Travel allowances are paid to employees where in some cases the period away from home is less than 21 days, and in others, more than 21 days.
With travel allowances, typically employees are:
- paid standard travel allowance for accommodation and food
- work at the one location
- visit home on weekends
- stay in accommodation provided by the supplier (which may be available for use by other customers when the employee is not there).
Some employees may be on a travel allowance for six weeks or more.
However it is often asked whether these transactions should be looked at under the FBT living away from home allowance (LAFHA) rules or the income tax travel allowance rules?
Deciding Factors Betwen Living Away From Home Allownce or Travel Allowance
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 21-day standard is only a rule of thumb that the ATO uses as a default classification system. So you could have someone who is away from home for more than 21 days 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.
It is a test of substance whether someone is just travelling or is actually living away from home. If less than 21 days away from home, it would have to be substantiated to be proven in fact as a LAFHA. Similarly, if more than 21 days away from home and treated as a travel allowance, the ATO will generally not challenge such treatment if substantiated as travel.
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 where the travel does not exceed 21 days, the person will 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.
There would be a requirement to sleep away from home for at least one night. 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.
If you are unsure about your situation, call Taxwise on (08) 9248 8124 to discuss.
© Content of this blog is in partnership with Taxpayers Australia