The Commissioner has issued Draft Taxation Ruling TR 2017/D6 which sets out the ATO’s views on deducting (or treating as otherwise deductible for FBT purposes) travel expenses under s 8-1 of the ITAA97. Travel expenses refer to amounts incurred on transportation (eg by car or plane) and on accommodation, meal and incidental expenses while travelling.
The substantial draft ruling covers 43 pages, 18 examples and multiple issues. The most salient aspects are:
a. Transportation expenses
An employee’s transportation expenses are deductible where the travel is undertaken in performing their work activities. The following factors are relevant:
- whether the work activities require the employee to undertake the travel
- whether the employee is paid, directly or indirectly, to undertake the travel
- whether the employee is subject to the direction and control of their employer for the period of the travel, and
- whether the above factors have been contrived to give a private journey the appearance of work travel.
b. Accommodation, meal and incidental expenses
Accommodation, meal and incidental expenses are deductible where:
- the employee’s work activities require them to undertake the travel
- the work requires the employee to sleep away from home overnight
- the employee has a permanent home elsewhere, and
- the employee does not incur the expense in the course of relocating or living away from home.
c. Special demands travel and co-existing work locations travel
The draft ruling introduces two new categories of potentially deductible travel – special demands travel and co-existing work locations travel.
“Special demands” refers to the physical or logistical requirements of the work activity, for example the remoteness of the work location (such as is the case for fly-in fly-out arrangements), a requirement to move continuously between changing work locations, a requirement to work away from home for an extended period of time or other special circumstances (eg itinerant workers). Traditionally, transportation costs between home and the work location and accommodation, meal and incidental costs of staying overnight were not deductible. However, under the draft ruling, these costs will be deductible where the criteria mentioned above are satisfied.
Co-existing work locations travel involves travel which can be attributed to the employee having to work in more than one location (eg in Melbourne for part of the week and Sydney for the remainder}. Historically, the transport costs to Sydney and the accommodation, meals and incidental costs of staying overnight in Sydney would not have been deductible. However, under the draft ruling, these costs will be deductible where the criteria mentioned above are satisfied.
d. Living away from home allowances
The draft ruling contains updated guidance on determining when an employee is living away from home (LAFH}. At the same time, Miscellaneous Tax Ruling MT 2030, which contained the 21-day test, has been withdrawn. Factors indicating that an employee is living away from home include:
- An intention to return to the initial workplace and usual place of residence.
- An extended time spent away from home – while the 21-day test has not been replaced with a similar general rule, the examples in the ruling suggest that the ATO is now more likely to accept that an employee is travelling on work, rather than LAFH, when away for periods of 22 days or greater.
- Staying in “settled”, rather than rudimentary, accommodation.
- Being apart from family – an employee who is working away from home who is accompanied by their family for less than an extended period is more likely to be LAFH. Conversely, an employee who is accompanied by their family while working away from home for an extended period is more likely to have relocated.
When the ruling is finalised, it is proposed to apply both before and after its date of issue.
Source: The Taxpayer April 2018