Broadly speaking, employees who travel overnight in carrying out their work are usually entitled to claim a tax deduction for the cost of meals, accommodation and/or incidentals (e.g., taxi fares) they incur in connection with that travel. If you have employees that travel for work, you may be required to pay a travel allowance to them.

What is a travel allowance?

A travel allowance is a payment made to an employee to cover accommodation, meals (i.e., food and drink) or incidental expenses they incur when they travel away from their home overnight in the course of their work duties.

Allowances folded into your employee’s salary or wages are taxed as salary and wages and tax has to be withheld, unless an exception applies. You include the amount of the travel allowance in the allowance box on your employee’s payment summary.

When is a travel allowance expense incurred?

A travel allowance expense is incurred by an employee travelling away from home overnight for work purposes, where the following conditions are met:

– The employee is paid a bona fide travel allowance to cover the cost of food, drink, accommodation and/or incidental travel expenses. The amount of bona fide allowance should reasonably be expected to cover the costs of meals, accommodation (for domestic travel only) and/or incidental costs.

– The employee’s travel allowance is paid to cover the costs of meals, accommodation, and/or incidental expenses, for specific work-related trips.

Claiming travel allowance expenses

In order to claim such a deduction, in addition to satisfying the general conditions for deductibility, employees are also required to substantiate their work-related travel expenses by providing written evidence (e.g., receipts) and/or by maintaining a travel diary (if relevant), unless an exception applies.

Written evidence is basically a receipt, invoice or similar document where overseas or domestic travel involves being away for six or more nights in a row. A travel diary for trips of six or more continuous nights must be kept, which should showing the date and destination, the purpose of trip, and so on.

Reasonable travel allowance rate

Every year, the ATO publishes the rate which is considered reasonable for claims for domestic and overseas travel allowance expenses. If the amount claimed by an employee for a travel allowance expense does not exceed the Commissioner’s reasonable allowance amount, there is generally no requirement to substantiate the claim (i.e., by providing written evidence or a travel diary). However, claims for overseas accommodation expenses must be fully substantiated by obtaining written evidence (e.g., receipts) and by maintaining a travel diary.

 

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