USING THE ATO’S REASONABLE TRAVEL ALLOWANCES TO SAVE TAX AND AVOID THE NEED TO KEEP ALL RECEIPTS FOR TRAVEL EXPENSES
When a travel allowance is paid to an employee up to the ATO’s reasonable allowance rate the employee does not have to keep receipts for all expenses themselves nor do they need to provide receipts to their employer. This also applies to business owners who are paying wages to themselves.
Each year, the ATO publishes a determination setting out the amounts considered ‘reasonable’ for claims for domestic and overseas travel allowance expenses. These expenses include:
· Accommodation (for domestic travel only)
· Meals
· Deductible expenses which are incidental to travel.
Planning Note / Example
A travel allowance paid to employee with an annual salary over $117,450 for a trip to Brisbane.
The allowance was paid for 7 days for accommodation, meals & incidents at $410.85 per day and totalled $2,875.95. The employee paid for all these items but stayed in cheaper accommodation and only actually paid total costs of $1,800. The employee was paid the full $2,875.95 without any tax deducted and was able to keep the difference being $1,075.95 without having to pay any tax on it. They also did not have to worry about keeping any receipts for the travel expenses or a travel diary.
The benefit to the employee comes as a tax free bonus that may in some way compensate the employee for the disruption of the travel requirement.
Reasonable travel and overtime meal allowance expense amounts for the 2016-17 income year for various travel destinations are included in Taxation Determination 2016/13 https://law.ato.gov.au/atolaw/view.htm?docid=%22TXD%2FTD201613%2FNAT%2FATO%2F00001%22
The rates for accommodation for domestic travel apply for stays in commercial establishments only, for example:
· Hotels
· Motels
· Serviced apartments
If a different type of accommodation is used, the rates do not apply.
If you pay the allowance at the same rate or below the ‘reasonable travel allowance’ rate, and the allowance is separately accounted for, PAYG withholding is not necessary, and the travel allowance does not need to appear on your employee’s PAYG payment summary.
The ATO reasonable travel allowance rates do not cover accommodation on overseas trips. Written evidence is required to substantiate overseas accommodation claims but not food, drink and incidental expenses for which an ATO reasonable travel allowance has been paid.
If you are not paid a travel allowance or it is above the ATO’s reasonable travel allowance rates then receipts must be kept for all expenses and a travel diary is required to be kept where you travel overseas or for domestic travel for 6 or more nights in a row.
If you have any questions please feel free to contact us.
