Travel allowances can be an effective way for employers to provide tax benefits to employees where the employee is required to travel away from their ordinary place of residence. Getting it right offers benefits to the employer, but getting it wrong can create significant tax issues for your employee.
1. STRUCTURE OF ALLOWANCE
Each financial year the Australian Tax Office (ATO) outlines reasonable travel allowance rates to be applied to travel allowances. The rates for the 2015-16 income year are set out in Taxation Determination TD 2015/14. Ordinarily, if travel allowances exceed these reasonable rates, the whole of the expense claimed needs to be substantiated by the employee for work expenses to be deductible. A claim will be substantiated with the provision of appropriate written evidence, such as receipts, invoices or travel records.
As an exception to the substantiation rule, an employee is not required to provide written evidence to substantiate claims for travel allowances where the following conditions are satisfied:
- the allowance is a bona fide travel allowance (i.e. the amount paid is an amount that could reasonably be
- expected to cover the necessary expenses related to travel);
- the allowance does not exceed the reasonable rate; and
- the allowance has been fully expended on a deductible expense.
2. DO’S AND DON’TS FOR EMPLOYEES
To take full advantage of the ATO’s limits associated with a travel allowance, employees should be encouraged to:
- keep written evidence of expenditure during travel unless substantiation is not required;
- be aware of reasonable rates for expenditure as stipulated by the ATO; and
- ensure awareness of apportionment if travel expenses were incurred partly for private purposes.
For employees to avoid any detrimental financial ramifications, they should refrain from:
- spending excessively while travelling, especially with the use of reasonable rates as a benchmark; and
- taking advantage of the travel allowance for private purposes.
3. DO’S AND DON’TS FOR EMPLOYERS
For employers to avoid any financial detriment, they should:
- make every attempt to ensure travel allowance estimates are reasonable;
- ensure that PAYG withholding occurs on any amount that exceeds the ATO reasonable rate for travel
- include the total amount of an allowance in their employee’s payment summary, with an explanation if the
- amount exceeds the ATO reasonable rate for travel allowances; and
- be aware that the superannuation guarantee does not need to be catered for (in most cases).
Employers should be encouraged not to:
- permit unlimited spending for the employee while travelling; and
- be ambiguous about the financial limits provided to employees.
4. SPECIAL CIRCUMSTANCES
A. TRUCK DRIVERS
Where a truck driver is required to sleep away from home, then she is permitted to claim amounts considered reasonable for meal expenses only. Where an employee’s spending exceeds the reasonable rate, PAYG withholding should be accounted for by the employer for the difference between the actual amount spent and the reasonable rate itself.
B. FLY-IN / FLY-OUT EMPLOYEES
Fly-in, Fly-out employees have the benefit of a living-away-from-home allowance (LAFHA). This has different tax consequences to travel allowances because LAFHA is a fringe benefit, while travelling allowances are considered part of an employee’s assessable income.
C. OVERSEAS TRAVEL
For employees who travel overseas, the exception to the substantiation rule does not apply to accommodation or to situations in which overseas travel exceeds 6 days. As such, the employee would be required to substantiate these expenses. An allowance for overseas travel accommodation must be subject to PAYG withholding and shown in the allowance box on the employee’s payment summary. What is considered a reasonable amount for an allowance for overseas travel is largely dependent on the country the employee is travelling to.