What you need to know about travel allowances and your tax return
In certain roles and industries, as defined by your employer, you may be required to travel in order to carry out particular tasks. In such circumstances, it is likely that you will be provided a travel allowance in addition to your regular wage or salary package.
A travel allowance is paid to you as an employee to cover losses or outgoings that are incurred when you travel away from your ordinary residence in the course of your duties.
Each year, the ATO publishes a determination setting out the amounts considered ‘reasonable’ for claims for domestic and overseas travel allowance expenses. For example, the reasonable overtime meal allowance for the 2009-10 year is $24.95 per meal. Travel allowance expenses include:
• expenses incidental to travel. For example, car, travel and transport allowances, including reimbursements of car expenses calculated by reference to the distance travelled by the car, such as ‘cents-per-kilometre’ allowances
They are set out for various travel destinations and employee categories and the rates shown for domestic travel apply only for stays in commercial establishments such as hotels, motels and serviced apartments. If a different type of accommodation is used, the rates do not apply.
If you receive an allowance you may be able to claim a deduction for your expenses covered by the allowance but only to the extent that you actually incurred those expenses in producing your employment income.
Your employer is required to withhold part of your pay for PAYG reasons if you are expected to incur expenses that may be able to be claimed as a tax deduction at least equal to the amount of the allowance; or if the amount and nature of the allowance is shown separately in your employer’s accounting records.
If the allowance is paid at the rate equal to or below the ‘reasonable travel allowance’ rate, and the allowance is separately accounted for, no PAYG withholding is necessary. In addition, the travel allowance does not need to be shown on your payment summary.
Alternatively, if the allowance is paid above the ‘reasonable travel allowance’ rate (in total), your employer is required to withhold PAYG from the amount over the reasonable allowances amount. The total amount of the allowance should be included on your payment summary in the allowance section/box.
Where the deductible expense is less than the allowance received, you must show the allowance as assessable income in your tax return, and claim only the amount of the deductible expense incurred. For example, if you received a $500 allowance for accommodation on a work trip, yet you only spent $300, you should include the whole amount of the allowance ($500) in your assessable income when preparing your tax return, but then claim a deduction of $300.
If the cost of accommodation, meals and incidentals exceed the amount of travel allowance received, you will need to keep documentary evidence for those particular trips during the financial year. With these costs, you can either:
• claim the actual expenses incurred by including the amounts of travel allowance for which excessive expenditure is being claimed and claim a deduction for the corresponding expenses incurred in your income tax return
• claim nothing, if the travel allowance is not recorded on your payment summary. There is no need to include the total amount as assessable income in your income tax return and, therefore, no need to claim a reciprocal deduction.
If the travel allowance is recorded on the payment summary, you will need to include the amount in your assessable income and claim either:
• the expenses you incurred (that can be substantiated with receipts or other documentation) or
• the ATO’s reasonable travel amounts.
If you received a travel allowance or an overtime meal allowance paid under an industrial law, award or agreement you do not have to include it on your tax return if:
• it was not shown on your payment summary
• it does not exceed the Commissioner’s reasonable allowance amount, and
• you spent the whole amount on deductible expenses.
It is important to be aware that the mere receipt of an allowance does not entitle you to a deduction. Also, expenses incurred by travelling between work and home everyday are not an allowable deduction unless exceptional circumstances exist.
Since you are not always guaranteed to be able to claim a deduction for your allowances it is important you seek the advice of a professional before lodging your tax return. Here at The Quinn Group our experienced team of tax agents and accountants can assist you in legally minimising your tax. For more information submit an online enquiry or call us on 1300 QUINNS (7854 667) or on +61 2 9223 9166 to book an appointment.