Income tax and fringe benefits tax: employees: accommodation and food and drink expenses, travel allowances, and living-away-from-home allowances

This Ruling explains: • when an employee [1] can deduct accommodation and food and drink expenses under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) [2] when they are travelling on work, including where it is necessary to apportion [3] • the fringe benefits tax (FBT) implications, including the application of the 'otherwise deductible rule' [4] , where an employee is reimbursed for accommodation and food and drink expenses, or where the employer provides or pays for these expenses • the criteria for determining whether an allowance is a travel allowance (as defined in subsection 900-30(3)) or a living-away-from-home allowance (LAFHA) benefit (see section 30 of the Fringe Benefits Tax Assessment Act 1986 (FBTAA)) and the differences between them.

Whether accommodation and food and drink expenses are deductible depends on the facts and circumstances of each case. This Ruling uses examples to show how to determine the deductibility of these expenses in a range of situations.

This Ruling should be read in conjunction with: • Taxation Ruling TR 2020/1 Income tax: employees: deductions for work expenses under section 8-1 of the Income Tax Assessment Act 1997, which provides the foundation of general deductibility principles for work expenses [5] under section 8-1 • Practical Compliance Guideline PCG 2021/3 Determining if allowances or benefits provided to an employee relate to travelling on work or living at a location - ATO compliance approach, which sets outs the ATO compliance approach to determining if allowances or benefits provided to an employee relate to travelling on work or living at a location • Taxation Ruling TR 2021/1 Income tax: when are deductions allowed for employees' transport expenses? which provides guidance on when an employee can deduct transport expenses under section 8-1. [6]

This Ruling does not address travel, accommodation and food and drink expenses relating to self-education or study. Refer to Taxation Ruling TR 2024/3 Income tax: deductibility of self-education expenses incurred by an individual .

An employee can only deduct accommodation and food and drink expenses under section 8-1 to the extent that [8] : • they incur the expense in gaining or producing their assessable income [9] • the expense is not of a capital, private or domestic nature • the expense is not incurred in gaining or producing exempt income or non-assessable non-exempt income, and • a provision of the Act [10] does not prevent it from being deducted. [11]

If the expense an employee incurs on accommodation and food and drink meets the requirements of section 8-1, the applicable substantiation requirements [12] must also be satisfied for the employee to claim the expense as a deduction. [13]

The term 'incurred in gaining or producing assessable income' means incurred 'in the course of gaining or producing assessable income'. [14] For an expense to be incurred in gaining or producing assessable income, it is both sufficient and necessary that the occasion of the expense should be found in whatever is productive of assessable income. [15]

When determining what is productive of an employee's assessable income, consideration should be given to the scope of the employee's income-producing activities. [16]

Accommodation and food and drink expenses are ordinarily private or domestic in nature [17] and are generally not deductible under section 8-1. [18] This includes the costs an employee incurs to maintain their usual residence [19] and of consuming food and drink to go about their daily activities. For the purposes of this Ruling, such expenses will be referred to as 'living expenses'.

However, where an employee travels and stays away from their usual residence overnight [20] in the course of performing their income-producing activities and incurs accommodation and food and drink expenses, these expenses will generally be deductible under section 8-1. [21] For the purposes of this Ruling, an employee who stays away from their usual residence overnight in the course of performing their income-producing activities will be referred to as 'travelling on work'.

Conversely, a deduction cannot be claimed for food and drink expenses when the employee does not travel and stay away from their ordinary residence overnight. This is supported by the statements of Hill J in Cooper and Roads and Traffic [22] . In Cooper, Hill J stated: Food and drink are ordinarily private matters, and the essential character of expenditure on food and drink will ordinarily be private rather than having the character of a working or business expense. However, the occasion of the outgoing may operate to give the expenditure on food and drink the essential character of a working expense in cases such as those illustrated of work related entertainment or expenditure incurred while away from home. No such circumstance, however, intervenes here.

In Roads and Traffic, Hill J stated the following regarding the deductibility of food and drink: Where a taxpayer is required by his employer, and for the purposes of his employer, to reside, for periods at a time, away from home and at the work site, and that employee incurs expenditure for the cost of sustenance, or indeed other necessary expenditure which, if the taxpayer had been living at home, would clearly be private expenditure, the circumstance in which the expenditure is incurred, that is to say, the occasion of the outgoing operates to stamp that outgoing as having a business or employment related character.

In relying on those leading cases, it was held in Fardell and Commissioner of Taxation [23] : ... if the Applicant is entitled to a deduction for meals he can be so entitled only when on a trip which required him to sleep away from home. In the absence of such a requirement, the expenditure must necessarily be regarded as private in nature.

Living expenses are a prerequisite to gaining or producing an employee's assessable income and are not incurred in performing an employee's income-producing activities. Living expenses are also private or domestic in nature. [24] This means that even if these expenses were incurred in gaining or producing assessable income, they still would not be deductible due to the application of paragraph 8-1(2)(b).

While living expenses must be incurred before any assessable income can be derived, a loss or outgoing is not incurred in gaining or producing an employee's assessable income merely because it is necessary. This is particularly relevant to living expenses. [25] A person must eat and sleep somewhere, whether or not they engage in employment. [26]

To be deductible, the accommodation and food and drink expenses must have a sufficiently close connection to the performance of the employment duties and activities through which the employee earns income. It will not be enough to show some general link or causal connection between the expenditure and the production of income. [27]

The occasion of the outgoing on accommodation and food and drink must be found in the employee's income-producing activities, rather than in the personal circumstances of where the employee lives. [28]

The scope of an employee's income-producing activities is a question of fact and degree and is not confined to the day-to-day activities performed by the employee. It requires consideration of the employment contract along with: • the duties to be observed, and • the tasks to be performed [29] by the employee (which may extend beyond what is contained in the employment contract).

If an employee is required by their employer, as an incident of their employment (that is, the duties of employment), to stay away from their usual residence overnight for relatively short periods of time, the employee will be travelling on work and the occasion of the outgoing on accommodation and food and drink will generally be found in the employee's income-producing activities. [30]

Conversely, where the accommodation and food and drink expenses are incurred because the employee's personal circumstances are such that they live far away from where they gain or produce their assessable income, the occasion of the outgoing will not be found in the employee's income-producing activities. [31]

Travelling on work does not describe the activities of employees who: • are not required to sleep away from their usual residence overnight in the course of performing their income-producing activities [32] , or • choose to sleep near their workplace, rather than returning to their usual residence between their work shifts (see paragraphs 25 to 37 of this Ruling).

Mal lives in Hobart and works for an engineering firm. On occasion, Mal flies to Melbourne for meetings with clients. When he is required to attend such a meeting, Mal catches an early flight to Melbourne and returns to Hobart later the same day. Mal's employer pays him an allowance to cover the cost of his food and drink while he is in Melbourne.

The allowance Mal receives must be included in his assessable income. The expenditure Mal incurs on food and drink is not incurred in the course of gaining or producing his assessable income. The expenses are living expenses. Accordingly, Mal is not entitled to a deduction for the cost of the food and drink he incurs while he is in Melbourne.

If any of the following factors apply, the employee will not be travelling on work and the accommodation and food and drink expenses incurred will be living expenses: • The expenses are incurred because the employee's personal circumstances are such that they live far away from where they gain or produce their assessable income [33] (personal circumstances - see paragraphs 25 to 37 of this Ruling). • The employee incurs the expenses because they are living at a location [34] (living at a location - see paragraphs 38 to 78 of this Ruling). • The employee incurs the expenses as a result of relocating from their usual residence (relocation - see paragraphs 79 to 86 of this Ruling).

An employee cannot deduct accommodation and food and drink expenses they have incurred where, due to their personal circumstances, they live far away from where they gain or produce their assessable income. [35] These expenses are living expenses and are not deductible (see paragraphs 9, 14 and 15 of this Ruling).

In these circumstances, the expenses are incurred because the employee's personal circumstances are such that they keep their usual residence, rather than relocate. The occasion of the outgoing for accommodation and food and drink is not found in the employee's income-producing activities, meaning that these expenses are not incurred in the course of gaining or producing the employee's assessable income. They are private and domestic in nature.

This also applies where an employee regularly works at a particular location [36] for one or more days each week. A particular location where an employee works regularly is a regular place of work.

Michelle lives in Brisbane with her family. Michelle accepts a job in Canberra. Early on a Monday morning, Michelle catches a flight to Canberra and on Friday afternoon she returns by plane to Brisbane. On Monday to Thursday nights, Michelle stays in a serviced apartment. Sometimes she buys groceries and cooks for herself and sometimes she eats out.

The occasion of the outgoings is not explained by Michelle's employment. Rather, it is explained by her personal circumstances of living in Brisbane while working in Canberra. The expenses Michelle incurs are private and domestic in nature.

Accordingly, Michelle is not entitled to a deduction for the amount she spends on renting the serviced apartment, the groceries she buys or the food and drink she purchases when she eats out. [37]

Sue lives with her family in Sydney. Sue takes on a leadership role with a company that has offices all around Australia. The role is based in Melbourne. Sue's arrangement with her employer is that she must attend the Melbourne office at least three days per week, but at her discretion, she can work out of the Sydney office, at another office, or from home up to two days per week. Because Sue lives in Sydney, her personal circumstances allow her to work at the Sydney office two days per week for her convenience. Sue's duties do not require her to work in the Sydney office.

The occasion of Sue's travel to Melbourne and her accommodation and food and drink expenses are not explained by Sue's employment duties but rather her personal circumstances. Instead of relocating her usual residence to Melbourne, Sue's personal circumstances allow her to continue living in Sydney with her family as she has negotiated an arrangement whereby she can work from Sydney as a matter of convenience. Accordingly, the expenditure that Sue incurs on accommodation, food and drink when she travels to and stays in Melbourne is not deductible.

Where the occasion of the expenditure on accommodation and food and drink can be found in the employee's income-producing activities, rather than their personal circumstances, the employee will be travelling on work. Expenses incurred by an employee travelling on work will be incurred in gaining or producing the employee's assessable income and will be deductible.

As stated at paragraph 10 of this Ruling, where an employee travels and stays away from their usual residence overnight in the course of performing their income-producing activities, they will be travelling on work. Whether an employee travels and sleeps away from their usual residence overnight is a question of fact to be determined on a case by case basis.

The distance between the employee's usual residence / regular place of work and the location they are travelling to for work is just one factor to be considered when determining whether an employee travels and sleeps away overnight. Accordingly, the distances used in the examples in this Ruling are for illustrative purposes only.

Len lives with his family in Perth and works as a sales manager for a company that has offices all around Australia and operates nationally. Under the terms of his employment agreement, Len's regular place of work is his employer's Perth office, but he is also responsible for the other three offices located in Western Australia. Each of those other three offices are located at least 200 kilometres from where Len lives so Len travels and stays overnight the night before he visits them. Len visits the offices located outside Perth regularly for meetings, performance appraisals and to ensure the offices are meeting sales targets. He also travels to the head office in Melbourne once a month for meetings with sales managers from other regions. Len incurs expenditure on accommodation and food and drink when he visits the three offices located outside Perth and when he travels to Melbourne.

In this case, as Len's employment duties require him to travel to different offices, the expenditure he incurs on accommodation and food and drink while he is travelling to those other offices is incurred in the course of performing his employment duties. The expenditure is not incurred as a consequence of Len's personal circumstance that he lives in Perth. The occasion of the travel and his expenditure on accommodation and food and drink is explained by his income-producing activities. Accordingly, Len is entitled to a deduction for his expenditure on accommodation and food and drink when he travels away from his usual residence overnight for work purposes. [38]

Whether accommodation and food and drink expenses are incurred in gaining or producing assessable income is a question of fact.

An employee who incurs expenditure on accommodation and food and drink in the course of performing their income-producing activities is likely to be travelling on work and the expenses will be deductible (see paragraphs 10 and 16 to 23 of this Ruling).

However, where an employee is living at a location away from their usual residence [39] , their accommodation and food and drink expenses are living expenses and will not be deductible even if the employee is living at that location due to their employment (see paragraphs 9, 14 and 15 of this Ruling).

This is because, where the location at which the employee works has become their new regular place of work, the accommodation and food and drink expenses are not an incident of their income-earning activity. Rather, the employee's personal circumstances are such that their usual residence is not located near their new workplace. Consequently, the employee is living at a location away from their usual residence and their accommodation and food and drink expenses will not be deductible.

The following factors would support a characterisation of an employee as living at a location away from their usual residence: • there is a change in the employee's regular place of work [40] • the length of the overall period the employee will be away from their usual residence is a relatively long one [41] • the nature of the accommodation is such that it becomes their usual residence [42] • whether the employee is, or can be, accompanied by family or visited by family and friends.

An employer will generally provide accommodation and food and drink or pay the employee an allowance (see paragraphs 120 to 144 of this Ruling) to cover the additional living expenses the employee might reasonably be expected to incur where they are required to live at a location away from their usual residence to perform their duties. [43] An employer may also reimburse the employee for the expenditure they have incurred on accommodation and food and drink (see paragraphs 116 to 119 of this Ruling).

All the factors in paragraph 42 of this Ruling should be considered and no single factor is necessarily decisive. The weight given to each factor will vary depending on the employee's individual circumstances and is not a mathematical process. Reaching a conclusion as to whether an employee is living at a location away from their usual residence is a matter of judgment which requires a holistic assessment based on a consideration of all the factors (see Examples 5, 6, 7 and 8 of this Ruling).

Where there is a change in the employee's regular place of work [44] and the employee incurs accommodation and food and drink expenses to be closer to their new regular place of work, the employee will be living at that new location away from their usual residence (see Examples 5 and 7 of this Ruling). In these circumstances, the expenses incurred are living expenses and are not deductible (see paragraphs 9, 14 and 15 of this Ruling).

Conversely, where there is no change in the employee's regular place of work and the employee incurs accommodation and food and drink expenses when they temporarily attend and stay overnight at another location in the course of carrying out their income-producing activities, the employee will not be living at the location they visit and work at temporarily. In these circumstances the employee will be travelling on work. In other words, their regular place of work and usual residence is retained, and the employee returns to them after being away for a relatively short period of time to carry out their income-producing activities. When travelling on work, the place where the employee works does not become their regular place of work and the place where they stay does not become their usual residence (see Example 6 of this Ruling).

Where an employee relocates their home, the employee is changing their usual residence and the expenses are not incurred in performing their income-producing activities (see paragraphs 79 to 86 of this Ruling). [45]

The 'length of period away' means the overall period of time the employee spends living at a particular location for work. Where an employee is living at one location for work for an extended period, that period is not broken by short trips they take from that location, for example travelling back to their usual residence on weekends or when travelling on work from that location (see Examples 5 and 6 of this Ruling).

Generally, the longer an employee spends away from their usual residence for work, the more likely the employee is living at the location.

In contrast, an employee generally will not be living at a location away from their usual residence where the overall period that they stay away from their usual residence in the course of performing their income-producing activities is reasonably short.

Just because an employee is away from their usual residence for an extended period does not necessarily mean that they are living at a location away from their usual residence. If the employment requires ongoing travel to multiple locations the employee may not be in any location long enough to be regarded as living at a location. This may be the case, for instance, with a performing artist on tour.

Conversely, there may be circumstances where an employee is living at a location away from their usual residence even though they stay away for a reasonably short period of time. For example, an employee who is required by their employer to work in a location which is distant from their usual residence/regular place of work for one year but who, for personal reasons, only ends up working at that location for one month. If that employee rented out their usual residence in anticipation of being away for a year and rented a unit near the new work location, they would still be living away from their usual residence for that one-month period even though they did not stay for the entire year. [46]

The Commissioner has provided information regarding their use of compliance resources in PCG 2021/3, which outlines the Commissioner's approach in determining whether an employee is travelling on work or living at a location.

There is no requirement to follow the guidance in PCG 2021/3 but if it is not followed then, as per paragraph 44 of this Ruling, all the factors outlined in paragraph 42 of this Ruling must be considered and applied to the facts of an employee's individual circumstances to determine whether they are travelling on work or living at a location.

If an employee has no fixed usual residence (for example, they have a transitory lifestyle and regularly change employment), the employee will not be living at a location away from their usual residence.

The nature of an employee's accommodation is relevant but does not determine whether the employee is living at a location away from their usual residence.

An employee may live and make their home in any kind of accommodation.

Generally, where an employee works away from home for a considerable period and, for that period, stays in accommodation generally used for longer-term accommodation (such as a house, unit or apartment, or caravan), this would support a view that they are living at a location away from their usual residence.

The use of short-term accommodation such as hotels and motels located close to the temporary work location is generally an indication that the employee is travelling on work.

An employee who is living at a location away from their usual residence can generally be accompanied or visited by their family and friends. However, if an employee cannot be accompanied by family or visited by family and friends, this tends to indicate that the employer retains a degree of control over the employee outside their standard work day and which may contribute to an overall impression that the employee is travelling on work during this period.

An accompanied employee should not always be treated as living at a location away from their usual residence. They can be travelling on work (see Example 11 of this Ruling). It is more likely that an employee will be living away from their usual residence where they are, or can be (but they are not), accompanied by family or visited by family and friends (see Examples 5 and 7 of this Ruling).

Yumi works as a senior executive for an employer based in Brisbane. Her employer is setting up a new office in Townsville and assigns her to the new office for a period of four months in order to assist in setting it up. After spending four months working at the Townsville office, Yumi will return to her usual employment in the Brisbane office.

During the period she is in Townsville, Yumi will occasionally travel to other locations around Australia (including Brisbane) for one or two days to attend work meetings or meet with clients. Yumi will live in a two-bedroom apartment close to the office in Townsville and her family will remain in the family home in Brisbane. However, the apartment in Townsville is big enough to accommodate Yumi's family.

Yumi will be living in Townsville away from her usual residence for the four-month period due to: • there being a change in Yumi's regular place of work from the Brisbane office to the Townsville office • the extended period of time she is going to be in Townsville (an overall period of four months) • the longer-term nature of the accommodation that she stays in while she is Townsville, and • the fact that her family could have accompanied her if they had wanted to.

The expenses that Yumi incurs on accommodation and food and drink while she is in Townsville are living expenses and will not be deductible. [47] This would not change even if Yumi returned to Brisbane each weekend to be with her family. However, when Yumi travels from Townsville to other locations around Australia for work meetings or to meet with clients, she will be travelling on work and the amount she incurs on accommodation and food and drink will be deductible.

Mario lives and works in Melbourne. He is employed by a large insurance company. Mario's regular place of work is his employer's office in Melbourne. One of Mario's duties is to train new staff. When his employer engages some new staff in its Warrnambool office (260 kilometres away), Mario is required to travel to Warrnambool to train the new staff on site for a three-week period. Mario stays in a motel near the Warrnambool office from Sunday to Thursday night for each of the three weeks he is giving the training and returns home on Friday evenings for the weekend.

Mario is not living in Warrnambool away from his usual residence for the three-week period he is giving the training because: • the Melbourne office remains Mario's regular place of work for the three-week period • the length of the overall period that Mario is away from his usual residence is reasonably short • Mario stays in short-term accommodation while he is working in Warrnambool.

The expenditure that Mario incurs on accommodation and food and drink during the period of the training is occasioned by Mario's income-producing activities. Mario is travelling on work and the expenditure he incurs on accommodation and food and drink while he is working at the Warrnambool office is deductible. [48]

An Australian-based resident company which is part of a global business sources employees with specialist skills from one of their overseas affiliates on a temporary basis. The selected overseas-based employees will stay in Australia for a period of between 90 to 120 days and will be required to work for the entire time in one location in Australia. They will: • continue to be employees of their home-country employer while seconded to the Australian-based company • not bring their family with them • stay in apartment-style accommodation while they are in Australia which will be arranged by the Australian employer.

In these circumstances, the employees are living away from their usual residence due to: • there being a change in the employees' regular place of work from their home country to Australia • the length of time the employees will be away from their usual residence in their home country • the fact that they will be staying in apartment-style accommodation while they are working in Australia.

These factors combined indicate that the employees are living in Australia (and not overseas in their home country). Accordingly, their expenditure on accommodation and food and drink are living expenses. They are a prerequisite to earning their assessable income and are not incurred in the course of gaining or producing their assessable income. The employees are not entitled to a deduction for the accommodation and food and drink expenses they have incurred for the period they are working in Australia. [49]

Carlos lives in Adelaide and is employed as an information technology (IT) designer. Carlos works in his employer's Adelaide office on projects that are usually based in and around Adelaide. Carlos' employer also has an office in Darwin. One of the projects being handled by the Darwin office is behind schedule and the employee working on it has resigned. The remaining employees working in the Darwin office are unable to pick up the work because they do not have the specialist skills required.

As Carlos has the specialist skills required to work on this project, Carlos' employer sends him to Darwin to get the project back on track. His employer believes that this will take two weeks and by the end of that period, they will have someone with the skills required employed in their Darwin office to take the project over.

During the two-week period Carlos is in Darwin, he stays in a hotel around the corner from his office and either eats meals at the hotel or at local restaurants and cafés.

Towards the end of the two-week period, Carlos is contacted by his manager and advised that they need him to stay in Darwin for a further six months to work on the project as they have been unable to replace the employee who has resigned. As Carlos is going to be away for a further six months, he finds a serviced apartment with a kitchen, an additional bedroom and a separate living area so that he can cook his own meals and have family and friends stay with him.

For the initial two-week period that Carlos is in Darwin, he is travelling on work due to: • there being no change in his regular place of work, that is, he is working in Darwin temporarily and will return to his regular place of work in Adelaide when the two-week period ends • the length of time he will be away from his usual place of residence is relatively short, and • him staying in short-term accommodation.

When Carlos is asked by his employer to stay in Darwin for a further six months, he is living away from his usual residence due to: • there being a change in Carlos' regular place of work, that is, for the six-month period, Carlos' regular place of work will be the Darwin office, not the Adelaide office • the length of time Carlos will be away from his usual place of residence is for an extended period, and • him staying in accommodation that can be used on a longer-term basis and which allows him to have his family and friends stay with him.

Based on this, Carlos is entitled to a deduction for the cost of his hotel and his meals during the initial two-week period. However, when the circumstances change and Carlos is required to stay in Darwin for a further six months, he is living away from his usual residence and the cost of his accommodation and food and drink will not be deductible during that further six-month period.

Where an employee has relocated for work, the cost of accommodation and food and drink will be living expenses (see paragraphs 9, 14 and 15 of this Ruling). [50] This will be the case regardless of whether moving to the new location is required by the employer or the work. [51]

Whether an employee has relocated is a question of fact. Factors that indicate an employee has relocated include: • they are at the new location for an extended period • they are required to move to that location permanently or indefinitely in order to perform their duties • their usual residence is no longer available for them to occupy because they have either sold it or because it has been leased or rented out long-term [52] • they are accompanied by their family and the family's belongings have been transferred to the new location • their children attend school at the new location • their spouse or partner obtains employment at the new location • they change their postal address and electoral role details to their new place of residence • they establish ties to the local community, for example, by taking up membership at local sporting and recreational clubs at the new location.

It is not necessary for a conclusion to be reached on all of these factors in order to determine whether an employee has relocated. These factors are a general guide only.

Rhia lives in Melbourne and works for an accounting company which has offices all over Australia and overseas. Given her particular skills, Rhia's employer transfers her to their office in Sydney for a period of two years. Rhia is paid an allowance to cover the cost of her move to Sydney. Rhia's family will accompany her to Sydney so she rents out the family home in Melbourne and rents a house for her and her family to live in while she is working in Sydney. Rhia's children are enrolled in school in Sydney and her spouse is also granted a transfer to his employer's office in Sydney.

Rhia has relocated to Sydney because: • she is away for an extended length of time • she is accompanied by her family • her spouse is transferred and works at his employer's Sydney office • her children attend school in Sydney, and • she has rented out her usual residence in Melbourne.

Rhia must declare the allowance she has received as assessable income. She will not be entitled to claim a deduction for the cost of relocating or her accommodation and food and drink expenses while she is working in Sydney. The expenditure is not incurred in the course of gaining or producing her assessable income. The expenses are a prerequisite to her earning her assessable income. Accordingly, Rhia's accommodation and food and drink expenses are living expenses and are private or domestic in nature.

Herman lives in Perth and is employed as a security guard. Herman's employer requires a security guard to work at a site in Broome for an indefinite period and is unable to fill the position locally. Herman is advised that he will be required to fill this position for at least 12 months. Herman is paid an allowance to cover some of his costs while he is in Broome.

Herman's employer is unaware of his domestic arrangements. Given that: • he will be in Broome for an extended period • his postal address will be the place he is staying in Broome, and • he was required to move there indefinitely in order to perform his duties, Herman has relocated to Broome. Herman's expenditure on accommodation, food and drink expenses while he is in Broome is not deductible. They are living expenses and are private or domestic in nature.

In addition to accommodation and food and drink expenses, an employee who is travelling on work may incur expenses that are incidental to the travel (incidental expenses). Incidental expenses are minor, but necessary expenses associated with travelling on work. This might include a car parking fee, a bus ticket or a charge for using the phone or internet for work-related purposes. If an employee is travelling on work and incurs incidental expenses, those expenses will be deductible under section 8-1. If the accommodation and food and drink expenses an employee incurs while they are travelling on work must be apportioned (see paragraphs 88 to 94 of this Ruling), the incidental expenses relevant to the same travel should be apportioned on the same basis. [53]

If accommodation and food and drink expenses are only partly incurred in gaining or producing assessable income, apportionment is required. Only that portion of the expense that relates to the employee's income-producing activities is deductible.

Apportionment is also required to the extent that the expenses have a capital or private or domestic nature. In cases where there is no obvious method of apportionment, it is to be done on a 'fair and reasonable' basis. [54]

Therese is employed as the regional manager of a company that operates clothing stores. Her regular place of work is in Sydney. Each year, the regional managers attend an internal five-day planning workshop held on the Gold Coast in Queensland. Therese would not have travelled to the Gold Coast but for her attendance at the workshop. Lunch is provided at the workshop each day and Therese's employer also provides dinner for all the regional managers one evening. When she travels to the Gold Coast for the workshop, Therese's husband will join her and they will stay an extra two days to have some leisure time together. While Therese is at the workshop, her husband will play golf and go to the beach.

The room Therese has booked is not influenced by her husband accompanying her and the cost of the room is the same whether one or two people stay in it. The cost of the room for the seven nights is $1,680.

Travel for the period of the workshop is an incident of Therese's employment and the expenditure she incurs on accommodation and food and drink is incurred in the course of performing her income-producing activities. Accordingly, Therese is travelling on work during that period and the accommodation expenses she incurs for the first five nights of her stay are deductible. The cost of the accommodation for the two nights after the workshop is a private expense and will not be deductible.

The full cost of the room for five nights will be deductible because Therese's choice of room and the cost of the room was not affected by her husband accompanying her. Therefore, Therese can claim a deduction of $1,200 (5/7 nights × $1,680) for the accommodation. [55]

Therese will not be entitled to a deduction in relation to the food and drink that are provided as part of the workshop (lunch each day and dinner on one evening) since she has not incurred the expenditure. However, she will be entitled to claim the cost of any other food and drink she incurs during the period of the workshop. If she eats out with her husband, only the cost of her meal will be deductible. Any food and drink Therese purchases on the last two days of her trip is not deductible because the expenses are private in nature.

When an employee is travelling on work, they usually stay in short-term accommodation close to the location that they will be performing their income-producing activities, either alone or shared with others. This may include a hotel, motel, serviced apartment, caravan or other commercial accommodation.

Employees who travel frequently to the same location may choose to rent or buy a property rather than stay in a hotel or other commercial accommodation when travelling on work.

Whether an employee can claim a deduction for expenses associated with such a property, and to what extent, depends on the ordinary principles of deductibility under section 8-1 (see paragraphs 5 to 13 of this Ruling).

A deduction is allowable for expenses incurred in financing, holding and maintaining an additional property which an employee purchases or rents if it is occupied by them as accommodation in the course of travelling on work, except to the extent the expenses are capital, private or domestic in nature. [56]

Additional property expenses that may be claimed include lease payments, rent, interest on borrowings to acquire the property, rates, land tax, property insurance and general maintenance of the building and grounds. A deduction is also allowable for the decline in value (depreciation) of depreciating assets (such as furniture and household equipment) used in connection with the property. [57]

However, if an employee's expenses in relation to the property are disproportionate to what the employee would have paid for suitable commercial accommodation for the period of travel, a deduction is not allowable to the extent that the expenses are incurred in the pursuit of another object unrelated to the earning of an employee's assessable income. [58]

Additional property expenses must also be apportioned where the property is used for private purposes, for example if the employee and their family use it for holidays, as well as for the employee's use while travelling on work.

No deduction will be allowed for additional property expenses if the travel undertaken by the employee is a consequence of the employee's personal circumstances, including their choice about where to live [59] (see paragraphs 25 to 37 of this Ruling).

Anwar is employed as an engineer. He lives with his spouse in their apartment in Adelaide near his regular place of work. As part of his role, Anwar has been assigned to work on a project in Mount Gambier (497 kilometres from Adelaide) which is expected to last for nine months. During the same nine-month period, all of Anwar's other projects are located in Adelaide. Based on other large projects he has worked on, Anwar determines that he will generally have to travel to Mount Gambier twice a month for around three nights at a time. Anwar will receive a travel allowance from his employer to cover his accommodation and food and drink expenses when he travels to Mount Gambier. Due to the frequency of his travel and his preference not to stay in a hotel, Anwar decides to rent a fully-furnished unit in Mount Gambier to stay in when he travels there.

During the nine-month period, Anwar stayed in the rented Mount Gambier property for 65 nights. When he was not there, the unit was left vacant. The rent on the unit was $210 per week so Anwar's additional property expenses for the nine-month period amount to $7,560 ($210 × 36 weeks).

Anwar determines that the weekly rent on the fully-furnished unit over the nine-month period of the project is less than the amount he would have spent if he had stayed in a hotel in Mount Gambier near the project site for 65 nights during that same period.

During the period of the project, Anwar's regular place of work remained in Adelaide and he continued living at his usual residence with his spouse. Although the project was for a period of nine months, Anwar was only away overnight from his usual residence for short periods of time, that is three nights at most each fortnight (total of 65 nights). Based on these factors, Anwar was travelling on work when he travelled to Mount Gambier. The expenditure Anwar incurred on accommodation and food and drink while he was working in Mount Gambier was incurred in the course of gaining or producing his assessable income as the occasion of the outgoings is his income-producing activities.

The cost of renting the unit is not disproportionate to the cost Anwar would have incurred if he had stayed in commercial accommodation. Therefore, Anwar will be entitled to claim a deduction of $7,560 (the amount he incurred) for accommodation expenses and the amount he spent on food and drink for the periods he was in Mount Gambier.

Anwar must declare the allowance he receives from his employer for accommodation and food and drink as assessable income in his tax return. [60]

Accommodation and food and drink expenses incurred by an employee who is travelling on work are work expenses. [61] Accordingly, these expenses [62] , which are deductible under section 8-1, can only be deducted if the employee can substantiate them by: • getting written evidence [63] • keeping travel records where that travel involves an employee being away from their ordinary residence [64] for six or more nights in a row [65] , and • retaining the written evidence and travel records for five years. [66]

There are some exceptions from the requirement to substantiate accommodation and food and drink expenses and the requirement to provide travel records for employees travelling on work. [67] These exceptions only apply when the employee receives a travel allowance. [68] A travel allowance is paid, or is to be paid by the employer, to cover losses or outgoings that the employee incurs when travelling away from their ordinary residence when undertaken in the course of their duties as an employee: • for accommodation, or • for food or drink, or • that are incidental to the travel (incidental expenses).

If the employee meets the criteria for relying on the exception from substantiation, the exception will only apply to the expenses the travel allowance is paid to cover. For example, an employer may pay for an employee's accommodation directly and then pay their employee a travel allowance to cover food and drink expenses the employee will incur while travelling on work. In these circumstances, the exception from substantiation may only apply to the food and drink expenses incurred by the employee, noting that the exception does not apply to overseas accommodation. [69]

The exception from substantiation for travel allowance expenses [70] allows an employee to claim a deduction for expenses they have incurred up to the amount the Commissioner considers reasonable (reasonable amount) [71] without having to provide written evidence [72] and, in some circumstances, travel records. [73] If an exception from substantiation applies, it does not mean that an employee can automatically deduct the reasonable amount for accommodation and food and drink expenses. In order to be able to claim a deduction under section 8-1, the employee must: • have incurred the expense (such that it was not incurred by somebody else), and • demonstrate they incurred the expense when they were travelling on work.

There may be a fringe benefit and therefore FBT implications for an employer where the employer: • reimburses an employee's accommodation or food and drink expenses, or • incurs expenditure on accommodation or food and drink in respect of an employee.

Depending on the benefits provided to the employee, it may be an expense payment fringe benefit, property fringe benefit, a board fringe benefit, a residual fringe benefit or a LAFHA fringe benefit.

Further, an allowance paid by an employer to cover the costs of an employee's accommodation and food and drink may be a travel allowance or a LAFHA (see paragraphs 120 to 144 of this Ruling).

The FBT consequences for the employer depend on the taxable value of the fringe benefit. The taxable value of a fringe benefit under the FBTAA can be reduced, potentially to nil, if the 'otherwise deductible' rule applies. Pagone J. in John Holland [74] states that this rule requires: ... a conclusion to be reached about whether the hypothetical expenditure of money would have been allowable as a deduction to the employee if the employee had incurred that expenditure. ... [It] requires the making of the assumption that the expenditure actually incurred by the employer had been incurred by the employee.

If the employee would not be able to claim a deduction (under section 8-1) for the hypothetical expenditure, the employer will not be able to use the otherwise deductible rule to reduce the value of the fringe benefit.

Accommodation and food and drink expenses incurred by an employee that are subsequently reimbursed by their employer cannot be claimed as a deduction by the employee under section 8-1. [75]

Where the reimbursement or direct payment of an employee's accommodation and food and drink by their employer gives rise to a fringe benefit, the amount paid is non-assessable non-exempt income in the hands of the employee. [76]

When an allowance is paid by an employer to cover accommodation and food and drink expenses, it is necessary to determine whether that allowance is a travel allowance [77] or a LAFHA [78] as they are subject to different taxation treatment.

Specifically, a: • travel allowance is included in an employee's assessable income under the ITAA 1997 [79] , whereas • LAFHA is a fringe benefit which is non-assessable non-exempt income in the hands of the employee [80] and may give rise to FBT which is paid by the employer.

The name of an allowance does not determine the nature of that allowance. In order to determine whether an allowance is a travel allowance or a LAFHA, it is necessary to consider the purpose for which the allowance is paid. [81]

A travel allowance is an allowance an employer pays (or is to pay) to an employee to cover losses or outgoings that: • an employee incurred for travel away from their ordinary residence [82] , either within or outside Australia, that they undertake in the course of their duties as an employee, and • are incurred for accommodation or for food or drink expenses, or expenses that are incidental to the travel. [83]

A travel allowance is assessable income. [84] However, there are some circumstances where the amount of the travel allowance does not have to be reported in an employee's tax return as assessable income. [85]

The receipt of a travel allowance, which is included in an employee's assessable income, does not give rise to an entitlement to claim a deduction for accommodation and food and drink expenses. [86] The nature of the expense and its connection to the employee's income-producing activities determines whether it is deductible (see paragraphs 5 to 13 and 16 to 23 of this Ruling).

An allowance will be a LAFHA benefit [87] where it would be concluded that some or all of the allowance is, in the nature of compensation to the employee, for: • additional expenses (not being deductible expenses) incurred by the employee, or • additional expenses (not being deductible expenses) incurred by the employee and other additional disadvantages to which the employee is subject, because the employee is required to live away from their normal residence [88] in order to perform duties of employment. As a LAHFA is a fringe benefit, it is non-assessable non-exempt income in the hands of an employee. [89]

For the purposes of section 30 of the FBTAA, an employee's normal residence is [90] : • their usual residence if the employee's usual place of residence is in Australia, or • either - the employee's usual overseas place of residence if they do not have a place in Australia where they usually reside, or - the place in Australia where they usually reside when they are in Australia (see Example 7 of this Ruling). [91]

If an allowance is only paid for the disadvantages to which the employee is subject, it will not be a LAFHA. [92] This means it will be assessable income in the hands of the employee who receives it.

The expenses of living away from home are living expenses which are not deductible (see paragraphs 9, 14 and 15 of this Ruling). [93]

The main difference between a travel allowance and a LAFHA is that a: • travel allowance can only be paid to cover deductible accommodation and food and drink expenses and incidental expenses incurred by an employee when they are travelling on work • LAFHA is paid to provide compensation to an employee for the additional living expenses incurred by an employee because their duties of employment require them live at location away from their usual residence.

Not every allowance that is paid by an employer to cover an employee's living expenses will be a LAFHA. In order to be a LAFHA, the allowance must meet the criteria in paragraphs 126 to 129 of this Ruling. Depending on the circumstances, the amount paid by the employer may also be another type of fringe benefit.

A LAFHA may also be paid partly as compensation for additional living expenses incurred by the employee and partly for other additional disadvantages to which the employee is subject, for example, disadvantages associated with isolation or the lack of normal amenities of a town or city dwelling [94] because the employee's duties require them to live away from where they usually reside.

Accordingly, to determine whether an allowance is a travel allowance or a LAFHA, it is first necessary to determine what expenditure the allowance is designed to cover or compensate the employee for and whether those expenses are deductible under section 8-1.

Roy is employed by a construction company that works on large projects all around Australia. He lives in a house in Sydney with his family and his position is located there. Roy generally works on projects in Sydney but on occasion, his employer assigns him to work on projects interstate or in regional parts of New South Wales.

During the 2019-20 income year, Roy worked on six different projects of varying lengths of time. All the projects except for one were located in or around Sydney. The other project his employer sent him to work on was in Berry, New South Wales (157 kilometres from Roy's usual residence in Sydney). Roy worked on that project from 20 January 2020 to 7 February 2020.

Under the Enterprise Bargaining Agreement under which Roy is employed, his employer is obliged to pay him an allowance to cover the cost of accommodation and food and drink when he travels and works on a project that is located more than 150 kilometres from Roy's usual residence as it is not considered possible for an employee to return home each night in those circumstances.

The night before he is due to start work on the project, Roy travels to Berry. Each Friday night, Roy returns home for the weekend and each Sunday night, travels back to Berry. During the week, Roy stays in a motel near the worksite and purchases all his meals.

Roy is not living at Berry away from his usual residence in Sydney while working on the project. This is due to the: • length of the project and the fact that the overall period of time Roy is away from his usual residence is reasonably short • location of Roy's regular place of work in Sydney does not change • short-term nature of the accommodation in which he stays while working in Berry.

The expenditure Roy incurs on accommodation and food and drink is not occasioned by Roy's personal circumstances because he lives in Sydney. Roy's travel to Berry is required to carry out his duties of employment. As such, Roy is travelling on work. The expenditure Roy incurs on his motel accommodation and food and drink while he is working in Berry is deductible. As the allowance Roy receives is to cover deductible accommodation and food and drink expenses incurred by him while he is travelling on work, the allowance Roy's employer pays him for this period is a travel allowance.

Instead of working out whether the allowance paid to Roy is for travelling or living away from home, and whether his expenses would be deductible, Roy's employer may choose to apply the compliance approach in PCG 2021/3 to determine whether the allowance they pay to Roy is a travel allowance or a LAFHA based on the number of nights he is away.

Rowan lives in Adelaide with his family and is employed at the Olympic Dam mine as an electrician on a fly-in fly-out basis. The Olympic Dam mine is located 570 kilometres from Rowan's home in Adelaide. He is employed to work at the Olympic Dam mine on an 18-month contract. He works four weeks on and two weeks off. Under the terms of his employment agreement, Rowan has the option of being provided with board and lodging or being paid an allowance of $350 per week to cover those costs.

Rowan chooses to be paid an allowance as he prefers to stay in rented accommodation with a co-worker. The two-bedroom unit which he shares with his co-worker is in Roxby Downs, located around 10 kilometres from their worksite. The rent on the unit is $200 per week so Rowan and his co-worker each pay $100 per week. Even though Rowan has to pay rent for the two weeks he is not occupying the unit, his allowance covers this additional rent expense and the expenditure he generally incurs on food and drink and rent during the four-week period he is working.

The expenses that Rowan has incurred on accommodation and food and drink while he is in Roxby Downs are living expenses and are not deductible.

The occasion of the expenditure is Rowan's personal circumstances such that he lives in Adelaide and works at the Olympic Dam mine. The allowance the employer pays him is to cover his non-deductible additional expenses because he is required to live away from his normal residence in order to perform duties of employment. The allowance is a LAFHA and not a travel allowance.

This Ruling applies both before and after its date of issue. However, the Ruling does not apply to taxpayers to the extent that it conflicts with the terms of settlement of a dispute agreed to before the date of issue of the Ruling (see paragraphs 75 to 76 of Taxation Ruling TR 2006/10 Public Rulings).

To the extent that there is any conflict between this Ruling and draft Rulings TR 2017/D6 and TR 2021/D1, the Commissioner will have regard to the earlier draft Rulings in deciding whether to apply compliance resources in relation to the income years to which the earlier draft Rulings apply.