Each year the ATO updates the amounts that are considered to be “reasonable” and don’t require employees to keep receipts in relation to claims made for:
- Overtime meal allowance expenses – for food and drink in connection with overtime worked and where a meal allowance has been paid under an industrial instrument;
- Domestic travel allowance expenses – accommodation, food and drink, and incidentals that are covered by the allowance;
- Travel allowance expenses for employee truck drivers – food and drink that are covered by the allowance; and
- Overseas travel allowance expenses – food and drink and incidentals that are covered by the allowance.
Domestic and overseas allowances
This article focuses on the payment of reasonable amounts to employees for domestic and overseas travel expenses.
Where an employee, company director or office holder receives a “reasonable” allowance for travel costs within Australia or overseas and the person makes a claim for expenses up to these reasonable amounts, then the person is not required to keep written evidence (i.e. receipts) or the expense. These reasonable deduction limits are based on the salary of the person and the destination of the trip.
Reasonable travel allowances are paid in respect of set travel components:
- Domestic allowances include components for accommodation, meals and incidentals.
- Overseas allowances include components for meals and incidentals only. They do not include a component of accommodation which must be fully supported by written evidence.
The travel must be for business purposes and the person must be sleeping away from home. Note this concession does not apply to self-employed persons, including partners in a partnership.
The travel allowance must be paid for specific journeys undertaken for work-related purposes. An allowance which is paid to an employee generally and not for a specific journey is not exempt from the requirement to keep receipts. A taxpayer in receipt of a “general” travel allowance must keep written evidence for all the expenses claimed.
Reasonable allowance rates for 2015/16 year
The ATO have recently updated the reasonable allowance rates for the 2015/16 which are contained in Taxation Determination TD 2015/14.
For example, an employee travelling to Sydney on an annual salary of $115,450 or less can receive an allowance of up to $308.45 a day without having to keep receipts. For an employee travelling to Canberra, the exempt daily rate is $291.45.
If the salary is between $115,451 and $205,300, the exempt daily rate rises to $396.80 for an employee travelling to Sydney. For an employee travelling to Canberra, the exempt daily rate is $373.80.
Advantages of paying reasonable travel allowances
There are several advantages, from both an employer and employee standpoint, in paying a domestic or overseas reasonable allowance including:
- The amounts are fully tax deductible to the employer;
- The amounts are not required to be shown on the employee’s PAYG Payment Summary and therefore have no PAYG withholding deducted; and
- The employee does not need to provide written evidence to substantiate the costs (with the exception of overseas accommodation costs).
Summary
Reasonable travel allowances are not assessable income of the employee (and no corresponding deduction is claimed) subject to the following:
- it is a bona fide travelling allowance;
- the allowance does not exceed the reasonable amount; and
- the allowance has been fully expended on tax deductible expenses.
Where the deduction claimed is more than the reasonable amount, the entire claim must be substantiated with written evidence, not just the excess over the reasonable amount. Where the allowance paid to the employee is greater than the reasonable amount, the employee may still use the exemption from substantiation if the deduction claimed is not greater than the reasonable amount. In this case, the allowance must be shown as assessable income, but written evidence is not required to support the claim.
Importantly, to get the benefit of the substantiation exception for reasonable domestic and overseas travel, the amount the employee receives must be paid as an allowance. If the amount is included in the employee’s normal gross wages, the employee will need to provide written evidence to substantiate the expenses.
Travel Diaries
The requirement to keep a travel diary is separate requirement to that of obtaining written evidence for travel expenses.
If the trip is within Australia, a travel diary only needs to be maintained where the employee is away for six continuous nights or more and the trip is not solely for business purposes.
In relation to overseas travel, a travel diary is required to be kept only where the travel is for 6 continuous nights or more regardless of the business portion of the trip.
