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Overseas travel by employees: When does FBT apply?

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Published on 01 Feb 15 by "TAXATION IN AUSTRALIA" JOURNAL ARTICLE

Payments made by employers to enable their employees to travel overseas and within Australia to conferences and to increase employees’ skills and knowledge may be liable to fringe benefits tax. Where, however, the “otherwise deductible” rule applies, the employer may escape some or all liability for FBT. This rule allows the gross taxable value of certain fringe benefits to be reduced by the amount of the notional “once-only” income tax deduction that the employee would “otherwise” have been entitled to. The effect of the rule is that the FBT is reduced.

This article examines the “otherwise deductible” rule and its application in various practical situations. In particular, the article analyses the application of the rule in circumstances where part of the travel undertaken by an employee is for private purposes.

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New travel expenses rulings

In February, the ATO released three new publications in relation to the income tax and FBT treatment of employee travel expenses. These are:

TR 2021/1 — When are deductions allowed for employees’ transport expenses?

What the ruling says.

An employee can only deduct a transport expense under s. 8-1 to the extent that:

• they incur the expense in gaining or producing their assessable income;
• the expense is not of a capital, private or domestic nature;
• the expense is not incurred in gaining or producing exempt income or non-assessable non-exempt income;
• a provision of the Act does not prevent it from being deducted.

Substantiation requirements must also be satisfied for the employee to claim the deduction.

Deductibility of transport expenses — general principles

While transport expenses will only be deductible if they satisfy the requirements of s. 8-1, the following factors (based on relevant case law) would support a characterisation of transport expenses as being incurred in gaining or producing assessable income:

• the travel fits within the duties of employment, that is, the obligation to incur transport expenses arises out of the employment itself and not the employee’s personal circumstances;
• the travel is relevant to the practical demands of carrying out the employee’s work duties or role, that is, the transport expenses are a necessary consequence of the employee’s income-producing activity;
• the employer asks for the travel to be undertaken;
• the travel occurs on work time;
• the travel occurs when the employee is under the direction and control of the employer.

Common circumstances

The Ruling considers the deductibility of employee transport expenses in a range of common circumstances listed below.

The following table summarises the general rule that applies to each category. However each category has conditions and exceptions and it is necessary to read the Ruling for detail.

Application

The Ruling applies both before and after its date of issue (17 February 2021). To the extent that there is any conflict between the Ruling and draft Rulings TR 2017/D6 and TR 2019/D7, the Commissioner will have regard to the earlier draft rulings in deciding whether to apply compliance resources in income years to which the earlier draft applies.

The Ruling contains 12 examples. Set out below are two examples illustrating different outcomes where an employee travels between their home and a distant work location which requires an overnight stay, and one example about an ‘on call’ employee.

Transport expenses not deductible — travel between home and a distant but regular work location

(Example 5 in TR 2021/1)

Isabelle is a specialist technician who lives in Brisbane. She works as an employee for a company based in Sydney on a part-time basis. On the days she is required to work (Wednesdays and Thursdays), she drives from her home in Brisbane to the airport, catches a flight to Sydney and then a taxi to her company’s office. She stays overnight in Sydney on Wednesday night and returns home on Thursday evening. Isabelle’s transport expenses (travel between her home and Brisbane airport, return flights from Brisbane to Sydney and taxis between Sydney airport and her office) are not deductible. Isabelle’s travel is undertaken to put her in the position to commence her duties and the expenses are not incurred in gaining or producing her assessable income. The expenses are incurred as a necessary consequence of Isabelle choosing to live in Brisbane and work in Sydney and are a prerequisite to gaining or producing her assessable income. Isabelle’s travel between her home and her regular workplace is also private in nature.

Transport expenses deductible — Travel between home and distant work location

(Example 6 in TR 2021/1)

Duy works for a company in Rockhampton, where he lives. One of the employment duties attached to Duy’s role is to attend a two-day meeting and meet clients in Brisbane once a fortnight. Duy flies from Rockhampton to Brisbane on the day of the meeting and returns home the following evening. He also catches a taxi from his home to Rockhampton airport and from Brisbane airport to the office. He does the same in reverse when he returns home. The cost of Duy’s flights and taxis between his home in Rockhampton and the office in Brisbane are deductible as the travel occurs while Duy is engaged in carrying out the employment duties attached to his role. Duy has a regular place of work in Rockhampton and in the performance of his duties travel is undertaken to an alternative destination which is not a regular place of work. Duy is required by the specific requirements of his role to carry out his duties of employment both in Rockhampton and Brisbane. The travel to Brisbane is not attributable to Duy’s choice to live in Rockhampton, or do part of his job in Brisbane. Therefore, the transport expenses are incurred in gaining or producing Duy’s assessable income and are deductible.

Transport expenses deductible — Travel between home and work location — employee on call

(Example 10 in TR 20201/1)

Christine is a highly-trained computer consultant who is involved in supervising a major conversion in computer facilities which her employer provides for its customers. This requires her to be on call 24 hours a day. In order to assist in diagnosing and correcting computer faults while she is at home after her normal work hours, Christine’s employer installs specialised equipment at her home. Typically, matters can be resolved by Christine at home with the use of this equipment but if the problem cannot be resolved at home, Christine travels to the office in order to progress the matter further.

Christine’s cost of travel between her home and the office every day is not incurred in gaining or producing her assessable income. They relate to private travel between her home and her regular work location. However, in circumstances where Christine is called to correct a fault after hours and where she commences work on that fault at home but has to travel to her employer’s premises because she cannot rectify it at home, the cost of travel between her home and the office will be deductible. Although this travel is between her home and a regular work location, the cost of these abnormal journeys is deductible because Christine commences substantive work prior to leaving home and then completes that work once she attends the office. Christine does not choose to do part of the work of her job in two separate places, but rather the two places of work are a fundamental part of Christine providing specialised support arising from the nature of her special duties. The expenses she incurs in travelling to the office in such circumstances are incurred in gaining or producing her assessable income.

TR 2021/D1 – Deductibility of accommodation and food and drink expenses

What the draft ruling says.

The draft guidance for when an employee can deduct accommodation and food and drink expenses under s. 8-1 mirrors the guidance in TR 2021/1 in relation to the deductibility of transport expenses. That is, according to the draft Ruling, an employee can on deduct accommodation and food and drink expenses to the extent that:

The applicable substantiation requirements must also be satisfied for the employee to claim the deduction.

Living expenses — not deductible

Living expenses are a prerequisite to gaining or producing an employee’s assessable income and are not incurred in performing an employee’s income-producing activities.

A person must eat and sleep somewhere, whether or not they engage in employment.

Travelling on work — expenses deductible

The occasion of the outgoing on accommodation and food and drink must be found in the employee’s income-producing activities, rather than in the personal circumstances of where the employee lives.

• Employee travelling on work and the occasion of the outgoing will generally be found in the employee’s income-producing activities — where the employee is required by their employer to stay away from their usual residence overnight for relatively short periods of time.
• The occasion of the outgoing will not be found in the employee’s income-producing activities — where the expenses are incurred because the employee’s personal circumstances are such that they live far away from where they gain or produce their assessable income.

Differentiating between travelling on work versus living expenses

If any of the following factors apply, the employee will not be travelling on work and the accommodation and food and drink expenses incurred will be living expenses:

• the expenses are incurred because the employee’s personal circumstances are such that they live far away from where they gain or produce their assessable income;
• the employee incurs the expenses because they are living at a location ;
• the employee incurs the expenses as a result of relocating from their usual residence.

[The emphasised expressions are discussed in detail in the draft Ruling.]

Incidental expenses

Incidental expenses are minor, but necessary expenses associated with travelling on work. This might include a car parking fee, a bus ticket or a charge for using the phone or internet for work-related purposes. If an employee is travelling on work and incurs incidental expenses, those expenses will be deductible under s. 8-1.

Apportionment

If accommodation and food and drink expenses are only partly incurred in gaining or producing assessable income, apportionment is required. Only that portion of the expense that relates to the employee’s income-producing activities is deductible.

In cases where there is no obvious method of apportionment, it is to be done on a ‘fair and reasonable’ basis.

Additional property expenses

Employees who travel frequently to the same location may choose to rent or buy a property rather than stay in a hotel or other commercial accommodation when travelling on work.

A deduction is allowable for expenses incurred in financing, holding and maintaining an additional property which an employee purchases or rents if it is occupied by them as accommodation in the course of travelling on work, except to the extent the expenses are capital, private or domestic in nature.

No deduction will be allowed for additional property expenses if the travel undertaken by the employee is a consequence of the employee’s personal circumstances, including their choice about where to live.

Additional property expenses must be apportioned between deductible and non-deductible where:

• the employee’s expenses are disproportionate to what they would have paid for suitable commercial accommodation; or
• the property is used for private purposes, e.g. family holidays.

Employer payments — FBT implications

There may be FBT implications for an employer where the employer:

• reimburses an employee’s accommodation or food and drink expenses; or
• incurs expenditure on accommodation or food and drink in respect of an employee.

The draft Ruling contains 12 practical examples.

Travelling on work

(Example 6 in TR 2021/D1)

Mario lives and works in Melbourne. He is employed by a large insurance company. Mario’s regular place of work is his employer’s office in the Melbourne CBD. One of Mario’s duties is to train new staff. When his employer engages some new staff in its Warrnambool office (260 kilometres away), Mario is required to travel to Warrnambool to train the new staff on site for a three-week period. Mario stays in a motel near the Warrnambool office from Sunday to Thursday night for each of the three weeks he is giving the training and returns home on Friday evenings for the weekend.

Mario is not living in Warrnambool away from his usual residence for the three-week period he is giving the training because:

• the Melbourne CBD office remains Mario’s regular place of work for the three-week period;
• the length of the overall period that Mario is away from his usual residence is reasonably short;
• Mario stays in short-term accommodation while he is working in Warrnambool.

The expenditure that Mario incurs on accommodation and food and drink during the period of the training is occasioned by Mario’s income-producing activities. Mario is travelling on work and the expenditure he incurs on accommodation and food and drink while he is working at the Warrnambool office is deductible.

Living at a location away from usual residence

(Example 5 in TR 2021/D1)

Yumi works as a senior executive for an employer based in Brisbane. Her employer is setting up a new office in Townsville and assigns her to the new office for a period of four months in order to assist in setting it up. After spending four months working at the Townsville office, Yumi will return to her usual employment in the Brisbane office.

During the period she is in Townsville, Yumi will occasionally travel to other locations around Australia (including Brisbane) for one or two days to attend work meetings or meet with clients. Yumi will live in a two-bedroom apartment close to the office in Townsville and her family will remain in the family home in Brisbane. However, the apartment in Townsville is big enough to accommodate Yumi’s family.

Yumi will be living in Townsville away from her usual residence for the four-month period due to:

• there being a change in Yumi’s regular place of work from the Brisbane office to the Townsville office;
• the extended period of time she is going to be in Townsville (an overall period of four months);
• the longer-term nature of the accommodation that she stays in while she is Townsville;
• the fact that her family could have accompanied her if they had wanted to.

The expenses that Yumi incurs on accommodation and food and drink while she is in Townsville are living expenses and will not be deductible. This would not change even if Yumi returned to Brisbane each weekend to be with her family. However, when Yumi travels from Townsville to other locations around Australia for work meetings or to meet with clients, she will be travelling on work and the amount she incurs on accommodation and food and drink will be deductible.

(Example 10 in TR 2021/D1)

Anwar is employed as an engineer. He lives with his spouse in Adelaide near his regular place of work. His employer assigns him to work on a project in Mount Gambier, almost 500 km away, for nine months.

Anwar will have to travel to Mount Gambier twice a month for three nights at a time. He decides to rent a fully furnished unit in Mount Gambier.

During the nine-month period, Anwar stays in the rented property for 65 nights. The rent was $210 per week. Anwar’s additional property expenses for the period amount to $7,560 ($210 × 36 weeks). This is less than the amount he would have spent if he had stayed in a nearby hotel.

Anwar will be entitled to claim a deduction of $7,560 for accommodation expenses and the amount he spent on food and drink for the periods he was in Mount Gambier. Anwar was travelling on work: his regular place of work remained in Adelaide, he continued living at his usual residence and he was only away overnight for short periods of time.

PCG 2021/D1 – Traveling on work vs living away from home

Who the draft guideline applies to.

An employer who provides the following to their employees (who do not work on a fly-in fly-out or drive-in drive-out basis) may rely on the Guideline once finalised:

• travelling on work, which will be a travel allowance that is assessable to an employee and will not incur FBT; or
• living at a location which may be a LAFHA benefit;
• a reimbursement of or a payment of an amount that would have been deductible to the employee had they purchased the goods or services (that is, it would be otherwise deductible).

The Commissioner’s compliance approach

The Commissioner will accept that an employee is travelling on work and will generally not apply compliance resources to determine if the above listed benefits relate to expenses for living at a location when all of the following circumstances are satisfied:

• provides an allowance to an employee or pays or reimburses accommodation and food and drink expenses for the employee;
• does not provide the reimbursement or payment as part of a salary-packaging arrangement and the employee is not given the option to elect to receive additional remuneration in lieu;
• includes the travel allowance on the employee’s payment summary or income statement and withholds tax, where appropriate;
• obtains and retains the relevant documentation to substantiate the fact that all of these circumstances are met.
• is away from their normal residence for work purposes;
• does not work on a fly-in fly-out or drive-in drive-out basis;
• no more than 21 days at a time continuously;
• an overall aggregate period of fewer than 90 days in the same work location in an FBT year;
• must return to their normal residence when their period away ends.

Will the 21-day ‘rule of thumb’ return?

The former MT 2030 had since its release in 1986 provided taxpayers with a ‘practical general rule’ that where the period that the employee spends away from their home base does not exceed 21 days the allowance will be treated as a travelling allowance rather than a LAFH allowance.

MT 2030 was withdrawn with effect from 12 July 2017, two weeks after the release of TR 2017/D6. The (now withdrawn) TR 2017/D6 did not stipulate a practical general rule of 21 days or of any other length of time. This was the result of a ‘deliberate move’ away from relying on the 21 day rule or in fact any other line in the sand, in favour of the guidance and examples in the draft ruling (see the minutes of the FBT States and Territories Industry Partnership meeting held on 28 February 2017).

The preliminary practical guidance set out in PCG 2021/D1 reintroduces a quantitative rule of thumb of 21 consecutive days for determining whether an employee should be treated as travelling rather than living away from home, but with additional requirements as set out above — including an aggregate of fewer than 90 days in the same location in the FBT year.

The draft Guideline contains three practical examples, of which example 1 is reproduced below.

Allowance is not a LAFH benefit — travelling on work

(Example 1 in PCG 2021/D1)

Kate lives in Perth and does most of her work at her employer’s head office in Perth. From time to time, Kate is required to spend a period of no more than 21 days working in various remote locations in Western Australia. Kate returns to her home in Perth for periods of more than a week before her next trip.

The employer pays Kate an allowance which she spends on accommodation and food and drink. Kate is away for a period of fewer than 90 days in total in the same location in the FBT year.

The allowance is included in Kate’s assessable income and Kate may be entitled to a deduction for her accommodation and food and drink expenses.

The employer is able to rely on the Guideline (once finalised) — i.e. the requirements are met such that the Commissioner would accept that Kate is travelling on work. The employer is paying Kate a travel allowance and not a LAFHA. The employer is not liable for FBT on the allowance paid.

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AU – Travel for Work Can Have Tax Implications

Australia – if planning to travel for work, consider tax implications.

This GMS Flash Alert provides an overview of three separate documents released by the Australia Taxation Office in relation to employee travel. One draft ruling was simultaneously withdrawn. The current draft guidance suggests that for some globally-mobile employees, depending on the duration of their assignments, some of the benefits they are provided (e.g., accommodation) may be subject to Fringe Benefits Tax.

ATO Documents

Is there a “bright line” test to establish travelling for work or living away from home.

Hayley Lock

KPMG Australia

Daniel Hodgson

Mardi Heinrich

While personal travel might not be on the cards for all yet, some recent releases from the Australian Taxation Office (ATO) mean that tax costs in Australia need to be front of mind when movement resumes. 1

The ATO recently released three separate documents in relation to employee travel and, simultaneously, withdrew one draft ruling. 

These latest releases are a continuation of a process that started in 2017 with the ATO seeking to clarify its position in relation to the tax treatment of employer-provided transport, accommodation, and meals.

WHY THIS MATTERS

An employee’s categorisation as travelling for work, living away from home, or indefinitely relocating, will determine the Australian tax treatment of transport, accommodation, and meal benefits (including allowances).

It is important for employers of internationally-mobile employees travelling into or out of Australia to have a clear view on this categorisation and the resultant impacts to avoid any unnecessary or unexpected tax costs.  This is particularly relevant for Fringe Benefits Tax (FBT) in Australia, where the liability rests with the employer and is currently 47 percent on the grossed-up value of the benefit (for example, if accommodation were subject to full FBT, then for every $100 spent on accommodation there would be roughly a corresponding $100 of FBT payable).

From a global-mobility perspective, the ATO had previously provided some guidance whereby international employees on short-term assignments to Australia for up to three months were travelling for work and, as such, not subject to FBT. 2   The current draft guidance suggests that for what are similar circumstances but a longer assignment period (expressed as 90 to 120 days), some of the benefits provided (e.g., accommodation) may be subject to FBT.  

Recent Releases

• Final Taxation Ruling, TR 2021/1 Income tax: when are deductions allowed for employees’ transport expenses?
• accommodation and food and drink expenses;
• travel allowances; and
• living-away-from-home allowances.
• Draft Practical Compliance Guideline, PCG 2021/D1 : Determining if allowances or benefits provided to an employee relate to travelling on work or living at a location – ATO compliance approach.

Draft Ruling Withdrawn

• TR 2017/D6 Income tax and fringe benefits tax: when are deductions allowed for employees’ travel expenses?

Given the significant impact the categorisation of an employee’s circumstances can have on the employer’s tax position, whether there exists a “bright line” test that can be used to establish if an employee is travelling for work or living away from home is a valid question and one that is asked often in practice.

The ATO’s prevailing view is that every scenario must be considered on its own merits considering the relevant “facts and circumstances.”  However, the ATO has also released some Practical Compliance Guidance (PCG) (currently in draft) specifically providing a “safe harbor” test. 3

PCG 2021/D1 highlights the ATO’s compliance approach when determining if allowances or benefits provided to an employee relate to travelling for work or living at a location.  The PCG incorporates a “day count” test, allowing employers a numerical basis for categorisation.  It is important to note, this also increases the possibility of automation of this aspect of the FBT process (among other things).

The compliance approach sets a “safe harbour” of an aggregate period of fewer than 90 days in an FBT year for presence at a temporary work location to be treated as travelling for work.  Provided that this requirement is met, PCG 2021/D1 allows an employee to have numerous short stints of travel of up to, and including, 21 continuous days.

The following table summarises the requirements for the PCG to apply:

The PCG as a Guideline

It should be noted that the PCG only provides a guideline as to what will be accepted by the ATO as reasonable.  If a scenario does not meet the criteria, the PCG does not render the relevant expenses automatically taxable, rather, it will require the employer to collate more evidence to support a “travelling for work” position.  In an audit situation, the ATO will want to see evidence of how the employer has come to this conclusion, despite the PCG, and why.

Concluding Thoughts 

The introduction of the PCG and the safe harbour it offers will provide a set of rules that can be applied to data and help an organisation assess retrospectively which trips might not require further consideration to classify.

Similarly, the PCG provides an opportunity for employers to plan employee travel within these limits if it wishes to do so and other practical business realities allow it to do so.

Organisations may need support in navigating the relevant legislation, cases, and ATO guidance in considering all relevant facts and circumstances and helping employers classify their travelling employees correctly.

1  For related coverage, see GMS Flash Alert 2020-487 , 9 December 2020.

2  For prior coverage, see GMS Flash Alert 2020-113 , 25 March 2020.

3  Draft Practical Compliance Guideline, PCG 2021/D1 .

PEOPLE SERVICES IN AUSTRALIA

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The information contained in this newsletter was submitted by the KPMG International member firm in Australia.

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• FBT Exemptions and Concessions...

FBT Exemptions and Concessions Checklist

The following is a checklist of items which are specified as exempt, or attract reduced fringe benefits tax exposure, under the Fringe Benefits Assessment Act.

All such concessions are subject to qualifications and pre-conditions.

So this list is a guide only and should not be relied on as a definitive or exhaustive statement of FBT obligations.

• Proposed FBT exemption for electric vehicles: Labor’s election policy includes an FBT exemption for vehicles costing below the luxury car tax fuel efficient threshold with effect from 1 July 2022. See Treasury Laws Amendment (Electric Car Discount) Bill 2022 , and Electric Vehicle Rebates In Australia .
• Emergency assistance to employees is exempt; (use search term “emergency”)
• Retraining and Reskilling expenses for redundant employees are exempt (from 2 Oct 2020); (use search term “reskill”)
• PCG 2018/3 provides safe harbour methodologies for exempt car and exempt residual benefits relating to private use of a vehicle that is ‘minor, infrequent and irregular’.
• Read summary of Covid-19 related claims here

Section references in the table column 3 are to the Fringe Benefits Assessment Act 1986 .

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This page was last modified 2022-04-28

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How To Claim Overseas Travel as a Tax Deduction

Firstly, we are talking about legitimate business travel . We're not talking about lying on a beach in Bali. Holidays are great, and we recommend you take them frequently.  But, it's not what we are talking about here. We are referring to travelling for the purpose of expanding your existing body of professional or business knowledge and experience.

We are often asked when and how overseas travel cost's can be deducted against a professional or business owners assessable income. The answer is simple, overseas travel costs are deductible to the extent they are incurred for the purpose of producing assessable income. More specifically, travel costs are deductible when incurred to increase or maintain an existing body of knowledge currently used to produce income.

It's purpose that determines deductibility and that is why you must document your trip  before, during and after travel. The worst case is usually a part deduction for your travel costs, which is better than no deduction.

So, If the main purpose of your trip was for business or professional development, then 100% of the airfare is tax deductible. If however, you spend additional time at your location that is not related to your business then you would need to apportion  the accommodation costs. For example; If you took a trip for 10 days and you spend 2 days doing tourist activities, you could only claim 8 days of accommodation.  You can still however claim100% of the airfare providing the main purpose of your trip was for business.

Remember, you are also allowed to have fun and you can spend as much as you think is appropriate. You can fly business class and you can stay at multi-star hotels,  if that's what you want. The Tax Office is charged with determining the tax consequences of what you have actually spent, not what they think you should have spent.

So what happens if you have two purposes for you trip ? One purpose may be to learn more about your business or profession and the other purpose may be to catch up with friends or relatives. Here the tax law requires apportionment: the costs will only be deductible to the extent they relate to your business or professional practice. The apportionment will depend on the facts. A half day trip to see an old friend may have no impact on deductibility. But staying with the old friend for three weeks, and having, say, one business  meeting each week for each of those three weeks means virtually no cost are deductible: the inference is that the costs are substantially private and the professional part is incidental and minor.

Accompanying spouses could also be a problem as they may suggest a primary non -business purpose. The bottom line is you can probably still claim all your room costs, even if your spouse's airfare is not deductible. It's perfect if your spouse is also involved in your business or professional practice because here, the second airfare costs will probably be deductible too. But it does depend on the facts.

Each case is different, and if in doubt the best rule is to document everything  so your tax agent can consider the matter and present the best possible case when preparing your tax return .

If you would like more information about how this applies to you and how to maximise your legitimate travel claims , we invite you to contact us..

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FBT – Overseas conferences: The apportionment conundrum!

Do you have staff attending conferences away from their usual place of residence? Attendance at overseas and interstate conferences raises a key issue for FBT: the extent to which the taxable value of benefits provided to the employee in connection with attending these conferences can be reduced under the ‘otherwise deductible rule’. This will particularly be the case where the conference venue is intertwined with recreational and holiday activities that involve the employee staying for a period before or after the conference.

General principles

The ATO is focusing on overseas conference claims and will scrutinise these claims closely. Paragraph 17 of TR 2017/D6 provides:

Where travel expenses are incurred in performing the employee’s work activities and no part of them is of a private, domestic or capital nature, expenses are fully deductible. To the extent that any part of the expenses are of a private or domestic nature, the expenses must be apportioned – unless the private or domestic element is merely incidental to gaining or producing the employee’s assessable employment income.

The ATO have the following general approach in relation to apportionment of airfares:

• If the travel is principally to attend the conference and private pursuits are incidental, then 100% of the airfares would be ‘otherwise deductible’.
• If there is a dual purpose of the travel, being conference and holiday, then 50% of the airfares would be ‘otherwise deductible’.
• Where the private pursuits of the travel are significant, then no deduction is available.

Case study: PBR 1051276779415

PBR 1051276779415 (the PBR) examines eight conference travel scenarios and applies the above apportionment principles. The scenarios provide very useful guidance for employers, particularly tax-exempt employers since the rulee in this case was also a tax-exempt entity.

Of course, a private ruling is only binding on the ATO in respect of the rulee, so the principles outlined should only be used as a guide. It is recommended that members with similar employee travel scenarios apply for their own private ruling using the PBR as a base.

Background facts

The basic background facts presented to the ATO in the PBR are reproduced below:

• The taxpayer is an income tax exempt organisation.
• The taxpayer’s employees travel to various destinations both domestically and overseas in order to impart their knowledge and provide training related to their job.
• The taxpayer pays for the airfares of its employees if the expense is incurred for the employee to fulfil their employment obligation.
• The taxpayer incurs the airfare costs. The taxpayer appoints a travel agent (the Travel Partner) who makes travel arrangements for its staff and the cost of airfares is invoiced to the taxpayer. The travel arrangements have been made on an arm’s length basis.
• The employee of the taxpayer will generally travel in economy class.
• The taxpayer’s internal travel policy requires that no additional costs be incurred if the employee decides to take leave entitlements on route. The taxpayer will not bear any airfare and/or accommodation costs incurred by the employee where the employees choose to undertake any additional travel that it considers private in nature.
• The taxpayer’s internal travel policy allows for the employee to have a recovery day to acclimatise when the employee travels to an overseas location. The policy also provides that where the employee travels on a weekend, the employee receives a day in lieu.
• The employee pays for all meals, accommodation and other costs while on leave from their after-tax income.
• The taxpayer insists on the completion of travel diaries in accordance of the FBTAA .

The scenarios presented to the ATO and the ATO’s response are summarised in the below table:

*   O/D: Otherwise deductible

**  TEBEFB: Tax-exempt body entertainment fringe benefit

It is interesting to note that in the ATO’s view, to the extent the otherwise deductible rule does not apply, the remaining portion of the airfare subject to FBT is regarded as a tax-exempt body entertainment fringe benefit.

The importance of this in the context of the background facts provided is that the ‘otherwise deductible rule’ cannot apply to a tax-exempt body entertainment fringe benefit. Further, amounts paid for by the employee towards the private component of their travel cannot be treated as an employee contribution.

The ATO notes that, in a situation where the employee incurs and pays for the airfare cost and the taxpayer subsequently reimburses the work-related component of that expenditure to the employee (e.g. 50% of the airfare cost in scenarios 1 and 6), the benefit would be an expense payment fringe benefit under s. 20 of the FBTAA .

Further, provided that the employer only reimburses the work-related portion of the expenditure, the taxable value of the expense payment fringe benefit may be reduced to nil under the otherwise deductible rule under s. 24 of the FBTAA , provided the requirements in that section are satisfied.

PBR 1051276779415 is a very useful contemporary summary of the ATO’s apportionment approach to airfares. It is highly recommended members read the ruling and use its contents in considering apportionment and other internal policies regarding employee conference travel.

Finally, remember that where the travel is more than five nights, a travel dairy must be kept by the employee in addition to other substantiation requirements.

This article provides a general summary of the subject covered as at the date it is published. It cannot be relied upon in relation to any specific instance. TaxEd Pty Ltd and any person connected with its production disclaim any liability in connection with any use. It is not intended to be, nor should it be relied upon as, a substitute for professional advice.

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Fbt q&a – fbt implications of offering employees discounted corporate rates for gym memberships, etc, fbt q&a – 12-week register while two employees are on leave, fbt q&a -â- travel diary requirements, stay informed with our newsletter.

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Individual Immigration Services

Immigration resources, migration matters, stay abreast of the latest in australian immigration & visa news by subscribing to our monthly newsletter., employing overseas workers and fringe benefits tax facts..

Question – If an employer paid for a current employee’s permanent residence application is the employer’s payment subject to Fringe Benefits Tax (FBT)?

So you’ve decided to extend an overseas workers contact with a permanent residence sponsorship, but there are a few tax implications that you’re unsure of and the Fringe Benefits Tax implication for the application is one of them.

The transition to becoming an Australian permanent resident is popular for temporary 457 visa holders and also popular amongst Australian employers as it’s a great avenue to gain great overseas knowledge. So what do employers need to know before supporting an employee through this process?

When applying for permanent residence the employer must consider issues such as the employee’s age and genuine need to relocate. Along with the lengthy paperwork, as an employer you also want to know if there are any FBT tax implications when it comes to keeping such an employee in your business

Here is our break down of what seems a complicated issue.

• Applicants must show that they have been employed in their approved occupation with their employer as 457 visa holder for a period of at least two years in the three-year period immediately before submitting the application.
• Although businesses are under no obligation to offer assistance with permanent resident applications, under the ENS, most sponsoring employers will be asked to support an application.
• Who pays? Unlike the 457 program, there is no obligation for the employer to cover the fees, so this will depend on an organisation’s policy. It is not uncommon to see claw-back provisions or written agreements for a reimbursement in the event an employee ceases employment within a period of being granted permanent residence. Both the applicant and the employer will, however, need to make a formal declaration that they have not paid or received a ‘benefit’ in return for the sponsorship opportunity.
• If an employer pays the costs of a visa application for a non-resident employee to remain in Australia, will the benefit would most probably be provided in respect of their relocation & transport and be exempt under section 58F of the  Fringe Benefits Tax Assessment Act 1986  (FBTAA).  The ATO has a ruling confirming the Visa costs would be exempt from FBT in ATO ID 2013/35.
• The FBT exemption for relocation costs for travel & living away from home for an employee are fairly extensive and can cover many costs such as obtaining a Visa, police clearances, English tests and other expenses for employees working on assignment.
• Although the rules are different and not exempt from FBT if the employee is already living in Australia. If the expense benefit is not provided in respect of relocation or living away from home the costs will be subject to FBT.  So costs paid by the employer for the renewal of a Visa or the costs in relation to varying a Visa or the application for a different Via will be subject to FBT as the costs are considered personal, private and capital in nature for the individual.
• The ATO announced in early 2018 that they would be obtaining information on taxpayers with Visas from the Department of Immigration and Border Protection to data-match and ensure compliance with tax laws.  Therefore all employers of visa holders and visa holders themselves should review their taxation, FBT & superannuation records & obligations are compliant.

Australia’s taxation legislation can be complex and difficult to navigate so it is wise to always seek detailed tax advice in respect of your personal circumstances.  It is also an option to ask the ATO to provide a private ruling on your exact situation to give you comfort & certainty.

This article was written by Dom Morello from DNM Group

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Content in this publication is for informational purposes only and not intended as legal advice, nor should it be relied on as such. Australian immigration law is complex and its policies and visa eligibility criteria are changing regularly. For additional and current information on the issues discussed, please book a consultation with one of our immigration lawyers.

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