New ATO Guidance on Travel Expenses
The Australian Taxation Office (ATO) has recently finalised the guidance on the deductibility of transport expenses in the form of Taxation Ruling TR 2021/1 and released the long-awaited ruling on the deductibility of accommodation, food and drink expenses in the form of draft Taxation Ruling TR 2021/D1 and Draft Practical Compliance Guideline PCG 2021/D1.
The new rulings and guidance replace the draft Taxation Ruling TR 2017/D6 and contains important information for individual taxpayers incurring the expenses as well as business employers reimbursing or paying for employees’ transport, accommodation, food and drink expenses.
The general rule is that transport expenses incurred by employees whilst travelling between home and a regular place of work are not deductible, while those incurred in travelling between work locations are.
The key term here is ‘regular place of work’. It means a usual or normal place where the employee starts and finishes their work duties with a particular employer. So, travel expenses incurred by employees travelling from home to, say, clients’ business premises which are not their usual/normal place of employment, are tax deductible.
There are a few exceptions to the general rule, such as transporting bulky equipment; on call and standby arrangements; travel between home and a regular work location where duties have substantively commenced at home and are completed at the regular work location; and the travel between home and work location is part of employment duties.
Employers reimbursing or paying for employees’ transport expenses must firstly consider the Fringe Benefit Tax (FBT) implications, as this may constitute either expense payment fringe benefits or residual fringe benefits. Importantly though, if the costs would have been deductible to the employees, then the benefits are exempt from FBT under the Otherwise Deductible rule.
Accommodation, Food and Drink Expenses
Accommodation and food and drink expenses are ordinarily private or domestic in nature. However, they are deductible where the travel is work-related and it is undertaken in the course of performing income-producing activities.
The period away from the employee’s usual place of residence must be for relatively short periods of time. The longer the time away, the more likely the expenses will be treated as ‘living away from home’ and not deductible. The ATO in the draft guidance provides a rule of thumb to distinguish between work-related travel and living away from home.
That is, the ATO will accept that an employee is undertaking work-related travel where the employee:
- is away from their normal residence for work purposes,
- does not work on a fly-in fly-out or drive-in drive-out basis,
- is away for a short-term period being:
- no more than 21 days at a time continuously, and
- has a total number of fewer than 90 days in the same work location in one year, and
- must return to their normal residence when their period away ends.
It is welcome news that the ATO has reintroduced the 21-day rule in relation to work-related travel albeit with additional requirements. Nevertheless, the revised rule of thumb will provide certainty to employers and employees on the income tax and FBT treatments of these expenses.
The Take Away
The new ATO rulings and guidance provide much-needed guidance in this area. Whilst they contain useful information, the application of the general principles may differ for each taxpayer depending on the facts and circumstances. It is recommended that businesses and employees should seek advice from their tax accountants or advisers on the potential impacts to their current or future arrangements.
If you have any queries on the new ATO rulings and guidance, please contact Peter Hong.