Private ruling: Travel expenses
Date of advice: 4 August 2017
Published: November 2017
Ruling period: Financial year ending 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Is the difference between deductible expenses incurred on domestic work related travel, and a domestic work related travel allowance which is not included in your payment summary and from which no PAYG withholding has been withheld by your employer, taxable income? | A1: Yes

Relevant facts and circumstances: You are an employee. As part of your employment, you undertook domestic overnight travel in the financial year ending 30 June 2017. Your employer paid you a domestic travel allowance (allowance) in relation to accommodation, food and incidentals equivalent to the reasonable amounts published by the Commissioner for the 2016-17 income year. You did not expend the full allowance amount on accommodation, food and incidentals during your travel. Your employer did not withhold any PAYG withholding from the allowance as they have stated that they had a reasonable expectation that the full amount would be expended on deductible expenses while travelling. The allowance was not shown on your payment summary.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 Section 900-30 | Income Tax Assessment Act 1997 Section 900-50

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 1997 (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. The cost of accommodation, meals and incidentals is normally considered to be a private expense and is not an allowable deduction under section 8-1 of the ITAA 1997. However, where employees are required to sleep away from home as part of their employment duties, a deduction for accommodation, meals and incidentals may be allowable. Section 900-30 of the ITAA 1997 states that travel allowance expenses are work expenses if they are incurred for travel, food or drink or are incidental to the travel and are covered by a travel allowance. A travel allowance is defined in s 900-30(3) of the ITAA 1779 as an allowance paid by an employer to cover an individual's losses or outgoings incurred for travel away from their ordinary residence that is undertaken in the course of duties as an employee and that are for accommodation or for food or drink, or are incidental to the travel. Note that an expense must be actually incurred before a claim can be made. A taxpayer cannot automatically claim a deduction just because they receive a travel allowance. 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 expense). Section 900-50 of the ITAA 1997 states an exception to this rule applies if you receive a bona fide travel allowance to cover accommodation, food or drink and the expenses do not exceed amounts the Commissioner deems reasonable. A bona fide travel allowance is an amount that could reasonably be expected to cover accommodation, food, drink or expenses incidental to travel. Taxation Determination TD 2016/13 provides the Commissioner’s reasonable amounts for the 2016-17 year of income. The Commissioner’s view on how the exception from substantiation rule for travel expenses should be applied is set out in Taxation Ruling TR 2004/6 Income tax: substantiation exception for reasonable travel and overtime meal allowance expenses . TR 2004/6 states at paragraph 12 that all allowances must be declared as assessable income in the employee’s tax return. However, where: ● the allowance is not shown on the employee’s payment summary; ● the allowance received is a bona fide travel allowance; ● the allowance received does not exceed the reasonable amount; and ● the allowance has been fully expended on deductible expenses, the allowance received is not required to be show as assessable income in the employee’s tax return and a deduction for the expenses cannot be claimed. TR 2004/6 further states at paragraph 16 that where a taxpayer receives a bona fide travel allowance and incurs deductible expenses in relation to it: ● Where the deduction claimed is more than the reasonable amount, the whole claim must be substantiated with written evidence, not just the excess over the reasonable amount. ● Where the allowance received is not shown on the employee's payment summary and is not greater than the reasonable amount and it is fully expended on deductible expenses, the allowance received is not required to be shown as assessable income in the employee's tax return. Where it is not shown, a deduction for the expense cannot be claimed in the tax return ● Where the allowance paid by the employer is greater than the reasonable amount the taxpayer may still use the exception from substantiation if the claim for deduction is not greater than the reasonable amount. In that case the allowance must be shown as assessable income and written evidence is not required to support the claim. ● Where the deductible expense is less than the allowance received, the taxpayer must show the allowance as assessable income in the tax return, and only claim the amount of the deductible expenses incurred. You received a bona fide travel allowance in the 2016-2017 income year equivalent to the Commissioner’s reasonable amounts for that year. You state that the travel allowance is not shown on your payment summary and the deductible expenses incurred for your work related travel were less than the allowance received. In these circumstances, you are required to include the travel allowance as assessable income in your tax return and only claim the amount of the deductible expenses actually incurred. The amount of the allowance not expended on deductible expenses is part of your taxable income. The exception from substantiation will apply, however you may still be required to show the basis for determining the amount of your claim and that the expense was actually incurred.