 61A (1) of the FBTAA? | A12: Yes | Q13: If the staff member requests business class seat be booked. The employer books and pays for the fare and the staff member reimburses the employer for the difference between economy and business class, can the taxable value of the fringe benefit be reduced by 50% of the benchmark travel amount (in this case, an economy airfare per terms of engagement and terms ordinarily provided in this industry) under subsection 61A(1) of the FBTAA? | A13: Yes

Relevant facts and circumstances: The employer is a trading entity. The employer has sought clarification regarding scenarios where a private component of travel is taken in conjunction with business travel. These are: (1) Private days between business events where the employee doesn't return home between the events but stays away (2) Where private days are taken either after or before a business event (3) Where the employee has booked annual leave, and is subsequently required to attend a conference (4) Where the employee and their family are entitled to annual return economy airfares to Australia where they are based overseas to fulfill their employment obligations The employer's guidelines on travel stipulate: · Value for money · Encouraging competition · Efficient, effective and ethical use of resources, and · Accountability and transparency. The employer aims for the most efficient allocation of its financial resources. The employer has a policy that any costs associated with any private component of travel will be paid by the employee undertaking the travel, i.e. accommodation, meals and incidental expenditure relating to private portion of travel. In undertaking travel, employees: · are required to travel by the employer · have to travel on certain dates as the employer determines. The employer does not pay for the airfares of any employee unless it is a cost necessarily incurred for the employee to fulfill their duties. In relation to scenario 4 the annual travel entitlement is a condition of their employment agreement and the travel is for having more than three days leave. There are four broad scenario categories contemplated with variations under each scenario category as stated in the questions above. Scenario 1 An employee is required to travel to an overseas city to attend two different business events. Both events would be held in the overseas city. The events would normally be about one week but could be anywhere between 2 days to one week. Scenario 2 Under the second scenario travel is extended either before or after an event. An employee travels to an overseas city to attend a 2 week conference. That is 10 working days separated by a weekend. The employer requires them to arrive a few days before the start of the conference so as to acclimatise prior to the commencement of the conference. Scenario 3 Under the third scenario, the employee had pre-booked annual leave and has subsequently been requested to attend a conference. A staff member has existing plans to travel to an overseas city for a 4 week holiday. Fares had not been booked but leave was applied for. Their employer had a 2 day International trade conference to attend in that overseas city which coincides date wise with the employee's time in that city but the employer was unable to attend. The staff member was asked to attend on the employer's behalf. The employer would pay for return airfares (Business class), accommodation for the nights of the conference and relevant meals. The staff member would pay for all other costs associated with their personal time in the overseas city for the 4 week holiday. Scenario 4 Under the fourth scenario, where an employee is based offshore, they are entitled to one economy class reunion trip annually for each family member, as a condition of the overseas service. The employee may choose to fly a different airfare class to that provided by their employer and reimburses the price difference between the two classes to the employer.

Relevant legislative provisions: Income Tax Assessment Act 1997 Subsection 8-1 | Fringe Benefits Tax Assessment Act 1986 Section 24 | Fringe Benefits Tax Assessment Act 1986 Section 52 | Fringe Benefits Tax Assessment Act 1986 Section 61A

Reasons for decision: Detailed Reasoning - Question 1, 2 & 3: An expense is deductible under section subsection 8-1 Income Tax Assessment Act 1997 (ITAA 1997) when it has the essential character of an income-producing expense. However, expenses of a private or domestic nature are not deductible under this section. The essential character of the expense is to be determined by an objective analysis of all the surrounding circumstances. There are circumstances where apportionment under section 8-1 ITAA 1997 is required where the travel achieves both a business and private ends. There have been numerous court cases regarding the deductibility of airfares expenditure for overseas travel involving both a business and private purpose. These cases have been decided having regards to the purpose of the travel. | Detailed Reasoning - Question 1: The dominant purpose of the travel to the overseas city is considered business. The private component comprised only 2 days between the business events and therefore considered minor and incidental to the dominant purpose and would not alter the character of the business nature of the trip. Therefore, the taxable value of the fringe benefit in relation to the airfare expense can be reduced to nil under the otherwise deductible rule in section 24 or 52 of the FBTAA. | Detailed Reasoning - Question 2: Based on the information provided the duration of the business events could be between 4 days to 2 weeks. The two weeks on annual leave between the events are of a private nature and would be devoted to private activities. This raises the issue of the purpose of the travel-whether dominantly business or dual purpose. An analysis of the facts surrounding the trip and court cases leads to the conclusion that on balance the dominant purpose of the travel is considered business. Support for this conclusion can be found in Case R75, 84 ATC 527. In this case out of a total of about 33 days a medical technologist devoted 7 days to private activities. He was employed as the head of the immunology department in a large medical practice was allowed a deduction for the full cost of airfares to Europe where he attended a conference and visited hospitals, etc, even though he also took the opportunity to have a week's holiday in Athens. Accordingly, the taxable value of the fringe benefit in relation to the airfare expense can be reduced to nil under the otherwise deductible rule in section 24 or 52 of the FBTAA. | Detailed Reasoning - Question 3: The four weeks on annual leave between the events are of a private nature. Based on the information provided the duration of the business events could be between 4 days to 2 weeks. A four week annual leave between the business events can not be considered incidental to attending the business events lasting two weeks at most. This leads to the conclusion that scheduling a four week annual leave between the events was to use the travel for a dual purpose. Where more than one purpose is achieved by incurring an item of expenditure for example, the trip is used partly for business and partly for private purposes, an apportionment is required between the business and private purposes. Support for this view can be found in court cases where apportionment was considered appropriate. In Case R13, 84 ATC 168, the taxpayer, who was a dentist, spent nearly six weeks overseas. Only five days of that time was spent at a Dental Congress, the rest being spent sightseeing. The Commissioner apportioned the airfares on a time basis allowing the taxpayer a 5/40ths deduction. The Board found that as the trip was undertaken by the taxpayer with two objects in mind (attending the Congress and having a holiday), both of which were of equal weight, the taxpayer should be allowed a 50% deduction A requirement by the employer may be a relevant factor to be taken into account but will not be determinative and will not necessarily lead to the conclusion that expenditure was incurred wholly in earning assessable income. The essential character of the expenditure is to be determined by an objective analysis of all the surrounding circumstances. In this situation, the business and private purposes of the travel are considered to be of equal dominance. Therefore, the taxable value of the fringe benefit can be reduced by 50% under the otherwise deductible rule in section 24 or 52 of the FBTAA. | Detailed Reasoning - Questions 4, 5, 6 7, 8, 9 & 10: An expense is deductible under section 8-1 ITAA 1997 when it has the essential character of an income-producing expense. However, expenses of a private or domestic nature are not deductible under this section. The essential character of the expense is to be determined by an objective analysis of all the surrounding circumstances. There are circumstances where apportionment under section 8-1 ITAA 1997 is required where the travel achieves both a business and private ends. There have been numerous court cases regarding the deductibility of airfares expenditure for overseas travel involving both a business and private purpose. These cases have been decided having regards to the purpose of the travel. | Detailed Reasoning - Question 4: The dominant purpose of the travel is business. The 2 days the employee is required to spend in the overseas by the employer to acclimatise and settle down prior to the conference would not alter the character of the trip from business to partly business. Accordingly, the taxable value of the fringe benefit in relation to the airfare expense can be reduced to nil under the otherwise deductible rule in section 24 or 52 of the FBTAA. | Detailed Reasoning - Question 5: The dominant purpose of the travel would be considered business. The private component comprising only 2 days annual leave and 2 days to acclimatise are incidental to the dominant purpose and would not change the nature of the trip from business to partly business. Consequently apportionment is not required/appropriate. The taxable value of the fringe benefit in relation to the airfare expense can be reduced to nil under the otherwise deductible rule in section 24 or 52 of the FBTAA. | Detailed Reasoning - Question 6: Based on the information provided the duration of the business conference is 2 weeks. The employee arrives two weeks before the conference (including 8 days annual leave). These two weeks are considered to be private in nature. The two weeks of a private nature are about the same as the number of days spent for the business purpose of the trip. This raises the issue of the purpose of the travel-whether dominantly business purpose or has a dual purpose. An analysis of the various facts surrounding the employee's trip including the nature of employer's business operations and court cases leads to the conclusion that on balance the dominant purpose of the travel to the overseas city is considered business. The facts are comparable to those in Case R75, 84 ATC 527. In that case out a total of about 33 days a medical technologist devoted 7 days to private activities. He was employed as the head of the immunology department in a large medical practice was allowed a deduction for the full cost of airfares to Europe where he attended a conference and visited hospitals, etc, even though he also took the opportunity to have a week's holiday in Athens. Accordingly, the taxable value of the fringe benefit in relation to the airfare expense can be reduced to nil under the otherwise deductible rule in section 24 or 52 of the FBTAA. | Detailed Reasoning - Question 7: The two days before the conference to acclimatise and settle down before the conference and then a week after the conference on annual leave (at the employees expense) are of a private nature and less than the number of days spent for the business purpose of the trip. Again as in question 6, Case R75, 84 ATC 527 supports a conclusion the airfare expenditure is fully deductible on the basis that the employee travelled to the overseas city for the business conference for the dominant purpose of carrying out his duties in his employer's business and, whilst there, took the opportunity to have a week's annual leave. Accordingly, the taxable value of the fringe benefit in relation to the airfare expense can be reduced to nil under the otherwise deductible rule in section 24 or 52 of the FBTAA. | Detailed Reasoning - Question 8: The two days before the conference to acclimatise and settle down and the four weeks on annual leave after the conference are of a private nature, and are more than the number of days spent at the conference. Four weeks annual leave cannot be considered minor and incidental to attending a business conference lasting two weeks. This leads to the conclusion that scheduling a four week annual leave at the end of the conference gives the trip a dual purpose. Where more than one purpose is achieved by incurring an item of expenditure for example, the trip is partly for business and partly for private purpose, an apportionment is required between the business and private purposes. Support for this view can be found in court cases where apportionment was considered appropriate. In Case R13, 84 ATC 168, the taxpayer, who was a dentist, spent nearly six weeks overseas. Only five days of that time was spent at a Dental Congress, the rest being spent sightseeing. The Commissioner apportioned the airfares on a time basis allowing the taxpayer a 5/40ths deduction. The Board found that as the trip was undertaken by the taxpayer with two objects in mind (attending the Congress and having a holiday), both of which were of equal weight, the taxpayer should be allowed a 50% deduction. A requirement by the employer may be a relevant factor to be taken into account but will not be determinative and will not necessarily lead to the conclusion that expenditure was incurred in earning assessable income. The essential character of the expenditure is to be determined by an objective analysis of all the surrounding circumstances. In this situation, the business and private purposes of the travel are considered to be of equal dominance. Therefore, the taxable value of the fringe benefit in relation to the airfare expense can be reduced by 50% under the otherwise deductible rule in section 24 or 52 of the FBTAA. | Detailed Reasoning - Question 9: The two days before the conference to acclimatise and settle down and the eight weeks on annual leave after the conference are of a private nature, and are significantly more than the number of days spent for the business purpose of the trip. A requirement by the employer may be a relevant factor to be taken into account but will not be determinative and will not necessarily lead to the conclusion that expenditure was incurred in earning assessable income. The essential character of the expenditure is to be determined by an objective analysis of all the surrounding circumstances. Eight weeks of annual leave cannot be considered minor and incidental to attending a business conference lasting two weeks. The facts lead to a conclusion that the travel was undertaken mainly for private purpose with the attendance at the conference not being the predominant purpose. However, having regard to the fact that the employer is spread internationally across many countries, the nature of its business operations and travel being an integral part of its operations it could be argued that the travel undertaken to the overseas city served dual purposes. Where more than one purpose is achieved by incurring an item of expenditure for example, the trip is partly for business and partly for private purpose, an apportionment is required between the business and private purposes. Support for this view can be found in court cases where apportionment was considered appropriate. In Case R13, 84 ATC 168 , the taxpayer, who was a dentist, spent nearly six weeks overseas. Only five days of that time was spent at a Dental Congress, the rest being spent sightseeing. The Commissioner apportioned the airfares on a time basis allowing the taxpayer a 5/40ths deduction. The Board found that as the trip was undertaken by the taxpayer with two objects in mind (attending the Congress and having a holiday), both of which were of equal weight, the taxpayer should be allowed a 50% deduction. In Case A48, 69 ATC 282 Taxpayer, a pharmaceutical chemist, claimed a deduction for part of the cost of fares and accommodation incurred during a six months' overseas trip undertaken for the dual purpose of attending pharmaceutical conferences and having a holiday. He claimed air fares from Sydney to London. The conferences were held near Paris and at Blackpool. The Commissioner allowed some expense but disallowed the fare to London. Before the Board, the Commissioner sought to justify the assessment on the basis that of the total amount the airfare was expenditure of a private nature. By majority decision the trip having a dual purpose, one half of the actual fare was allowed. Accordingly, it is concluded the taxable value of the fringe benefit in relation to the airfare expense can be reduced by 50% under the otherwise deductible rule in section 24 or 52 of the FBTAA. | Detailed Reasoning - Question 10: The employee arrived two days before the conference began, attended the conference and then stayed after the conference for an additional two weeks on annual leave (at the employees expense) and returned to their country from a different city/town to the city where the conference was held, but did not incur any additional cost on the return airfare. The two days before the conference to acclimatise and settle down and the two weeks on annual leave after the conference are of a private nature, and are more than the number of days spent for the business purpose of the trip. This is similar to the facts in question 6 except that the employee is returning to their country from a different city/town to the city where the conference was held. The employee returning via a different city/town will not alter the dominant purpose of the employee's travel being to attend the conference. Accordingly, for the same reasons provided in question 6 the taxable value of the fringe benefit in relation to the airfare expense can be reduced to nil under the otherwise deductible rule in section 24 or 52 of the FBTAA. | Detailed Reasoning - Question 11: Where travel is for income-earning purposes and for private purposes, it is appropriate to apportion the expenses between the purposes. If the income-earning purpose is merely incidental to the main private purpose, only the expenses which relate directly to the former purpose are allowable. However, if the private purpose is merely incidental to the main income-earning purpose, apportionment is not appropriate. In the circumstances in Scenario-3 the attendance at the 2 day international conference in overseas city is incidental to the 4 week planned holiday in the overseas country. Therefore the travel to that city would be considered predominantly for private purpose. Only the proportion attributable to the income earning purpose is allowable. A requirement by the employer may be a relevant factor to be taken into account but will not be determinative and will not necessarily lead to the conclusion that expenditure was incurred in earning assessable income. The essential character of the expenditure is to be determined by an objective analysis of all the surrounding circumstances. In case 71 ATC 238, the taxpayer, a chartered accountant and tax agent, during a 3-month trip overseas with his wife, travelled by ship to North America thence overland to New York where he spent one month in a rent-free apartment and then spent two weeks on holiday before returning by air to Australia. During his stay in New York he spent some time with persons associated with his profession (none of whom he had arranged from Australia to meet) and attended two one-day seminars on subjects rather removed from the circumstances of his practice. Of the total 94 days of his absence, approximately 15 were spent on business. In his claim for a deduction in respect of his trip taxpayer claimed 2/3rds of his sea and land fare from Sydney to New York, and of accommodation, meals and incidental expenses, but claimed the whole of the fare from his home city in Sydney and of his air fare from New York to his home city. The Commissioner allowed only 25% of an adjusted amount, arrived at by taking into account the full outgoing where portion only had been claimed. That percentage roughly represented the number of days of the total time spent in North America which were devoted to business. The court ruled that the trip was undertaken partly for business and partly for private purposes. As the private element was substantial, the whole period of absence including weekends and the period of travel to and from North America should be regarded as the necessary denominator in making an apportionment based on time. This produces a smaller deduction than that allowed by the Commissioner but the amount already allowed will not be interfered with. Accordingly, it is concluded the taxable value of the fringe benefit in relation to the airfare expense in Scenario 3 can be reduced by 25% under the otherwise deductible rule. | Detailed Reasoning - Questions 12 & 13: Section 61A of the FBTAA reduces by 50% the taxable value of fringe benefits in respect of 'overseas employment holiday transport' under certain conditions. Overseas employment holiday transport Fringe benefits arising from holiday travel provided in accordance with an award or industry custom to employees posted overseas, receive concessional treatment. The travel must be in connection with leave of more than three days. The concession is a reduction in the taxable value of the fringe benefits. The reduction in taxable value may vary in amount, depending on whether the travel is to the employee's home country or to some other destination. The concession applies to both Australian employees posted overseas and overseas residents posted to Australia. Where the travel is not to the home country, the concession is limited to 50% of what is called the 'benchmark travel amount'. The benchmark travel amount is normally the cost of a return economy air fare, determined at the commencement of the employee's holiday. Where the travel is to the home country, the 50% discount applies to the actual cost of travel, even if the cost exceeds the benchmark travel amount. For example, this would occur when an employee travels to their home country on a first-class flight. These concessions also apply where holiday travel benefits are given to the employee's family, whether or not they live with the employee at the overseas post. If the holiday travel benefit is in the form of a reimbursement of the employee's expenses, the employer must obtain documentary evidence of the expenses by the time you are required to lodge your FBT return. The employee is based offshore and entitled to one economy class reunion trip annually for each family member as a condition of the overseas service and the travel is for having more than three days leave. Hence it is considered that the provision of the annual economy class reunion family trip is in respect of overseas employment holiday transport and qualifies for the 50% economy airfare reduction under subsection 61A(1).

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Subject: Travel Expenses-Business & Private-FBT-Otherwise deductible Rule.: Scenario 1 : Under scenario 1, private days are taken between two business events.