When are deductions allowed for employee’s travel expenses?
On 28 June 2017 the Commissioner issued Draft Taxation Ruling TR 2017/D6, Income tax and fringe benefits tax: when are deductions allowed for employee’s travel expenses?
This is a timely and well overdue update from the Australian Taxation Office (ATO) with Miscellaneous Taxation Ruling 2030 (which previously housed the 21 day test) issued more than 30 years ago. The draft ruling also consolidates the ATO view from the recent John Holland case (John Holland Group Pty Ltd v FCT) and sets out the ATO’s interpretations on the general principles for determining whether an employee’s travel and accommodation would otherwise be deductible for income tax and FBT purposes.
This draft ruling will be a regular reference and therefore we will be making a submission on behalf of our clients to ensure that as many relevant examples as possible are included in the ruling.
Should you wish to make any contribution please feel free to contact Justin Batticciotto on 8635 1946 or your ShineWing Australia relationship partner.
TR 2017/D6 provides a number of examples to illustrate how to determine whether travel expenses for an employee are otherwise deductible, including:
More guidance on whether an employee is travelling for work or living away from home
Removed the 21 day guidelines reflected in MT2030
Introduction of the concept of special demands travel depending on the remoteness of the work location and requirement to move continuously
Deductible travel examples including co-existing work locations travel and special demands travel and non-deductible travel examples on ordinary home to work and relocation travel
The draft ruling applies the following principles to determine whether the travel expenses are undertaken in performing an employee’s work activities:
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
Whether the above factors have been contrived to give a private journey the appearance of work travel
The draft ruling also applies the following principles to determine whether the accommodation, meal and incidental expenses are undertaken in performing an employee’s work activities:
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
The employee does not incur the expenses in the course of relocating or living away from home
Employers should consider how TR 2017/D6 will impact the FBT treatment of any travel and LAFHA benefits that will be provided in the current FBT year?
Depending on whether an employer has previously obtained a Private Binding Ruling (PBR), with some PBRs providing up to 90 day ruling, employers may need to reassess if employees are travelling for work or relocating / living away from home and whether a PBR will provide certainty for the business?
Consider how travel and LAFHA benefits have historically been treated – any opportunities to obtain tax refunds from prior years and restructure for optimum tax efficiency going forward?
When the final ruling is issued, it is proposed to apply both before and after its date of issue. The closing date for comment on the draft ruling is 11 August 2017.
If you have any questions, please contact Justin Batticciotto (+61 3 8635 1946), or your ShineWing Australia relationship partner.
Associate Director, Tax
T +61 3 8635 1946