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For long distant truck drivers and workers who travel away from home to perform their work duties, there are certain deductions that taxpayers can claim. There are also some traps to look out for when claiming those deductions.

It should now be no secret the Australian Taxation Office (ATO) has active monitoring systems in place for work-related tax deductions. And travel expenses, often a high-ticket item, are high on the hit list. It is timely then to review what is and is not travel expenses.

Each year the ATO updates rulings relating to travel allowances and claims. The primary ruling refers to “reasonable” travel allowance expenses and guides how you can claim travel expenses without substantiation.

What is a Travel Allowance:

Essentially, if an employee receives a “travel” allowance, he or she can claim a deduction within “reasonable” limits. The actual amount claimable can vary depending on the type of travel and location.

Sounds easy enough, but there are traps.

  1. What type of “allowance” has been received – is it a genuine “travel” allowance, or is it a Living Away From Home (LAFH) allowance?
  2. Has the allowance been taxed, and has it been included in assessable income?
  3. What actual expenses have been incurred in the course of\performing your work, how have you worked out the amount claimed, and you spent the money yourself and was not reimbursed by your employer?

Under review, the ATO will ask all these questions. Accordingly, you need to have some records that back up your claim. This is where the ATO ruling, referred to above, is somewhat contradictory. On the one hand, the ruling says you do not have to substantiate the claim. On the other hand, you need to keep records to back up the claim.

Evidence of Travel Allowance:

A letter from your employer and a review of payslips can help determine this. The ATO also releases guidance for employers on a “travel” allowance and a LAFH allowance. There are important differences between the two. Accordingly, employers need to be aware of the definitions and report them correctly in the payroll.

Following is a summary of what a “travel” allowance is:

  • There is a difference between the “travel” allowance and the Living Away From Home (LAFH) allowance.
  • “Travel” allowance is assessable income, subject to PAYG withholding from the employer, and must be included as income in the personal tax return.
  • “Travel” allowance is paid to compensate employees (does not apply to self-employed and sub-contractors) for the cost of accommodation, meals, and incidentals while traveling away from their normal residence for no more than 21 days (ATO guidance).
  • “Travel” allowance can be paid as part of an award allowance or “folded” into an hourly rate under EBA’s etc. In these cases, technically, there is no “allowance” paid. Therefore, the ATO ruling does not apply.
  • LAFH allowance is used in the Fringe Benefits Tax (FBT) rules, a completely different receipt and treated very differently for taxation purposes.

Claiming a Travel Allowance:

  • Deductions for travel expenses are claimed in an individual’s tax return. When deductions for travel are claimed in a tax return, the ATO will look for relating allowances in the assessable income area of the I tax return form. This doesn’t mean that failure to receive an allowance automatically denies a tax deduction for travel; it is simply an indicator that may trigger an ATO review of a tax return. Accordingly, taxpayers claiming travel expenses need to maintain appropriate records and have a basis for making a claim (see points below).
  • A genuine “travel” allowance attracts the substantiation exception for reasonable travel expenses for accommodation, meals, and/or incidental travel expenses.
  • The ATO has and will review the validity of allowances paid to employees and the basis on which it has been paid (e.g., for a long-distance truck driver, is the payment based on a fixed daily rate or a rate per km). In some cases, allowances are paid based purely on an award entitlement and could therefore be considered as a “loading,” not an “allowance.” In other words, is it a “bona fide” travel allowance (Gleeson’s case and Fardell’s case)?
  • The ATO will also seek to establish that travel expenses (e.g., meal expenses) had actually been incurred by the employee (Fardell’s case).
  • The ATO is concerned that claims made against “travel” allowances up to the “reasonable” amounts set out by the ATO are done so with little regard to the actual amounts incurred by the employee. In other words, the ATO considers an employee in receipt of an “eligible” travel allowance cannot automatically claim a deduction up to the ATO’s “reasonable” allowance amount.
  • Some employers (payroll officers) incorrectly show LAFH allowance, an allowance paid under FBT rules, on an employee’s PAYG Payment Summary. In these cases, the employee and or their accountant /tax agent should seek clarification from the employer to confirm the specific nature of the allowance. We often check payslips to confirm that allowances are included as assessable income on the PAYG Summary and that it has been subjected to PAYG withholding.

Recommendations for Claiming Travel Allowance

In light of these recent cases, we make the following recommendations for clients wanting to claim travel allowance expenses:

  • Review the basis on which travel allowances are paid. In this regard, it would be an advantage to obtain a letter from your employer outlining the allowance basis.
  • It may be appropriate to review awards and enterprise agreements where allowances are received to ensure the receipt is not simply a “loading.”
  • Maintain a diary outlining where and when you incurred meal expenses. For truck drivers who complete logbooks, retain the logbooks as part of your travel records or, at the very least, prepare an annual summary of the number of nights away.
  • A bona fide travel allowance can be calculated based on a rate per km for truck drivers if it is intended to compensate for losses and outgoings for food and drinks for travel away from their normal residence (Gleeson’s case)
  • A bona fide travel allowance does not have to equate specifically to the employee’s actual expenditure (Gleeson’s case)
  • Evidence of menus to confirm typical costs and types of food and drink consumed, accommodation establishments, bank transactions, logbooks, and employer evidence of payments are all important factors where travel expenses relating to travel allowance are claimed. Gleeson (Gleeson’s case) was able to rely on such evidence. Conversely, Fardell (Fardell’s case) lacked credible evidence of claims made.
  • In some ways, it would seem the substantiation exception relating to bona fide travel allowance and associated expenses has gone out the window. However, the substantiation exception mainly applies to transactional records. The type of evidence discussed here refers primarily to form, not the substance.
  • With the help of technology, obtaining and keeping such records can be simple with smartphones and data storage apps.
  • Obtain advice from an accountant/tax agent who has experience in claiming travel allowances.
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