The question has been asked whether these ‘rules’ are any different when the question relates to travel by employees, rather than business owners. The short answer is – not really. Let’s discuss.
Employers can reimburse any travel costs incurred by employees. That is a matter of employment policy and will vary from employer to employer.
However, where an employee is reimbursed for travel, or has travel costs paid on his or her behalf by an employer, this will constitute a fringe benefit provided to that employee, and a fringe benefits tax liability will arise to the employer.
The fringe benefits tax liability is reduced however, to the extent that the travel would have been ‘otherwise deductible’ to the employee.
That is, where the employee would have been entitled to deduct the costs in his or her personal income tax return, a fringe benefits tax liability will not arise.
It is clear that travel to and from work, while it is in connection with earning assessable income, is not deductible to an employee. Similarly, an employee’s costs of relocating for work and living away from home to work are not deductible.
The position still stands that the golden rule is that purpose determines what is, or would be, deductible to an employee.
Broadly, transport expenses (including airfares, train, car or bus costs) are deductible where the travel is undertaken in performing an employee’s work activities.
It will be a question of fact as to whether an employees’ travel will be deductible, however the questions to be asked are as follows:
• Do his or her work activities require the employee to undertake the travel?
• Is the employee is paid, directly or indirectly, to undertake the travel? and
• Is the employee is subject to the direction and control of their employer for the period for the travel?
In relation to accommodation and meals, these are generally seen to be of a private nature and non-deductible. However, where these expenses are incurred by, or for, an employee in performing the employee’s work activities, these will be deductible.
The key requirements are:
• An 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 during relocating or living away from home.
The Australian Taxation Office has recently released a draft ruling on this topic (TR 2017/D6 for those who would like more detail), and the guidance it gives is stated to be subject to the overarching requirement that the factors mentioned have not been contrived to give a private journey the appearance of work travel.
The ruling also states that apportionment may be required where travel has a dual purpose – in the same way as outlined previously for business owners.
As for business owners, for employees purpose is key and is the determining factor for deductibility. Also, records are essential to show purpose. A detailed travel diary and invoices are essential for substantiation of amounts.
There is no set limit on how much an employee can spend and how much you can reimburse. However you should consider the impact that any seemingly excessive spending may have on the purpose argument.
In summary, the key points to remember are:
• Reimbursed or provided travel is a fringe benefit unless it would be otherwise deductible to the employee;
• Purpose is still king;
• Purpose must be related to employment;
• Document everything; and
• Apportion where necessary.
Kaylene Hubbard is Tax Director at KPMG GWS.
