An area accountants and tax agents come across where people make the wrong decision as employees is with regards to claiming work-related travel expenditures.
The lack of definite guidelines can tend to make claiming travel expenditures hard as frequently the deductibility of these expenses could be determined by the type of occupation, the time period spent away from your home and whether or not an allowance is provided to pay for these expenses. The necessary invoices and paperwork needs to be acquired and retained to make a tax claim.
Furthermore, the prerequisites about the use of the ATO’s acceptable travel amounts without the need to maintain written proof could be confusing.
Why must I focus on travel expenditure deductions?
The deductibility of overnight work-related travel costs, such as transportation, lodging and food, is on the ATO radar.
Our expertise shows that the ATO continues to be notably active in focusing on and, in many cases, amending previous year assessments for excess claims for those people whose occupations need them to regularly travel and stay away from home. Tax Agents have gotten enquiries with regards to the income tax matters of clients who work as academics such as teachers, fly-in, fly-out (FIFO) employees and medical professionals.
When are travel expenses permitted as a tax deduction?
Being an employee, you are eligible for claim a tax deduction for travel expenses, that may include lodging, food and transport to the extent that the expense is borne in earning employment income and it will not be of a capital nature, personal expense or associated with earning exempt income.
Generally speaking, travel expenses incurred are tax deductible for a person if you can adequately establish that the expense is incurred while carrying out employment tasks and aren’t personal in nature.
Accommodation paid by a worker on short business trips are generally tax deductible, however, the income tax treatment is significantly less distinct where by an employee is needed to work away from home for a prolonged period.
Whether or not the person is regarded as “living away from home” (LAFH) or “travelling” (as part of their employment) is actually a crucial factor in deciding the tax deduction of travel expenses.
What is the big difference among “LAFH” and “travelling”?
When an employee is “travelling” on work trip on behalf of the employer, travelling costs are incidental for the job performed and will not be a personal or domestic expenditure. This sort of expense is usually tax deductible.
In some instances, employees could also get a travel allowance from the workplace to pay for their LAFH or travelling expenses (typical for FIFO workers and certain itinerant employees).
The ATO provides the following comparisons to assist you to establish the difference:
LAFHA (Living Away from Home Allowance)
This is given where by a worker is taking up short-term residence away from their home in order to perform the job at a new, but short-term, place of work. There’s a change of employment place pertaining to paying off the allowance. Where an employee is living away from home, it is usual for the worker to be accompanied by their partner and kids.
They are paid for a longer period (more than 21 days).
This is given due to the fact a worker is travelling while carrying out their employment.
The ATO emphasises that these particular indicators are pointers only, no single indicator alone should be counted on, to ascertain the character of the allowance. For instance, a travel allowance could be given to a professional traveller, or travelling performer almost regularly, while another might get a LAFHA for just 30 days.
There might be scenarios when a worker is living away from their main residence for a short period that it might be tricky to decide if the worker is living away from home or travelling. The ATO states that for a practical basic guideline, where by the time period away doesn’t surpass 21 days, the allowance is going to be treated as being a travel allowance instead of a LAFHA.
How are travel allowances subject to taxes in comparison to LAFH allowances?
An allowance that fulfils the definition of a travel allowance will be assessed as assessable income and tax deductions for travelling expenditures incurred can be claimed against that allowance.
In compare, a LAFH allowance, to the degree it qualifies as a “LAFHA fringe benefit” for FBT purposes, would not be treated assessable income. Travelling costs incurred would certainly not be tax deductible if you’re an employee and you’re living away from home.
What documents should I maintain to be able to claim a tax deduction? What is the “substantiation exception”?
All tax deductible travelling costs need to be substantiated with proper evidence and travelling documents (for example bills and travel journals) or else claims are going to be rejected.
A “substantiation exception” is available which enables you to claim travel expenditures without having to maintain written documents if you have received a ‘bona fide’ travel allowance.
If entitled, you are able to claim tax deductions for travel costs up to the ATO recommended acceptable amounts for that relevant year without the need to maintain written proof.
We do nonetheless suggest that you retain your bills regardless to substantiate your travel claims. It will give you peace of mind in case of an ATO audit. This is really a confusing part of the law, please contact us if you require assistance.
For any further information, please contact our expert accountants Cranbourne and tax agents Cranbourne on 1300 300 106.