Tax Deductibility of Travel - Institute of Public Accountants · Special Demands Travel (Travel from point of hire (airport) –FIFO) Y N 4 Special Demands Travel (Working at new

Tax Deductibility of Travel –Where the bl**dy hell are you?

Judy White (Associate – BDO - Brisbane Tax Division)

1:45pm on Friday 24 November 2017

Tax Deductibility of Travel

• Session Details:

In anticipation of the ATO’s ruling on the income tax treatment of travel expenses, there is no better time to consider the tax deductibility of travel expenses. This session will be particularly important for those practitioners advising clients with a diverse mobile workforce, including those embracing more modern day working arrangements (such as working remotely; and those living in one City and working in another). The session will cover tip tricks and traps regarding travel versus living-away-from-home, work-related travel that includes private/holiday travel, fly-in fly-out arrangements and home to work travel.

Welcome: it’s here ! (Draft Ruling)

Previously announced release dates – Travel Draft Ruling:

• We have been waiting since 2015.

• 16 December 2016

• 15 January 2017

• 8 February 2017

• 1 March 2017

• To be advised

• 28 June 2017 Released

IPA Travel Nat Cong 24-11-17-See Disclaimer © Judy White, BDO 2017

It’s NOT here ! (Final Ruling)

Previously announced release dates – Travel Final Ruling:

• 25 October 2017

• To be advised


TR 2017/D6 - TOPICS

• Topics:

1. What does it cover?

2. What doesn’t it cover?

3. Examples.


Warm-up slide


TR 2017/D6-WHAT’S COVERED?

Overview:

• Travel expenses between home and work are generally considered private in nature. Lunney v FCT (1958) 100 CLR 478.

• The John Holland case was a landmark case in 2015 which put home to work travel in the spotlight. John Holland Group Pty Ltd v Commissioner of Taxation (2015) FCAFC 82.

• The ATO has undertaken consultation and development of this draft Ruling since the John Holland decision.



Draft Taxation Ruling TR 2017/D6 Income Tax and fringe benefits tax: when are deductions allowed for employees’ travel expenses?

Whether an employee can deduct travel expenses under Section 8-1 of the Income Tax Assessment Act 1997 (‘ITAA 97’).

Depends on the facts and circumstances of each case.

Provides general principles and examples.



What is a travel expense?

• A travel expense for the purposes of this draft Ruling is an expense of an employee when they travel away from home for work; relating to: Transport (ie travel by airline, train, car, bus or other vehicle); and

Accommodation, meal and incidental expenses.


TR 2017/D6 – WHAT DOES IT COVER? (CONT’D)

Previous rulings

Due to the issue of this draft Ruling, the ATO has withdrawn various rulings. In particular it has withdrawn:

• MT 2030: Fringe benefits tax: living-away-from-home allowance benefits.

Paragraph 11 TR 2017/D6 states that where appropriate the matters considered in MT 2030 have been included in this draft Ruling.

The ’21 day rule’ no longer applies.


TR 2017/D6 – WHAT DOESN’T IT COVER?

The following topics are still covered by current taxation rulings (and therefore are not covered by the new Draft Ruling):

1. Substantiation exception: TR 2004/6.

2. Itinerant workers: TR 95/34.

3. Self-education expenses: TR 98/9.

4. Different employers: Refer instead Section 25-100.Section 25-100 provides a specific tax deduction for travel between places where engage in separate income producing activities (where do not reside).

5. Bulky equipment/ Stand-by arrangements: MT 2027.


TR 2017/D6 – APPLICATION

When the final Ruling is issued, it is proposed to apply both before and after its date of issue.

Comments were due by 11 August 2017.

In the meantime, consider the guidance in this draft Ruling for the 2016/17 year-end work. Further, consider whether it conflicts with any earlier advices provided; (since the final Ruling is proposed to also apply before its issue date).


TR 2017/D6 – general principles: Accom meals

Ruling – General Principles Indicates Deduction

Example

1. Work activities require travel Nature

2. Sleep away from home overnight Practical

3. ‘Permanent’ home elsewhere Family home

4. Not relocating or living away from home Hotel

NB Costs preliminary to the work (applies to

transport, accommodation & meals) Ordinary home

& meals costs


TR 2017/D6 – factors -living away from home

Whether an employee is living away from home depends on the facts of each case. The factors to consider for whether an employee is living away from home include:

Time spent away from home.

Whether the employee has a usual place of residence at the previous location.

The nature of the accommodation.

Whether accompanied / visited by family or friends.

Reference: Paragraph 72, and generally 73-85.


TR 2017/D6 –Principles: transport

Ruling – General Principles Indicates Deduction

Example

1. Work activities require travel Nature

2. Paid to undertake the travel Travel time

3. Under direction and control during the travel period

Bound by Policies

4. Factors contrived to give appearance of work travel

Substance over form

NB Costs preliminary to the work (applies to

transport, accommodation & meals) Daily home to

work


TR 2017/D6 – substance over form• In relation to whether the factors are contrived to give appearance of

work travel, the draft Ruling introduces two new concepts:

1. Special Demands Travel.

2. Co-existing Work Locations Travel.

• (Per paragraphs 32 to 34; and 39 to 42; and 43 to 47 of the draft Ruling).


TR 2017/D6 – special demands travel concept

1. Special Demands Travel:

• Involves travel between home and a regular work location where:

Employee is paid; and

The journey is reasonable because of the special demands of the work.

• Special demands are specific physical or logistical requirements of the work activity; including remoteness, extended periods, etc.


TR 2017/D6 – co-existing work locations

2. Co-existing Work Locations Travel:

• Involves travel attributed to having to work in more than one location where:

The travel is directly between work locations, or between home and an alternative work location; and

It is reasonable to conclude the travel is undertaken in performing work, because of the requirement to work in more than one location. Examples include travel which takes up a significant part of the day or reasonably requires an overnight stay away from home.


TR 2017/D6: Examples

Principles EmployeeDedn (Y/N)

EmployerFBT (Y/N)

Eg #

Ordinary Home to Work (Home and regular work location)

N N/A Employer did not pay for train fares.

Mobile exempt S58X

1

Ordinary Home to Work (Home and alternate regular work location)

N N/A Employer did not pay travel costs.

Travel allowance PAYGW.

2

Ordinary Home to Work (Home & remote location FIFO; Site = Point of Hire): - Transport

NN

(Where remote area then FBT exempt).

3

- Accommodation, Meals Y N 3




EmployerFBT (Y/N)

Eg #

Special Demands Travel (Travel from point of hire (airport) – FIFO)

Y N 4

Special Demands Travel (Working at new locations every few weeks and staying away from home – Travel)

Y N 5

Co-Existing Work Locations (Day trip to alternative work location)

Y N 6




EmployerFBT (Y/N)

Eg #

Co-Existing Work Locations (Short-term travel to a temporary alternative work location – 5 day course):- Transport- Accommodation 5 day course Y

YNN

7

Co-Existing Work Locations (Short-term travel to a temporary alternative work location – 4 day course):- Transport- Accommodation 5 day course

YY

NN

8

Co-Existing Work Locations (Longer-term travel to temporary work location – 6 week course) (Travel costs) Y N 9




EmployerFBT (Y/N)

Eg #

Co-Existing Work Locations (ongoing travel to an alternative work location – employer has 2 offices -1 is a 200km drive) (travel costs)

Y N 10

Co-Existing Work Locations (ongoing travel to an alternative work location – employer has 2 offices –Sydney & Melbourne) (travel costs)

Y N 11

Co-Existing Work Locations (ongoing travel to an alternative work location –employee rents accommodation from spouse) (travel costs including accommodation)

Y N 12




EmployerFBT (Y/N)

Eg #

Co-Existing Work Locations (ongoing travel to an alternative work location – employee owns the apartment) (travel costs including accommodation –apportionment as also has private use)

Y N 13

Special Demands Travel and Co-Existing work locations (short-term travel to a temporary alternative work location – 3 weeks)

Y N 14

Special Demands Travel and Co-Existing work locations (temporary alternative work location for extended period– 2 months)

Y N 15




EmployerFBT (Y/N)

Eg #

Special Demands Travel and Co-Existing work locations (temporary alternative work location for extended period– 4 months)

Y (transport)N (accom)

Y(LAFH – Consider if

exemption available)

16

Relocation travel (Secondment to Australia for between 90 and 120 day project work- travel costs)

N Y (Exemptions available travel)

(LAFH)

17

Living away from home accommodation N Y (Consider any exemptions)

18


Time for a holiday yet ?


Mobile/Modern workforce consideration

Example:

Person employed in Brisbane office but lives in Sydney. The employer provides the accommodation during the week in Brisbane and flights back to Sydney each weekend.

Travel vs LAFH ?


MOBILE/MODERN WORKFORCE CONSIDERATION

Example: (Continued)


What if there was an office in Sydney and the person worked both in Sydney and Brisbane?



Example: (Continued)


Further – Would the employee be a FIFO employee? ?



Example:

An employee is sent to London to do business in London and Europe for 4 months. The employer provides the accommodation in London.

Travel vs LAFH?



Example: Continued

An employee is sent to London to do business in London and Europe for 4 months. The employer provides the accommodation in London.

Travel vs LAFH?

• What if the employee travelled extensively throughout Europe including overnight visits ?


DOMESTIC AND INTERNATIONAL TRAVEL COSTS

• Domestic and International travel costs

• FBT applies where personal travel is not ‘incidental’ (ie not deductible/ not ‘otherwise deductible’).

• FBT is calculated on an apportionment of costs based on purpose not days

• See case study on next 2 slides


TRAVEL – CASE STUDY

• Travel provided in course of employment

• Flights provided to employees, relating to their employment (ie domestic and international work or seminar travel)

• Employees incorporated some private days, some were accompanied by family members

• To what extent are travel expenses ‘otherwise deductible’ (and therefore not subject to FBT)?


Recent Private Binding Ruling by BDO

Risk: Private days included in work trips can

result in an FBT liability (Not deductible)

TRAVEL – CASE STUDY

ATO agreed no apportionment where private travel was incidental

• However, must consider time spent away, accompanying persons, and travel to other destinations.

• Outcome:

- 8 private days out of 16 days total (unaccompanied) – dual purpose – 50% FBT

- 17 private days out of 41 days total (unaccompanied) – incidental – 0% FBT

- 5 private days out of 14 days total (spouse accompany, second destination) – dual purpose – 50% (for initial travel only)


• Recent Private Binding Ruling by BDO

Recommendation: Clear and enforced

travel policy will reduce risk

THANKYOU


QUESTIONS AND THANK YOU

• Any questions?

• If you would like any further information please contact:

Judy White

Associate Director, Tax

BDO Brisbane: 07 3237 5976

[email protected]


Completion of session

INSTITUTE OF PUBLIC ACCOUNTANTS

TAX DEDUCTIBILITY OF TRAVEL EXPENSES


© Judy White, BDO 2017

Disclaimer: The material and opinions in this paper are those of the author and not those of The Institute of Public Accountants. The Institute of Public Accountants did not review the contents of this presentation and does not have any view as to its accuracy. The material and opinions in the paper should not be used or treated as professional advice and readers should rely on their own enquiries in making any decisions concerning their own interests.

Documents

Tax Deductibility of Travel - Institute of Public Accountants · Special Demands Travel (Travel from point of hire (airport) –FIFO) Y N 4 Special Demands Travel (Working at new