Tax Deductibility of Travel

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2 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

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4 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, workrelated travel that includes private/holiday travel, fly-in flyout arrangements and home to work travel.

5 Welcome: it s here! (Draft Ruling) Previously announced release dates Travel Draft Ruling: We have been waiting since December January February March 2017 To be advised 28 June 2017 Released

6 It s NOT here! (Final Ruling) Previously announced release dates Travel Final Ruling: 25 October 2017 To be advised

7 TR 2017/D6 - TOPICS Topics: 1. What does it cover? 2. What doesn t it cover? 3. Examples.

8 Warm-up slide

9 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.

10 TR 2017/D6-WHAT S COVERED? 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.

11 TR 2017/D6-WHAT S COVERED? 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.

12 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.

13 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/ Self-education expenses: TR 98/9. 4. Different employers: Refer instead Section Section 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.

14 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 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).

15 TR 2017/D6 general principles: Accom meals Ruling General Principles Indicates Deduction 1. Work activities require travel Nature Example 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

16 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

17 TR 2017/D6 Principles: transport Ruling General Principles Indicates Deduction 1. Work activities require travel Nature Example 2. Paid to undertake the travel Travel time 3. Under direction and control during the travel period 4. Factors contrived to give appearance of work travel NB Costs preliminary to the work (applies to transport, accommodation & meals) Bound by Policies Substance over form Daily home to work

18 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).

19 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.

20 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.

21 TR 2017/D6: Examples Principles Ordinary Home to Work (Home and regular work location) Ordinary Home to Work (Home and alternate regular work location) Ordinary Home to Work (Home & remote location FIFO; Site = Point of Hire): - Transport Employee Dedn (Y/N) N N N Employer FBT (Y/N) N/A Employer did not pay for train fares. Mobile exempt S58X N/A Employer did not pay travel costs. Travel allowance PAYGW. N (Where remote area then FBT exempt). - Accommodation, Meals Y N 3 Eg # 1 2 3

22 TR 2017/D6: Examples Principles Special Demands Travel (Travel from point of hire (airport) FIFO) Special Demands Travel (Working at new locations every few weeks and staying away from home Travel) Employee Dedn (Y/N) Employer FBT (Y/N) Y N 4 Y N 5 Eg # Co-Existing Work Locations (Day trip to alternative work location) Y N 6

23 TR 2017/D6: Examples Principles Employee Dedn (Y/N) Co-Existing Work Locations (Short-term travel to a temporary alternative work location 5 day course): - Transport - Accommodation 5 day course Y Y Co-Existing Work Locations (Short-term travel to a temporary alternative work location 4 day course): - Transport - Accommodation 5 day course Employer FBT (Y/N) Co-Existing Work Locations (Longer-term travel to temporary work location 6 week course) (Travel costs) Y N 9 Y Y N N N N Eg # 7 8

24 TR 2017/D6: Examples Principles Co-Existing Work Locations (ongoing travel to an alternative work location employer has 2 offices -1 is a 200km drive) (travel costs) Co-Existing Work Locations (ongoing travel to an alternative work location employer has 2 offices Sydney & Melbourne) (travel costs) Co-Existing Work Locations (ongoing travel to an alternative work location employee rents accommodation from spouse) (travel costs including accommodation) Employee Dedn (Y/N) Employer FBT (Y/N) Y N 10 Y N 11 Y N 12 Eg #

25 TR 2017/D6: Examples Principles 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) Special Demands Travel and Co-Existing work locations (short-term travel to a temporary alternative work location 3 weeks) Special Demands Travel and Co-Existing work locations (temporary alternative work location for extended period 2 months) Employee Dedn (Y/N) Employer FBT (Y/N) Y N 13 Y N 14 Y N 15 Eg #

26 TR 2017/D6: Examples Principles Special Demands Travel and Co-Existing work locations (temporary alternative work location for extended period 4 months) Relocation travel (Secondment to Australia for between 90 and 120 day project work- travel costs) Employee Dedn (Y/N) Y (transport) N (accom) N Employer FBT (Y/N) Y (LAFH Consider if exemption available) Y (Exemptions available travel) (LAFH) Living away from home accommodation N Y (Consider any exemptions) Eg #

27 Time for a holiday yet?

28 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?

29 MOBILE/MODERN WORKFORCE CONSIDERATION Example: (Continued) 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. What if there was an office in Sydney and the person worked both in Sydney and Brisbane?

30 MOBILE/MODERN WORKFORCE CONSIDERATION Example: (Continued) 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. Further Would the employee be a FIFO employee??

31 MOBILE/MODERN WORKFORCE CONSIDERATION 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?

32 MOBILE/MODERN WORKFORCE CONSIDERATION 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?

33 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

34 TRAVEL CASE STUDY Recent Private Binding Ruling by BDO 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)? Risk: Private days included in work trips can result in an FBT liability (Not deductible)

35 TRAVEL CASE STUDY Recent Private Binding Ruling by BDO 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) Recommendation: Clear and enforced travel policy will reduce risk

36 THANK YOU

37 Any questions? QUESTIONS AND THANK YOU Completion of session If you would like any further information please contact: Judy White Associate Director, Tax BDO Brisbane:

38 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.

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