Travel Allowance 2014 Update

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Travel Allowance Update

TAX WARNING when claiming travel expenses relating to travel allowance!

In recent years, preparing a tax return for wage earners has become even more difficult due to changes in tax and case law and the ATOs approach to compliance and audit activities.

2014 is no exception with what we consider to be more compliance requirements when claiming for travel allowance expenses.Travel allowance and related expenses is an important topic for many workers evidenced by several posts in this blog helping to explain and understand the requirements when making such claims. Due to more recent ATO views and cases we provide this update on travel allowance and claiming "travel" expenses.

Receiving a Travel Allowance:

Following is a brief summary of what a "travel" allowance is:
  • As stated in previous posts on this topic, it must be highlighted there is a difference between "travel" allowance and Living Away From Home (LAFH) allowance.
  • "Travel" allowance is assessable income, subject to PAYG withholding from the employer, and must be included as income in the personal tax return.
  • "Travel" allowance is paid to compensate employees (does not apply to self employed and sub contractors) for the cost of accommodation, meals and incidentals while travelling away from their normal residence for no more than 21 days (ATO rule of thumb).
  • "Travel" allowance can be paid as part of an award allowance or "folded" into an hourly rate under EBA's etc. In these cases the allowance may not automatically attract a contra tax deduction.
  • LAFH allowance is terminology used in the Fringe Benefits Tax (FBT) rules which is a completely different receipt and treated very differently for taxation purposes.

Claiming a Travel Allowance:

In 2014 it is expected the ATO will be closely monitoring tax deductions relating to"travel". The following are some finer points to be aware of when preparing your personal tax return.

  • Deductions for travel expenses are claimed in an individuals tax return. When deductions for travel are claimed in a tax return, the ATO will look for relating allowances in the assessable income area of the I tax return form. This doesn't mean that failure to receive an allowance automatically denies a tax deduction for travel, it is simply an indicator that may trigger an ATO review of a tax return. Accordingly, taxpayers claiming travel expenses need to maintain appropriate records and have a basis for making the claim (see points below).
  • A genuine "travel" allowance attracts the substantiation exception for reasonable travel expenses for accommodation, meals and/or incidental travel expenses.
  • The ATO has and will review the validity of allowances paid to employees and the basis on which it has been paid (eg for a long distance truck driver, is the payment based on a fixed daily rate or a rate per km). In some cases allowances are paid based purely on an award entitlement and could therefor be considered as a "loading", not an "allowance". In other words, is it a "bona fide" travel allowance (Gleeson's case and Fardell's case).
  • The ATO will also seek to establish that travel expenses (eg meal expenses) had actually been incurred by the employee (Fardell's case).
  • The ATO is concerned that claims made against "travel" allowances up to the "reasonable" amounts set out by the ATO are done so with little regard to the actual amounts incurred by the employee. In other words, the ATO considers an employee in receipt of an "eligible"  travel allowance cannot automatically claim a deduction up to the ATO's "reasonable" allowance amount.
  • Some employers (payroll officers) incorrectly show LAFH allowance, an allowance paid under FBT rules, on an employee's PAYG Payment Summary. In these cases the employee and or their accountant /tax agent should seek clarification from the employer to confirm the specific nature of the allowance. We often check pay slips to confirm that allowances are actually included as assessable income on the PAYG Summary and that it has been subjected to PAYG wtihholding.

Recommendations for Claiming Travel Allowance

In light of these recent cases we make the following recommendations for clients wanting to claim travel allowance expenses:
  • Review the basis on which travel allowances are paid. In this regard it would be an advantage to obtain a letter from your employer outlining the basis of the allowance.
  • It may be appropriate to review awards and enterprise agreements where allowances are received to enszure the receipt is not simply a "loading".
  • Maintain a diary outlining where and when meal expenses were incurred. For truck drivers who complete log books, retain the log books as part of your travel records or, at the very least, prepare an annual summary of the number of nights away.
  • A bona fide travel allowance can be calculated on the basis of a rate per km for truck drivers, as long as it is intended to compensate for losses and outgoings for food and drinks for travel away from his normal residence (Gleeson's case)
  • An bona fide travel allowance does not have to equate specifically to the employees actual expenditure (Gleeson's case)
  • Evidence of menus to confirm typical costs and types of food and drink consumed, accommodation establishments, bank transactions, log books and employer evidence of payments are all important factors where travel expenses relating to travel allowance are claimed. Gleeson (Gleeson's case) was able to rely on such evidence. Conversley, Fardell (Fardell's case) lacked credible evidence of claims made.
  • In some ways it would seem the substantiation exception relating to bona fide travel allowance and associated expenses has gone out the window. However, the substantiation exception mainly applies to transactional records. The type of evidence discussed here refers primarily to form, not the substance.
  • With the help of technology, obtaining and keeping such records can be simple with smart phones and data storage apps.
  • Obtain advice from an accountant/tax agent who has experience in claiming travel allowances.

E-tax Return

See these posts with tips, calculators and checklists to help you prepare your eTax Return (and get a better refund) with less hassle:
Web Based Tax Return App:

A benefit of using eZtax, our web based tax return app, is we have the genuine online tools, knowledge and experience to get the best tax refund for our clients, making it easy to complete your annual tax return online.

Our Web Based Tax Return App will step you through all the necessary questions to increase your  tax refund and take into account all relevant tax deductions and tax offsets. Try it now. Its FREE to get started! 

Copyright 2014. My Tax Zone.