The Road To Safety

22 August 2007

If you live away from home or frequently travel for your job, be sure to fulfil the requirements of the taxman.

THE Australian Tax Office says it will be looking at travel claims more closely this year. This is a result of considerable confusion by taxpayers, both business and individuals, over the circumstances under which travel expenses and living away from home expenses can be claimed as tax deductions.

The situation has been further complicated by the lack of clear and precise tax law on what deductions can be claimed and when the different types of allowances, such as a living away from home (LAFH) or a travelling allowance should apply.

To get a tax deduction for travel expenses the first criteria is a connection between the expenses incurred on travel and the assessable income derived by a person.

When employers agree to pay for the costs of employee work travel it usually takes the form of an allowance to cover the daily costs incurred.

It is important to identify whether the expenses incurred were on relatively short-term "work" travel as distinct from living away from home. This is because there is a different tax treatment for both types of travel.

To identify whether expenses can be claimed as work travel as distinct from a LAFH allowance there should be at least one of the following factors connected with the travel:

1. The primary place of work for the employee has not changed and the normal "residential base" is near the existing work location.

2. The person does not take household belongings with them.

3. The person is not generally accompanied by family members.

4. Temporary style accommodation is used when travelling.

5. The travel is usually for a person's normal work rather than a transfer for an assignment.

6. The travel duration is a relatively short-term one and itinerant in its nature.

Where the travel involves private travel in addition to the underlying business purposes, then the travel expenses need to be apportioned accordingly. The direct air fares should not need to be apportioned if the principal purpose of the trip is work-related.

Other expenses such as meals and accommodation for the private period of the travel should be apportioned.

If the employer pays the employee an allowance to cover the costs incurred while travelling and it does not exceed the reasonable allowance amount set by the Australian Tax Office, the employer does not need to include the allowance on the employee's PAYG Summary nor does the employee need written evidence of incurring travel expenses.

The reasonable allowances can be found on the Australian Tax Office website at www.ato.gov.au in their legal database under TD 2007/21.

For example, if an employee with an annual salary of $155,000 was based in Sydney and needed to travel for work to Melbourne for three days then a daily allowance paid by the employer of $404 is considered to be the reasonable rate to cover the costs of accommodation, meals and incidental expenses. Accordingly there is no need for the employee to declare the allowance in their tax return or claim a deduction.

If you do not receive a travel allowance from your employer, or if you are self-employed, or wish to claim more than the allowance received, then your travel claim must be supported by written evidence (receipts).

A travel diary must be kept by the employee where the trip is for more than six nights in a row. A travel diary is a document in which you record the dates, places, times and duration of your activities.

There are a number of factors that would identify an employee being in receipt of an LAFH allowance rather than a travel allowance. This is an important distinction as the employer may need to pay fringe benefits tax on the LAFH allowance. The employer will receive a tax deduction for the LAFH allowance paid as well as any fringe benefits tax that also needs to be paid. These factors are not limited to but include:

1. Satisfying the ATO "but for" test that an employee would have remained at their residence, "but for" temporarily changing their residence to work at another location nominated by their employer.

2. The employee maintaining their usual place of residence.

3. The length of time involved generally being more longer term rather than itinerant short-term travel assignments.

4. The use of longer term accommodation while away from home.

5. The employee being accompanied by family members.

The taxable value of an LAFH allowance for fringe benefits tax represents the total amount of the allowance paid less the exempt accommodation and/or exempt food component. These exempt amounts can be found at www.ato.gov.au. (Refer TD 2007/9 in the legal database.) The correct understanding of the tax office exempt amounts and how to apply them is important to enable the calculation of the applicable fringe benefits tax.

Further advice may be needed here as the tax office has identified many mistakes and employers can easily be paying too much fringe benefits tax when calculating the taxable value of the allowance.

Greg Lomax is chief executive of Huthnance Lomax accountants and financial advisers and a licensed financial planner. Email greg@huthlom.com.au.


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