Travel Allowances and Work-Related Expenses Guide - ATO

If you earn income, you must declare it by lodging a tax return and then, pay income tax on it. You will need to be aware of what counts as income, as well as the deductions and offsets you may be able to claim when lodging your tax return. As Australia’s tax system relies on self-assessment, the information you submit is accepted as accurate. However, good recordkeeping must be maintained, at least for five years, to support any claims made in your tax return. 

This guide provides an overview of travel allowances and work-related travel expenses, which are considered allowable expenses by the Australian Taxation Office (ATO).

ATO-compliant Travel Allowances

If as an employee you travel and spend the night away from home for work purposes, you are entitled to reimbursement for work-related travel expenses. However, this must not be confused with travel allowances which are payments specifically made to an employee to cover the cost of business-related travel.

This guide provides information on both, highlighting the differences between them, explaining what counts as a reasonable expense, how travel allowances may be set up in pay runs, how work-related travel expenses may be calculated, identification of allowable and non-allowable expenses together with guidance on the Australian Taxation Office’s (ATO) rules on travel allowances.

What counts as a travel expense

Generally speaking, travel expenses fall into two categories:

• Transport expenses
• Accommodation, meals, and incidental expenses 

When employees travel as part of their job, transportation costs are deductible. This covers the price of driving their vehicle, flying, or taking a train, taxi, or bus.

When employees travel for work-related purposes and spend the night away from home, their lodging, meals, and incidental expenses like parking fees are all tax deductible. If they do not spend the night away from home, travel expenses cannot be claimed.

3 things to know before claiming tax deductions

To claim a tax deduction for work-related expenses, an employee must:

• Have spent money themselves and not already been reimbursed by their employer
• Only claim expenses that are directly related to earning income
• Have evidence to prove the expenses (receipts or a travel diary)

Travel expenses vs travel allowances

With travel allowances, the employer may reimburse the employee for these expenses with supporting receipts and unused portions of the allowance must be returned. With certain exceptions, the allowance may also be taxed in addition to the employee’s pay and wages under the ATO’s PAYG withholding regime.

In contrast, a travel expense refers to the actual costs incurred by an employee while travelling for work. These expenses may include airfare, car rentals, and hotel costs. 

Understanding the ATO’s Rules on Travel Allowances

As the ATO has fairly specific rules and guidelines regarding the taxation of travel allowances and expenses for employees in Australia, it is important to understand these rules to remain compliant at all times.

Here’s a snapshot of key ATO criteria on travel allowances:

• A travel allowance is a predetermined amount of money provided by an employer to an employee to cover the expenses associated with travelling for work-related purposes
• The ATO considers a travel allowance to be tax-free if it meets the following conditions: 
• The travel is required as part of the employee's job duties 
• The travel involves an overnight stay away from the employee's normal place of work, and 
• The travel is not for the employee's private or domestic purposes
• If the employee's travel allowance does not meet these conditions, it may still be eligible for a tax deduction if the expenses are directly related to earning the employee's income. In this case, the employee must be able to show that the expenses were necessary for their job and must have receipts or other documentation, like a travel diary, to support the claim
• Employees may be required to provide receipts for any expenses incurred as part of the travel and may be required to return any unused portion of the allowance

Understanding what is a reasonable amount

Each year, the ATO releases recommendations on what constitutes a reasonable amount for a travelling employee. These recommendations provide a daily travel allowance amount and take the following into account:

• Travel destination
• Meals
• Accommodation
• Ranges of employee salaries
• Incidentals
• Specific rates for truck drivers

For employees travelling outside Australia, countries are divided into "cost groups”, with the daily allowance ranging from the lowest in cost group 1 to the greatest in cost group 6. There is no allocation necessary for the first and last day of travel because the reasonable amounts are meant to apply to each full day of travel covered by the travel allowance.

Set Up Travel Allowances In Your Pay Runs

Managing the gamut of employee expenses, from travel allowances and travel expenses which may be claimed and how to distinguish between the two, to remain tax compliant at all times, can be a challenge for many business owners. 

QuickBooks’ accounting software offers a quick and fuss-free way to complete these tasks. A travel allowance can be set up in the system to automatically appear in each pay run for specific employees or may also be applied as and when needed. 

With QuickBooks payroll software, this automation removes significant hassle for employers, ensures ATO compliance, and also gives employees the chance to quickly see a breakdown of their payslips on demand. 

ATO-compliant Work-Related Travel Expenses and Deductions

If you are required to travel as part of your job, you’re likely to incur various costs. Whether you make a short trip to attend a meeting in your city or take an overseas trip for an extended period, understand that travel expenses may be deducted. 

As mentioned at the start of the article, good recordkeeping must be maintained so that claims in tax returns are well-substantiated. This avoids errors, unnecessary duplication, incorrect calculations, and penalties for failure to comply.

Defining work-related travel expenses

Work-related travel expenses are expenses incurred while travelling for work and include accommodation and meal costs. These costs may be claimed on your tax return.

Using your car for work

If your job requires you to use a car, you are entitled to deduct the motoring costs you incur while completing your job. However, this is not a blanket allowance for all sorts of motoring costs. 

There are deductions that can be made for a car you own or lease, as well as deductions for other expenses such as a vehicle that is not a car or one that does not belong to you. 

There are limited circumstances that may allow you to claim for using your car for work-related purposes. However, you may not be able to claim the commute from your home to the workplace. Examples of what you can claim include:

• A commute for travel between two worksites throughout the day
• Travel expenses as you move from one job to a second job provided you do not return home in between
• Travel to a work-related course or meeting 

Calculating work-related travel expenses

There are three methods for calculating work-related tax deductions:

• Cents per kilometre method: For FY23/24, you may be able to claim up to 5,000 km at a flat rate of 85 cents per km. You must keep a travel log to determine how far you travel for work purposes
• Logbook method: You maintain a travel logbook to record your running expenses and related details, including mileage, fuel, servicing, repairs, insurance, and depreciation. 
• Actual costs method: You claim expenses based on actual receipts

Or you could save the hassle by simply using a reputable tax software that provides mileage auto-tracking and a simple snap-and-store feature for all receipts.

If you select the logbook method, remember to record work-related trips for a minimum continuous period of 12 weeks. Odometer readings should be included as these determine the proportion of time you use the vehicle for work purposes. 

Remember to also store all receipts and invoices and note the spending on your vehicle so that you claim the correct percentage of vehicle-related expenses.

It’s important to note that travel to and from work is considered a private expenditure unless your employer requires you to transport bulky equipment and vehicles. That being said, the ATO pays close attention to these types of claims and may disallow them.

Other work-related transport expenses

Here are several other types of expenses that may also be claimed for work-related travel:

• Use of a heavy vehicle or ute (utility vehicle) with a carrying capacity of over 1 tonne
• A van with a carrying capacity of 9 or more passengers
• Fees incurred for hiring or renting a car
• Costs incurred while driving another individual’s vehicle for work purposes, such as fuel expenses
• Public transportation costs such as airfares, bus fares, train or tram tickets, ferry or taxi fares as well as ride-share or ride-sourcing fares
• Expenses associated with work-related transport such as bridge or tunnel tolls, road tolls, and car parking fees

It’s important to note that fines you incur for any motoring offence are not claimable expenses.

Overnight meals and accommodation

If you travel away from home for work, you may claim accommodation, meals and entertainment expenses. However, you may not claim a meal allowance if your employer reimburses you or provides you with a full allowance for these expenses. 

Sometimes, businesses provide an allowance so the employee need not cover these costs. However, these allowances may be taxed in which case a deduction may be possible for costs incurred. 

The ATO provides a detailed list of what is viewed as a reasonable spend on accommodation, meals, and incidental expenses. 

You won't need to produce detailed records with receipts or invoices if you claim below the specified ATO allowance. However, if you exceed the specified reasonable amounts, or if you don't receive an allowance, then you must keep detailed records to show that your spending wasn't extravagant.

The ATO has established a reasonable amount in order to highlight when detailed records must be kept. Some people may assume that they can claim this maximum amount, but this is not recommended. Ensure that you only ever claim the amount that you have spent. 

Even if you claim below the reasonable amount, you must be able to prove the expenses you incurred. A bank or credit card statement is sufficient proof that helps support your claim that you were in the particular area at the time you claimed. 

Provided your travel includes an overnight stay, you may be able to claim business meals, food and beverages. While you can claim travel expenses if you typically work from home and need to travel to an office, you may not be able to claim meals when working from home.

What may not be claimed

Here are several examples of expenses that may not be claimed: 

• Travel between your home and your regular place of work or vice versa
• Travel for personal reasons, like running errands on the way to or from work
• Travel for overtime or out-of-hours work
• Travel from your home (which is also your place of work for one job) to another location where you work for someone else

Other circumstances that allow travel deduction claims

You may be able to claim certain tax deductions on your income tax return for work-related travel expenses if you attend a work conference or course. If the event occurs locally, you may be able to claim transport or mileage, and if the event is held interstate or overseas, you may be able to claim accommodation, airfares and meals. 

In all cases, we strongly recommend speaking with a tax agent to ensure you apply the correct deductions and make all the allowable claims appropriate to your circumstances. For everything you need to know about tax deductions, QuickBooks’ Guide to Tax Deductions in Australia offers a great starting point.

Maximise your tax refund with QuickBooks

Are you tired of manually tracking the mileage on your work-related trips and managing receipts for tax purposes? This is where QuickBooks tax software can help! 

With the QuickBooks mobile app, everything’s a breeze:

• mileage tracking: QuickBooks uses GPS to automatically detect and track your driving, so you’ll never miss a trip.
• snap & store: easily snap receipts, extract information, categorise, and match to a transaction—say goodbye to your pile of receipts.

Save time, prevent manual errors and maximise claimable expenses. Everything you need in one location accessible at home, on site or on the go. Flexibility, ease and convenience, at your fingertips.

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