Business travel and face-to-face meetings will soon be back on the agenda with the world shifting past pandemic mode. With the return of business travel comes the age old question of what is deductible when travelling for work? The ATO has gotten on the front foot by releasing a draft ruling outlining the circumstances in which travel costs including food, drink and accommodation expenses will be deductible. It all comes down to whether the expenses have a sufficient close connection to the performance of employment duties or activities.
As we move to a post-COVID world where borders, both domestic and international, start to open back up, the issue of deductibility of certain business travel expenses are again back on the agenda. The ATO has gotten on the front foot by recently issuing a draft ruling and associated draft compliance guidelines which explains the circumstances under which these expenses would be deductible.
Generally, if you as an employee travels for work and stays away from your usual place of residence overnight in order to perform the work duties which gain you income, the accommodation, food and drink expenses you incur will normally be deductible. However, the expenses must have a sufficiently close connection to the performance of employment duties and activities.
So, if you live too far away from your place of employment and you choose to or decide to sleep near your workplace for convenience, then your accommodation, food and drink expenses will not be deductible. These expenses will only be deductible where your employer requires that you travel and stay away from your usual place of residence overnight or for relatively short periods of time.
Scenario 1: Ian lives in Sydney with his family and accepts a job in Cairns. He flies to Cairns at the start of each week and returns to Sydney on Friday afternoon. While in Cairns, Ian lives in a self-serviced apartment and incurs expenses relating to groceries and eating out. The accommodation, food and drink expenses incurred by Ian is not deductible as it is private and domestic. He is not required to travel by his employer, rather he has incurred the expenses based on personal circumstances (ie he has chosen not to relocate to Cairns from Sydney).
Scenario 2: Now imagine Ian accepted a Job with a company that has offices all around Australia, the role is based in Cairns but he has come to an agreement with his employer to attend the Cairns office 3-days per week and work in the Sydney office for 2 days. In this scenario, Ian’s expenses of travelling to Cairns, associated accommodation, food and drink expenses would still not be deductible as again the travel is explained by his personal circumstances and not his employment duties (ie instead of relocating his usual place of residence to Cairns, he chooses to stay in Sydney).
Scenario 3: Ian again lives in Sydney with his family, however, this time, he is employed by a company based in Sydney that has offices all around Australia, under the terms of his employment agreement, his regular place of work is the Sydney office but as a part of his management role he is required to travel to Cairns for regular meetings. When required to travel to Cairns, Ian stays overnight at a motel, attends the meeting and returns that afternoon. The expenses Ian incurs for accommodation, food and drink while attending these meetings in Cairns will be deductible as it is explained by his income-producing activities.
These 3 simple scenarios illustrate the complexity in determining whether travel expenses are deductible, it all comes down to the individual circumstances of each case. There may also be further complicating factors in terms of deductibility depending on whether you’re living-away-from-home or whether you have permanently relocated. In any case, to be able to deduct an expense, substantiation requirements will need to be met, so care should be taken.
Is it deductible?
If you’ve resumed travelling in relation to your work and are not sure whether you can deduct certain expenses, we can help you figure it out and assist you in meeting all the substantiation requirements, so you don’t get caught out. Contact us today.