A non-taxable allowance payable to employees (and business owners who are employed by the business) to cover some expenses when travelling away from home overnight for work.
Table of Contents
Travel Allowance Reasonable Limits
Eligibility for Travel Allowance
How can a travel allowance benefit a business owner?
An Example: Travel allowance benefit to owner compared to just claiming actual expenses incurred
What is a Travel Allowance?
Travel allowance is a payment made to an employee to cover accommodation, food, drink, or
incidental expenses incurred when they travel away from their home overnight in the course of their work duties.
For an allowance to be a travel allowance, it must be:
- Reasonably capable of meeting expected costs.
- The travel allowance must reasonably be expected to cover the costs that will be incurred while travelling overnight for work. It needs to be more than a token amount.
- For travel that involves sleeping away from home overnight.
- A meal allowance paid to an employee for travel in one day (returning same day) is not a travel allowance.
- A payment to cover a specific journey.
- Allowances that don’t cover a specific work journey are not travel allowances.
- Payment as an allowance.
- The amount paid must be a separate payment received as an allowance, and cannot be rolled into salary and wages.
- Paid to cover travel allowance expenses.
- A travel allowance must cover accommodation, meals (food or drink), and incidental expenses. It will still be a travel allowance if it only covers one or two of these expenses.
- If the payment received covers an expense other than accommodation, food or drink, or incidental expenses, it will not be a travel allowance.
Each year the Australian Taxation Office (ATO) publishes what it considers to be ‘reasonable’ amounts an employee can claim for travel expenses. The travel allowance is not required to be substantiated with receipts to prove the expenses, and is exempt from PAYGW if:
- The amount does not exceed the ‘reasonable amount’ set by the ATO.
- The employee incurs deductible travel allowance expenses.
Travel Allowance Reasonable Amounts
The ATO provides guidelines for the use of the allowance, and the reasonable amount is outlined for places within and outside of Australia on the ATO website – see Taxation Determination TD 2023/3 – Income tax: what are the reasonable travel and overtime meal allowance expense amounts for the 2023-24 income year?
The table below details the reasonable amounts for an employee with an annual salary of less than $138,790. There are other tables on the ATO website for higher annual salary amounts, other areas of Australia and other countries.
| Place | Accommodation | Food & Drink | Incidentals | Daily Total |
|---|---|---|---|---|
| Breakfast$32.10 Lunch $36.10 Dinner $61.50 |
||||
| Adelaide | $158.00 | $129.70 | $23.00 | $310.70 |
| Brisbane | $181.00 | $129.70 | $23.00 | $333.70 |
| Canberra | $178.00 | $129.70 | $23.00 | $330.70 |
| Darwin | $220.00 | $129.70 | $23.00 | $372.70 |
| Hobart | $176.00 | $129.70 | $23.00 | $328.70 |
| Melbourne | $173.00 | $129.70 | $23.00 | $325.70 |
| Perth | $180.00 | $129.70 | $23.00 | $332.70 |
| Sydney | $198.00 | $129.70 | $23.00 | $350.70 |
| High-cost country centres | See Table 4 | $129.70 | $23.00 | variable |
| Tier 2 country centres (see Table 5) | $155.00 | Breakfast$28.75 Lunch$32.80 Dinner$56.60 |
$23.00 | $296.15 |
| Other country centres | $141.00 | Breakfast$28.75 Lunch$32.80 Dinner$56.60 |
$23.00 | $282.15 |
| International Travel | See overseas travel table on ATO site | |||
The Tax Determination outlines the daily travel allowances in three categories:
- Accommodation
- Food and drink (breakfast, lunch, and dinner)
- Incidentals (including laundry, hotel extras, and phone calls)
Often, the employer will pay for accommodation directly – this leaves the food/drink and incidentals part of the ATO reasonable allowances available to be paid to the employee.
Example:
Brian, a Sales Representative employee living in Melbourne and earning less than $138,790, travels to Adelaide and his accommodation is paid for. The employee can receive a Travel Allowance of $152.70 per day away from home, for food and drink and incidental expenses.
Eligibility for Travel Allowance
To receive the allowance the person must be paid by an employer. Equally, the allowance must be paid to an employee – that is a person receiving taxable wages. Therefore a contractor charging a fee, or a director of the business who is not an employee, cannot claim the allowance. It is important to note too, that the employee does not have to be under an award to receive the allowance.
A small business owner (for example) that operates as an employee of the business can pay themselves a daily component rather than claiming the costs as a business expense.
The advantage of this is that the business receives a tax deduction for the travel allowance, and the business owner can claim a tax deduction against the full amount of the allowance.
If the travel is for more than six days, a travel diary, showing items such as dates travelled, appointments and places visited must be kept proving the business purpose of the travel. Any private travel must be excluded from the claim.
The main point about claiming travel and accommodation as tax deductions is understanding whether the travel was necessary to earn an income. For a small business, this means there needs to be a link between the travel expenses and the earning of business income.
Source: SMH – Claiming travel expenses as a small business
How much to Pay and Claim?
An employer does not have to pay the maximum reasonable allowance.
They can only pay what they can afford, and therefore may pay a significantly lower figure (subject to minimum union rates where applicable).
The ATO states “the Commissioner does not determine the amount of allowance an employee should receive or an employer should pay their employees. The amount of an allowance is a matter to be determined between the payer and the payee.” (TR 2004/6, paragraph 33)
How can a travel allowance benefit a business owner?
If you are a business owner, are an employee of your business and travel for business, there may be some advantages to you paying yourself a travel allowance instead of claiming the actual travel costs through your business.
Key points:
- The allowance that the business pays to the business owner IS tax deductible by your business
- The allowance that the business owner receives is NOT taxable
- The reasonable amounts (from the ATO) maybe greater than the actual travel expenses incurred. No tax invoices/receipts are required to be kept.
- If the travel is for more than 6 days, a travel diary, showing items such as dates travelled, appointments and places visited must be kept proving the business purpose of the travel.
- Any private travel must be excluded from the claim. For a small business, this means there needs to be a link between the travel expenses and the earning of business income.
- Follow up any meetings with clients, suppliers, etc with an email saying something like 'great to meet you' and a possible action item. This will help to confirm the business-related activity, if required in the future.
- You cannot claim the costs incurred by a spouse, unless they are substantially involved with the business and the travel must be relevant to the work the spouse does for the company.
- Fringe benefits tax may apply to the 'non-deductible' component of the travel.
An Example: Travel allowance benefit to owner compared to just claiming actual expenses incurred
George owns a small business, is employed by the business and attends a 5 day work-related conference in Sydney. His salary is below $138,790. Using the 2023-24 reasonable amounts table from the ATO we can compare the tax benefits for George between claiming the actual travel expenses incurred and paying himself the reasonable travel benefits, as detailed by the ATO.
See below
Overall George is $1,098.13 better off paying himself and having the business claim the ATO's reasonable travel benefit amount.
Obviously the outcome is different in each case, as reasonable benefit amounts will vary depending on location and salary. Also, the closer actual costs are to the reasonable benefit amount, the less overall benefit.
So, if George was to stay with relatives in Sydney for the duration of the conference, the overall benefit to him would be significantly higher.
Talk to us
If you do travel for business and feel that there may be a benefit in receiving a travel allowance instead of simply claiming the actual expenses, talk to us before you commence your travel. We'll calculate the benefit for you, talk to you about required documentation and will ensure that the expense and your pay roll item is correctly recorded.