A travel allowance is a payment made to an employee to cover expenses when he or she travels for work.
When you receive a travel allowance there are two things you need to consider; whether the allowance is assessable income and if so, how much of a tax deduction can you claim against it.
A travel allowance will generally be assessable if your employer includes it on your annual payment summary. To offset this income, travel expenses will generally be deductible where they are incurred in your work and are not of a private nature. For example, travel from home to your regular place of employment is considered private and would normally not be deductible.
Ordinarily, strict substantiation requirements must be met in order to claim any tax deduction, including for work-related travel expenses. This includes, for example, retaining all invoices/written evidence for a minimum of five years.
However, where a travel allowance is assessable and the related travel expenses are less than the reasonable amount as set by the Australian Taxation Office (ATO), you may claim a deduction without meeting these requirements. Of course the expenditure must have actually been incurred, you cannot simply claim up to the ‘reasonable amount’ if you did not actually incur it. You will also need some reasonable basis to support the amount of the expense, for example bank statements, a travel diary, or receipts. If your actual work-related travel expenses were less than the amount of your allowance, you can only claim the amount you actually spent.
When claiming tax deductions for work-related travel expenses that are in excess of your allowance, or in excess of the ATO’s reasonable amount, you will need reports to substantiate the full claim.
Finally, if your travel allowance was not shown on your payment summary, you do not have to include the allowance in your tax return, provided it was spent on work-related travel expenses. However, in this case you would not be able to claim any deductions.
If you have any further questions on travel allowances and deductions, you should discuss it with your adviser.
By Marcus Davis, Associate Partner – Tax