Deductions for employee transport expenses
The ATO has updated its position on what is and isn’t deductible in relation to employee travel, transport and accommodation costs.
The general principle in this area is that travel between home and a regular work location is not deductible. On the other hand, travel to an alternative place of work or between workplaces can be deductible. There are several broad exceptions that should also be considered. There are two key considerations:
• The obligation to travel should arise in connection with the employment and not as a result of a personal choice of the employee; and
• The travel must be relevant to the demands of the work and a necessary consequence of those activities.
Other relevant factors indicating travel could be deductible include the employer requesting the travel to be undertaken, the travel that occurs during work time and the travel that occurs when the employee is under the direction and control of the employer.
The ATO appears particularly concerned with situations where taxpayers travel to distant work locations and where this is due mainly to a choice that they have made. For example, the employee might have chosen to accept a job that is a significant distance from their home and they have chosen not to relocate their home. Likewise, an employee might have chosen to perform most of their work from home, even though the employer would have provided them with an office or other place to perform their work. The ATO indicates that travel in these circumstances is not generally deductible. However, if it can be shown that the primary reason for the travel is due to the employee’s work duties rather than a choice made by the employee then deductions might be available.
Other general positions confirmed by the ATO in the ruling include:
• FIFO workers are not generally able to claim deductions in respect of travel from their home to a point of departure for their worksite (e.g., between home and the location at which they fly out to a mine etc);
• There is only limited scope to claim deductions in respect of travel undertaken while an employee is ‘on-call’ although this is possible in some situations.
Deductions for accommodation and meal expenses (Draft rulings)
This focuses on the tax and FBT treatment of expenses on accommodation and meals relating to employees. The ATO confirms that accommodation and meal expenses are normally private in nature, however, where employees travel overnight in the course of their employment it can be possible to claim deductions for those costs. However, where the employee is considered to be living away from home or relocating the costs should not be deductible. The following factors would suggest that the employee is living away from home rather than merely travelling in the course of their work:
• There is a change in the employee's regular place of work;
• The length of the overall period the employee will be away from their usual residence is a relatively long one;
• The nature of the accommodation is such that it becomes their usual residence;
• The employee is, or can be, accompanied by family or visited by family and friends.
The reason for the expenses being incurred needs to be the employee’s work activities rather than any choice made by the employee in order to be deductible. That is, the treatment of expenses on accommodation and meals will often match the treatment of transport costs associated with that trip. The ATO has also issued a practical compliance guideline that sets out the ATO’s approach to determining whether employees are travelling for work or living away from home. Very broadly, the guideline provides that the ATO will accept that an employee is travelling for work when all of the following are satisfied by the employee (there are also requirements for the employer that must be met):
• They are away from their normal residence for work purposes;
• They do not work on a fly-in fly-out or drive-in, drive-out basis;
• They are away for no more than 21 days at a time continuously, and an overall total period of fewer than 90 in the same work location in an FBT year; and
• They must return to their normal residence when their period away ends.