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Do you travel for work? Here's what it means for your taxes

·Director Of Tax Communications, H&R Block
·5-min read
Here's what you can claim at tax time, according to the ATO. Source: Getty
Here's what you can claim at tax time, according to the ATO. Source: Getty

A new ATO ruling sets out the parameters for employees who want to claim accommodation and meals when travelling for work.

It's a helpful guide for working out what you can claim on your tax return this year.

According to TR 2021/D1, an employee can only deduct accommodation and food and drink expenses if:

  • They actually spend the money as part of their job

  • The expense is not capital, private or domestic

  • The expense is not incurred in earning non-taxable income

  • Another provision of the tax law does not prevent a deduction.

In addition, taxpayers must be able to substantiate the expense, by providing invoices and receipts, as well as a travel diary (where the travel involves being away from home for six nights or more in a row), except where the employee receives a ‘bona fide’ travel allowance from their employer, in which case a substantiation exemption may be available.

The general rule is that accommodation and food and drink expenses are private or domestic and not claimable for tax. Examples include the costs of consuming food to go about daily activities (e.g., the cost of lunch or morning coffee). These are living expenses and not deductible.

Also read:

However, where an employee travel and stays away from home overnight in the course of their job and incurs accommodation and food and drink expenses, these can usually be claimed. A deduction cannot be claimed where an employee does not travel and stay away from home overnight for employment purposes.

5 determining factors for a deduction

Amongst the factors that need to be taken into account when determining liability are the following:

1. The expenditure must have a sufficiently close connection to the performance of the employee’s job.

If an employee is required by their employer as part of their job to stay away from home overnight for relatively short periods of time, the employee will be travelling on work and accommodation and food/drink will generally be deductible.

If, however, an employee travels because their personal circumstances are such that they live far away from their place of work, a deduction will not be available.

Employees who chose to sleep near their workplace rather than returning home between their work shifts cannot claim a deduction, eg someone working split shifts who decides to sleep at a motel near to work rather than returning home in the gap between shifts.

2. The employee must be required to sleep away from home overnight in the course of their job.

This is crucial; someone who travels back and forth in a day as part of their job (and doesn’t stay overnight), can’t claim.

3. The expenditure on accommodation and food and meals must not be attributable to a personal choice of the employee.

If an overnight stay is personally motivated (and not called for by the demands of their job), the expenditure is not deductible.

For example, if I live in Sydney, get a job in Melbourne but decide to continue living in Sydney, I can’t claim expenses associated with staying in Melbourne, because I have chosen to continue to live in Sydney.

4. The employee must not be considered to be ‘living at a location’ away from their home.

Where the location at which the employee works has become their new regular place of work, the accommodation and food and drink cease to be employment related and become private/domestic.

Factors which suggest that an employee is living at a location include:

  • There is a change in the employee’s regular place of work.

  • The length of the overall period the employee will be away from home is a relatively long one. Note that the Ruling does not state a period that it is acceptable to be away from home, merely noting that it should not be “relatively long”. Another ATO document (PCG 2021/D1) puts forward a 21/90 day guideline (living away from home at a specific location for up to 90 days in a year, with no one period at that location exceeding 21 days in total) but this is merely a guidelines which the ATO will use in deciding whether or not to initiate compliance action, it is not part of the Ruling. There is no requirement to follow the guidance in PCG 2021/D1.

  • The nature of the accommodation is such that it becomes their usual residence.

  • Whether the employee is, or can be, accompanied by family or visited by family or friends.

5. The employee must not have relocated to the location to which they have travelled.

If they have relocated, they will be living at the new location and accommodation and food expenses will be private living expenses.

This applies even if the employee’s job requires that they move. Factors indicating relocation include:

  • They are at the new location for an extended period

  • Their usual residence is no longer available to them because it has been sold or rented out

  • They are accompanied by their family and the family’s belongings have also been moved

  • Their children attend school at the new location

  • Their spouse or partner obtains employment at the new location

  • They change their postal address and electoral role registration

  • They establish ties to the local community (such as joining sports or local community clubs).

Apportionment

If accommodation and food/drink expenses are only partly incurred for work purposes, apportionment is required to split the work portion and the private portion (eg holidays).

It is necessary to use a “fair and reasonable” basis to decide on the apportionment.

Additional property expenses (eg, renting an apartment)

Employees who travel frequently to the same location may choose to rent or buy a property rather than stay in a hotel (or similar) when travelling for work.

A deduction will be allowed for expenses incurred in financing, holding and maintaining an additional property which an employee purchases or rents to be occupied by them as accommodation in the course of travelling for work.

Examples of deductible expenditure include lease payments, rent, mortgage interest, rates, land tax, property insurance, general maintenance and depreciation of furniture and household equipment.

Our H&R Block accountants are now working online. Book an appointment with an expert here.

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