When employees travel away from their home overnight or longer in their course of their employment, a travel allowance may be made to cover accommodation, food, drink or incidental expenses. Travel allowances paid to employees for part-day and not overnight travel do not fall within these rules.
From an employer’s point of view, travel allowances are subject to two exemptions, a withholding exemption and payment summary exemption. If the travel allowance paid to the employee is up to the reasonable amount, as per the appropriate tax determination (for 2017-2018 it is TD 2017/19), the employer does not need to withhold any PAYG withholding tax on the amount and they do not need to report it on the employee’s payment summary. If it is not included on the employee’s PAYG summary, the employee will not be able to claim related travel deductions as the related income is not included in the employee’s assessable income. If it is over the reasonable amount however, the employer must withhold PAYG withholding tax and include the allowance on the employee’s payment summary.
From the employee’s point of view, assuming their PAYG summary does show they were paid a travel allowance, there is an exception to substantiate claims that applies to travel allowance expenses if the ATO considers the total claimed to be ‘reasonable’ and the travel allowance to be ‘bona fide’. For the allowance to be ‘bona fide’, it should be an amount that the employer would reasonably expect it to cover the employee’s expenses whilst away.
Even though written documentation may not be required, this exemption does not nullify the requirement for the employee to actually incur an expense. For example, if your employer has paid you the full reasonable allowance including accommodation, food, drink and incidentals however you choose to stay at a family member’s home to save money you cannot claim the accommodation component of the reasonable amount. However if you did purchase your meals whilst travelling you can claim the food, drink & incidentals component. The ATO may also still require you to show the basis for determining the amount claimed, show the expenses were actually incurred and confirm that the travel was specifically for work-related purposes.
The ATO has stated they have been targeting large work-related expense claims and will continue to do so in future. The ATO’s data matching abilities are continuously growing and in recent years they have been comparing data across the country based on an employee’s job classification to determine any larger than usual claims based on the classification or industry. The ATO have commented if the disparity between allowances paid and deductions claimed continues they will likely review the substantiation exception and potentially remove it altogether.
The ATO publishes a tax determination every year on what it considers to be reasonable amounts for a travelling employee. The tax determination breaks the potential claims down based on geographical locations, specific meals if not away for a full day, annual salary of the employee receiving the allowance and specifies special rules for truck drivers.
If you wish to claim more than the ‘reasonable’ amount in the ATO’s tax determination for the particular year, you need to substantiate the full claim, not just the amount over and above the reasonable amount.
If you have any queries about travel allowance claims, please contact your trusted adviser today!