Thanks to Tax & Super Australia for the article.
Being asked by the boss to travel for work purposes can be demanding on staff — financially, physically and also emotionally. Out of this has developed more than one way to compensate employees; these being a travel allowance and the living away from home allowance (LAFHA).
When both were developed, the difference between the two were often decided by an ATO-initiated rule-of-thumb in that travel of less than 21 days was deemed to be the former, while more than 21 days was considered to have a more LAFHA flavour. The 21-day “threshold” however no longer applies.
For travel allowances, typically employees are:
- paid standard travel allowance for accommodation and food
- working at the one location
- visiting home on weekends
- staying in accommodation provided by the supplier (which may be available for use by other customers when the employee is not there).
The ATO publishes guidelines each year on what it considers to be reasonable amounts for a travelling employee.
However it has also been found that some employees may be on a travel allowance for six weeks or more.
It is often asked whether these transactions should be looked at under the FBT rules (for LAFHA) or the income tax rules (for travel allowances). The tax treatment (and therefore the financial outcomes) of both can be different.
Deciding factors
The FBT framework would generally provide for a more concessional tax outcome where certain prescribed requirements for a LAFHA is met in comparison with the income tax effect of a travel allowance.
The reality is that you could have someone who is away from home but is still considered to be only travelling. Alternatively you could have someone that is away from home for two weeks only, but in those two weeks was actually living away from home.
When an employee is required to travel on business and overnight their food, drink and accommodation expenses become deductible expenses and are FBT free for the employer. The difference between LAFH rules and travelling on business is quite simply the employee on LAFH has to temporarily change their usual place of residence and therefore their food, drink and accommodation expenses become private and non-deductible. And that is why the employer needs the FBT concession for such employees. It is a question of fact as to whether or not the employee has temporarily changed their usual place of residence as opposed to travelling around on business.
So it is a test of substance whether someone is just travelling or is actually living away from home. It would have to be substantiated to be proven in fact as a LAFHA. Similarly, if away from home and treated as a travel allowance, the ATO will generally not challenge such treatment if substantiated as travel. Taxation ruling TR 2017/D6 deals with these factors.
Travel allowance or living away from home?
The following general principles may be of guidance:
- When a person is living away from home, there will be a change in job location and a temporary residence will be taken up near the new work location. Often, but not always, the employee’s spouse and family will accompany the employee to the new location.
- When a person is merely travelling, there will be no change in job location and there will be no establishment of a temporary residence – rather, the person will merely be accommodated while travelling. Usually the employee’s spouse and family will not accompany the employee.
- However the issue of whether the family accompanies the employee is not determinative. The critical factor seems to be where the job is located. If it is temporarily located away from the employee’s usual place of residence, the employee will usually be living away from his or her usual place of residence. Where the job location does not change, but the employee must travel to undertake duties, he or she will be regarded as travelling.
- While the length of period away from home is not determinative, the ATO will generally accept that shorter periods away will generally be deemed to be travelling. In addition, the Tax Commissioner has stated that employees attending short-term staff training courses will generally be treated as travelling in the course of their employment.
- There is no minimum or maximum period of absence to qualify as living away from home, although the application of the FBT rules may be less concessional if someone lives away from their usual place of residence for more than 12 months. The period that a person is living away from home will end when the person returns to his or her usual place of residence, or changes his or her usual place of residence to the new location.