Determining work travel vs private travel – when can you claim deductions?

Employee transport expenses is a commonly claimed tax deduction, however, many bring Australian Taxation Office (ATO) scrutiny upon themselves due to incorrect recording of deductible travel costs or lack of knowledge in regards to what can be claimed and what cannot be claimed.

Put simply, employees can claim a deduction for transport expenses including the cost of travel by vehicle, as long as the travel is incurred in travelling between work locations. This may include travel by airline, train, taxi, car, bus, boat or other vehicles.

Transport expenses incurred for ordinary travel between home and a regular place of work are generally not deductible.

An employee can only deduct a transport expense 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 applicable substantiation requirements are satisfied.

A close connection between a journey and the employee’s private life is a strong indication that the travel occurs outside of the employee’s income-producing activity and is not deductible.

 

Incurred in gaining or producing assessable income

Determining whether a transport expense is incurred in gaining or producing assessable income depends on the employee’s work activities. The following factors may support a transport expense as being incurred in producing assessable income:

  • the travel occurs on work time
  • the travel occurs when the employee is under the direction of the employer
  • the travel fits within the duties of employment
  • the travel is relevant to the practical demands of carrying out the work duties
  • the employer asks for the travel to be undertaken.

 

Private travel to a regular place of work

Where the employee is travelling between home and a regular place of work, the transport expenses are usually a prerequisite to, rather than being incurred in, gaining or producing the employee’s assessable income. This is considered a consequence of living in one place and working in another. With limited exceptions, an employee’s cost of travelling between home and regular place of work are not deductible.

This is not changed by the fact that the employee performs work-related tasks at home as a matter of choice or for their convenience. Conducting some work activities whilst travelling does not convert the travel to being part of the employment if it is otherwise private.

 

Example – travel between home and a regular work location

Mischa is a public servant who works in Geelong. She lives 30km from the office and travels between home and work by train. Mischa frequently checks her work emails at home on her work phone and sometimes chooses to do some work tasks before she leaves for work, or after she gets home from work. While on the train travelling to work, Mischa sometimes uses her work phone to respond to work emails and texts and make work-related phone calls.

 Mischa’s travel is undertaken to put her in the position to undertake her duties. The cost of Mischa’s travel between her home and the office is not incurred in gaining or producing Misha’s assessable income. Rather, the travel is private travel between her home and her regular place of work and is merely a prerequisite to earning her assessable income.

 

 Regular place of work

In circumstances where an employee’s regular place of work isn’t clear, it may be necessary to consider arrangements made between the employer and the employee in more depth. In some employment arrangements there may be more than one regular workplace established. A second or subsequent place of work would become a regular place of work if it has become a normal or routine place where the employee works, such that travelling between there and the employee’s home is better characterised merely as part of the necessity of travelling to and from work.

The usual position that the cost of travel between home and regular place of work is not deductible does not change merely because:

  • the employee’s home is very distant (for example, requiring a flight) from their regular place of work.
  • a second or subsequent regular place of work is distant to the employee’s home
  • the employee needs to travel to and from their regular place of work more than once a day
  • the location of the employee’s home or their regular place of work limits the choices of travel, for instance if no public transport is available, or their regular place of work can only be reached by a particular mode of transport such as a boat.
  • the employee receives an allowance related to travel
  • the employee works overtime, or works shift hours that begin or end during the night
  • the employee stops on the way to their regular place of work to fulfil an incidental work task, such as a dentist calling into a dental laboratory to collect dentures on their way to the surgery.

 

Example – travel between home and a distant regular work location

Isabelle is a specialist technician who lives in Bendigo and works 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 Bendigo 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 Bendigo airport, return flights from Bendigo to Sydney and taxis between Bendigo 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 Bendigo and work in Sydney and are a prerequisite to gaining or producing her assessable income. Isabelle’s travel is between her home and her regular workplace is private in nature.

 

If you have any questions in regards to determining what is considered work-related travel and when you may claim it as a tax deduction, please give us a call on 03 5443 0344.

 

Source: When are deductions allowed for employees