The distinction between travelling for business purposes and living away from home is important to ascertain whether employee travel expenses such as accommodation, food and drink expenses are deductible expenses.
To help provide more clarity for taxpayers to ascertain whether employees are travelling or living away from home, the ATO has issued Taxation Ruling TR 2021/4 which provides the Commissioner’s position as to when an employee can deduct travel expenses for income tax and the employer can apply the ‘otherwise deductible’ rule for Fringe Benefit Tax (FBT) purposes.
TR 2021/4 explains the following:
In addition, the ATO also issued Practical Compliance Guideline PCG 2021/3 which provides the ATO’s compliance approach to determine whether employees are travelling for work purposes or living away from their usual place of residence which should be read in conjunction with TR 2021/4.
Some key takeaways from TR 2021/4 and PCG 2021/3 are:
TR 2021/4 and PCG 2021/3 apply both before and after the issue date. Where there is conflict with earlier draft rulings, the Commissioner will determine whether compliance resources will be used for income and FBT years to which these draft rulings apply.
Travelling for business purposes generally results in any benefits or allowances being outside the scope of FBT. Conversely, LAFHA and other living away from home benefits form part of the FBT regime.
If you think you may be impacted by this ruling or uncertain how you should classify employee travel, please speak to your adviser or contact the Tax Advisory team so we can conduct a health check of your employment taxes and related benefits.