19th July, 2021
Knowing exactly what deductions apply to travel expenses can save a heap of hassle at tax time.
The Australian Taxation Office (ATO) has released a new ruling that clarifies what expenses employees can deduct for work-related travel.
The new ruling, Income tax: When are deductions allowed for employees’ transport expenses? was released this week, bringing together and clarifying the rules for business advisors and their clients alike.
Travel from home to a regular place of work generally isn’t deductible. The ruling states that even if you travel to work by plane, receive a travel allowance or make incidental business-related stops on the way to work, you still cannot claim your travel expenses.
But moving between two separate work locations – like driving from your office to a construction site, or from your business to a meeting at a client’s office – can be claimed.
Tax specialist and accountant, Leo Hollestelle said the ruling is well timed ahead of the busy End of Financial Year period.
“It’s timely that these views are brought together and codified into a single ruling,” said Hollestelle. “Tax advisors will be able to more easily familiarise themselves with the rules and in turn advise their clients on it.”
Work-related expenses are expenses that you incur in the course of gaining or producing your assessable income.
Transport expenses you incur while travelling between work locations are usually deductible. The travel must occur while gaining or producing your assessable income.
While you can’t usually deduct expenses for travelling between your home and work, you might also be able to deduct the cost of travel from your home to somewhere other than your regular place of work. This might be, for example, to attend a client’s premises or one of your employer’s other offices.
To work out if travel expenses are work-related, things like these are taken into consideration:
Transport expenses that you incur for travel between your home and a regular place of work are not deductible.
If there is a close connection between travel and your private or domestic life, this will usually not be considered deductible. For example, if you travel to your regular place of work from another location in which you undertake private activities, for example a library or a holiday house, the cost of the travel is not deductible.
If you happen to live a significant distance from your regular place of work, your travel expenses are usually considered private and not deductible.
You may also not deduct expenses that are capital, private or domestic in nature. Transport expenses that may be considered capital in nature include, for example, the cost of purchasing a car. Ask your advisor whether such expenses may be recognised under another tax provision.
You can only claim the actual cost of the expenses themselves. These will need to be proven with receipts and/or other written documentation. Your advisor will be able to help you with this.
You can claim deductions for work-related travel expenses in your tax return, but how you do this depends on the expenses themselves. (See also Claiming overseas-travel expenses, below.)
If your expenses relate to a car you own, lease or hire, you may be able to use the logbook method or the kilometres method.
If your employment requires you to travel away from home overnight, because of your employment (and not because of private circumstances like where you choose to live, for example), the transport expenses incurred in travelling to your alternative work location will usually be considered deductible.
If you travel overseas for work, you might be able to deduct expenses relating to flights, accommodation, meals, transport or other minor things (like taxis or using hotel wifi). You’ll need to keep records such as receipts and you may also need to keep a travel diary.
Interestingly, there are several exceptions that – if claimed correctly – can give you an edge come tax time. This is especially true when it comes to defining what a “regular work location” actually is.
For example, imagine you currently work for a business with an office 15-minutes from your home.
But you’re asked to cover a long-service vacancy for six months at another of your business’s offices one hour away. Because this new office becomes your regular place of work for a sustained period of time, travel to and from it cannot be claimed on tax.
But, if your period of work was only for three months, then it could be argued that the second office never became a regular place of work.
Therefore, travel could potentially be claimed on tax.
This is a call to take care in making any assumptions about what you can actually claim. As the ATO ruling states, ‘the full facts and circumstances of the specific working arrangement in place must always be considered in determining the nature and deductibility of the transport expenses incurred’.
And that’s something to keep in mind when it comes to all travel-related tax claims this tax time, as it could be this ruling also indicates an increase in scrutiny for travel-related claims.
“While the ruling is very much in line with the Commissioner’s existing views on travel expenses, the timing is worth noting,” said Hollestelle.
“After a year where many employees have been working from home, it may be the ATO is concerned there will be both workers and employers seeking to make dubious claims in the tax period ahead.”
Find more guidance on transport and travel expenses on the ATO website.
Always seek advice on your individual situation from an accredited business advisor or tax specialist to find out exactly how tax changes and updates might impact your business.
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