Draft tax ruling on deductibility of employees’ travel expenses

Further to removing the deductibility of travel expenses in relation to rental properties in the 2017-18 Federal Budget, the Commissioner has issued Draft Tax Ruling TR 2017/D6 which addresses the deductibility of employee travel expenses.

Under the general tax principles, an employee’s travel expenses are deductible for income tax purposes if they are:

  • incurred for the purpose(s) of gaining or producing assessable income, and
  • not capital, private or domestic in nature.

A variety of travel claims have been examined in TR 2017/D6, outlining situations where employees are, or are not able to claim an income tax deduction for travel expenses.

Travel between home and regular place of work

Generally speaking, you will not be able to claim a deduction for costs incurred travelling between your home and your regular work location. Travel to and from work is considered private and domestic in nature.

With the above in mind, there are certain scenarios where home to work travel may be deductible, for example, in circumstances where it is a necessity to carry bulky equipment in your car for work purposes, and there is no secure storage space at the work location.

Travel between home and an alternative but regular place of work with allowances paid to you

If your employer requires you to work in an alternative work location temporarily without the need to remain away from home, and pays you a travel allowance to cover the extra costs and inconvenience, you will not be able to claim a travel deduction as the cost will be regarded as private or domestic in nature.

The fact that a travel allowance is paid to you does not make your travel deductible, and the allowance will still need to be included in your assessable income regardless of deductibility.

Special demands travel

Special demands travel includes: travelling to remote work locations, moving continuously between changing work locations, and living away from home in the course of performing your work for a short period of time.

If the nature of your travel falls under ‘special demands’ travel, your travel expenses will generally be deductible to the extent that you are subject to the direction and control of your employer. Such costs would typically be incurred from the point you commence your shift until you finish your shift.

Additionally, if you are a fly-in fly-out worker and your employer provides you with accommodation in close proximity of the work site, meals and incidentals for the short period you are working away from home will also be deductible provided that:

the work being performed requires you to sleep away from home overnight and you have no choice about where you live;
you have to leave the work location between rostered work shifts;
you have a permanent home elsewhere; and
the cost being claimed is not related to relocating or living away from home for an extended period of time.

Living away from home accommodation

The Commissioner takes into consideration the following factors when determining if you are ‘living away from home’:

  • the time you spent away from home,
  • whether you have a permanent home at a previous location,
  • whether the accommodation provided by the employer has the characteristics of a home, and
  • whether you can be accompanied by your family and friends.

An allowance paid to you by your employer for costs incurred whilst genuinely living away from home within the bounds of the ATO’s guidance will generally be considered a living-away-from-home allowance, which means that it is exempt from income tax and you will not need to include it in your assessable income.

Apportionment of travel expenses

The Commissioner has emphasised in the Draft Ruling that it is important to apportion your travel expenses when the expenses incurred are a combination of work related, and private costs.

Travel expenses will not be deductible to the extent that they are private or domestic in nature. For this reason it is essential to maintain a journal to record work related travel.

While the above Tax Ruling remains a draft, it is important for taxpayers to become aware of the ATO’s provisional guidance on the deductibility of travel expenses. Comments can be made to the ATO by 11 August 2017. The Final Ruling, upon completion, is proposed to apply both before (i.e. retrospectively) and after its date of issue.

In the meantime, the Draft Tax Ruling can be relied upon in determining the deductibility of your travel expenses. Any deduction that is disallowed on finalisation of the Draft Tax Ruling will not attract interest or penalties, however the corrected amount of tax will need to be paid.

Please contact your local Walker Walker NSW advisor if you would like to discuss this.