Are you an employee? Do you ever have to spend money to work away from home? This is what you need to know about your eligible deductions, so you can get organised now to receive your maximum legal refund at tax time next year!
The Reasonable Travel Allowance
Your employer may pay you a travel allowance on top of your salary or wages to help you cover the the cost of meals, accommodation and other expenses. Each year, the Commissioner of Taxation looks at travel costs and decides on the ‘reasonable travel allowance’ rates. When your employer provides you with funds up to this amount, then you may not have to include this in your income on your tax return.
As the reasonable travel allowances aren’t includes as part of your normal income, you’re not required to keep any records of it. However, if you don’t declare this allowance, you also won’t be able to claim a deduction for your travel expenses without records, even if you spend more than the allowance.
Keeping Records is Always Key
Do you spend more money than the travel allowance you’re given? If so, it’s highly recommended that you do keep records of this. If you can prove it, you will be able to claim it as a deduction against your taxable income. Your records should include invoices, receipts, the details of your allowance, and the dates, places, times and durations of your travel activities.
To clarify, not declaring your travel allowances as income means you can’t claim your accommodation costs, travel, meals and incidental expenses as deduction, even if they end up costing more than than your allowance.
Keep a travel diary to help you or your accountant distinguish between the work-related and private elements of your trip. To be eligible for deductions, a travel diary is compulsory if you travel away from home for six or more nights in a row. If any portion of the travel is private, you can only claim the work-related part. If you and your colleagues go to the cinema after a meeting, for example, you are not able to claim the cost of the movie tickets.
There are some general rules, as well as more specific rules…
There are just 4 general rules for claiming expenses that relate to your work:
- You must have spent the money yourself with no reimbursement from your employer.
- The expense must be directly related to earning your income.
- You must have complete records to prove it.
- To avoid ATO penalties, simply claim the right amount – no more, no less.
The 6 more specific rules for claiming work-related travel expenses include:
- You are required to travel away from home and stay overnight as part of performing your work duties.
- You aren’t living away from home long-term, and are only working away from home for relatively short periods of time.
- Your travel expenses are not the result of your choice to maintain your residence in a different location to your regular place of employment.
- You have a permanent home at a location away from the work location that you are required to travel to.
- You can only claim deductions for the portions of the costs you cover yourself and aren’t reimbursed for.
- To claim deductions for spending above your allowance, you must declare the allowance you receive as income on your tax return.
In addition to these basic rules for claiming work-related deductions, the ATO has guides for specific industries and occupations to help you better understand your own work-related travel expenses and tax entitlements.
Maintaining a Second Home for Work
Most people choose to rent short term hotel or motel accommodation when they travel for work. However, others decide it makes more sense to purchase or rent long term accommodation to use when they work away from their usual home.
If you’re included in this second group of people, the costs of financing, holding and maintaining accommodation you purchase or rent to stay in when you travel to perform your work duties may also be deductible as work-related travel expenses. In this case, you can claim, rent, interest on loans used to purchase the accommodation, rates, taxes, insurance, general maintenance of the accommodation.
However, you can’t claim capital expenses such as the costs of purchasing or renovating the accommodation, or the cost of furniture, household equipment and other assets for the accommodation.
Be careful though – if the costs are disproportionate to what you would have spent on suitable commercial accommodation just for the period of travel, or if the accommodation is used for private or domestic purposes and not solely for work-related purposes, you must correctly apportion the costs of financing, holding and maintaining accommodation.
Top Tax Tip for 2020…
In 2017, the ATO received $2 billion worth of illegitimate work-related travel claims. This is due to a combination of poor record keeping and deliberately doing the dodgy. So naturally, the number of audits on individual tax payers has been on the rise over the last couple of years.
The most helpful tax tip we can give you for 2020 is to speak to a specialist about your work requirements before the new year.
ABA guarantees your maximum legal return – without the headache! Give us a call today to discover how we can simplify your tax and improve your situation.