- Do your employees travel a lot, live away from home or have they relocated?
A look at new ATO changes to impact on deductions and FBT.
Have you ever struggled with determining the correct tax treatment of different travel costs for your employees? Were the employees travelling on business, living away from home, or perhaps they relocated? And what did this mean in relation to the deductibility of the costs and the application of FBT?
Grant Thornton Partner, Elizabeth Lucas, was part of the ATO’s lengthy consultation process that looked at these issues and has now culminated in the release of a new draft tax ruling, Draft Taxation Ruling TR 2017/D6, which attempts to simplify these issues for employers.
Some inclusions in the draft ruling worth noting are:
Working regularly in two or more locations
It is increasingly common for employees to have regular work duties to perform at two locations. For instance, an employee may work 2-3 days per week in each of two different States, living in one State and using an employer-provided apartment in the other. The draft ruling confirms that the travel between States and the cost of the apartment and meals whilst in the second State are all deductible.
Living away from home
The draft ruling outlines that initial travel to a location where the employee will be living away from home, and the travel home again at the end of the living away from home assignment, will be deductible/not subject to FBT (although this would usually be exempt from FBT anyway). However, travel back and forth between home and the place where the employee is living away from home during the assignment is treated either:
- As deductible/not subject to FBT if the employer arranges and pays for the travel and the employee is subject to the direction and control of the employer during the travel; or
- As not deductible/subject to FBT if the employer decides the flights are not part of the employee’s work and are to be taken in the employee’s own time (although still paid for by the employer).
Further, the draft ruling provides similar examples where a 2 month period away from home is treated as travelling on business, and a 4 month period is treated as living away from home.
International secondees to Australia
Secondments to Australia for between 90 and 120 days, where the employees stay on the home country payroll but have travel and accommodation costs paid for by the Australian employer, broadly, are treated as living away from home arrangements, such that the accommodation and meal costs are not deductible/subject to FBT (unless any FBT exemptions apply, although this is unlikely). By inference, it is probably arguable that secondments of lesser periods can usually be treated as travelling on business, rather than living away from home, with travel costs being deductible/not subject to FBT.
According to the draft ruling, fly-in, fly-out travel is deductible/not subject to FBT if the employee is being paid for that travel time and is subject to the employer’s direction and control whilst travelling, but is not deductible if the employee is not being paid for that travel time and is not subject to the employer’s direction and control whilst travelling. This difference was born from the ‘John Holland case’ and is a fairly subtle one. It may be difficult to determine which side of the fence a salaried employee falls. Official start and finish times of rosters and the precise terms of the employment contract are important. In any event, if the destination is a ‘remote area’ as defined for FBT purposes, these travel costs are usually exempt from FBT.
Some of the issues we had hoped would be addressed, but have not, are:
Similarly to the scenario where employees regularly work in two or more States, it is very common for an employee to live in one state and work in another, commuting weekly. On the one hand, this appears to be travel to and from work, rather than being travel during the course of undertaking the work activities. However, using the principles in the draft ruling, if the employer considers the travel to be a requirement of the employee’s work, pays them for the travel time and the employee is under the direction and control of the employer during the travel time, it may be arguable that the travel costs are deductible/not subject to FBT. We would like to see this clarified in the final ruling.
Flexible work arrangements
Employees are increasingly working from home, or locations other than ‘the office’, and at different times of the day. Both at home and in the office, less and less equipment is required to establish a place of work. Whilst the draft ruling says that a work location is “any place an employee attends for work”, it would be nice to have some clarity regarding the fact that this might be the employee’s home, a café, the beach, a client’s premises, etc. and how travel between such locations should be treated.
Who is living away from home
As the old ruling that covers what constitutes ‘living away from home’, MT 2030, is to be repealed, it is important that we understand the ATO’s view on this going forward. This is critical when an employer pays for accommodation and food costs for an employee – as whether those costs are deductible or not will hinge on whether the employee is considered to be living away from home or travelling on business. Whilst we recognise that there are a number of factors that determine the outcome, some further examples in the ruling, with similar facts but different time periods would be useful.
Grant Thornton plans to lodge a submission in relation to this draft ruling by the due date of 11 August 2017, and would welcome your comments in this regard. Please send any comments to Elizabeth Lucas, details below.