As we move to a post-COVID world where borders, both domestic and international, start to open back up, the issue of deductibility of certain business travel expenses are again back on the agenda.
The ATO has gotten on the front foot by recently issuing a draft ruling and associated draft compliance guidelines which explains the circumstances under which these expenses would be deductible. Generally, if you as an employee travels for work and stays away from your usual place of residence overnight in order to perform the work duties which gain you income, the accommodation, food and drink expenses you incur will normally be deductible. However, the expenses must have a sufficiently close connection to the performance of employment duties and activities.
EXAMPLE SCENARIO 1
Ian lives in Sydney with his family and accepts a job in Cairns. He flies to Cairns at the start of each week and returns to Sydney on Friday afternoon. While in Cairns, Ian lives in a self-serviced apartment and incurs expenses relating to groceries and eating out. The accommodation, food and drink expenses incurred by Ian is not deductible as it is private and domestic. He is not required to travel by his employer, rather he has incurred the expenses based on personal circumstances (i.e. he has chosen not to relocate to Cairns from Sydney).
EXAMPLE SCENARIO 2
Now imagine Ian accepted a Job with a company that has offices all around Australia, the role is based in Cairns but he has come to an agreement with his employer to attend the Cairns office 3-days per week and work in the Sydney office for 2 days. In this scenario, Ian’s expenses of travelling to Cairns, associated accommodation, food and drink expenses would still not be deductible as again the travel is explained by his personal circumstances and not his employment duties (i.e. instead of relocating his usual place of residence to Cairns, he chooses to stay in Sydney).
EXAMPLE SCENARIO 3
Ian again lives in Sydney with his family, however, this time, he is employed by a company based in Sydney that has offices all around Australia, under the terms of his employment agreement, his regular place of work is the Sydney office but as a part of his management role he is required to travel to Cairns for regular meetings. When required to travel to Cairns, Ian stays overnight at a motel, attends the meeting and returns that afternoon. The expenses Ian incurs for accommodation, food and drink while attending these meetings in Cairns will be deductible as it is explained by his income-producing activities.
These 3 simple scenarios illustrate the complexity in determining whether travel expenses are deductible, it all comes down to the individual circumstances of each case. There may also be further complicating factors in terms of deductibility depending on whether you’re living-away-from-home or whether you have permanently relocated.
In any case, to be able to deduct an expense, substantiation requirements will need to be met, so care should be taken.
Get in touch with Bramelle Partners if you would like to learn more about the ATO draft ruling.