ATO guidance on costs of travelling

19 February 2021

In brief

On 17 February 2021, the Australian Taxation Office (ATO) released the following new guidance in relation to whether an employee is “travelling on work” or otherwise, and the income tax and fringe benefits tax (FBT) treatment of associated travel expenses: 

Draft Taxation Ruling TR 2021/D1: Income tax and fringe benefit tax: employees: accommodation and food and drinks expenses; travel allowances; and living-away-from-home allowances 

Draft Practical Compliance Guideline PCG 2021/D1: Determining if allowances or benefits provided to an employee relate to travelling on work or living at a location – ATO compliance approach, and

Taxation Ruling TR 2021/1: Income tax: when are deductions allowed for employees’ transport expenses?

TR 2021/D1 overhauls the ATO’s public guidance with respect to deductibility of expenses for accommodation, food and drinks and incidentals. Importantly, the draft Ruling also provides the ATO’s preliminary views on the following concepts which generally underpin the deductibility analysis:

  • living expenses which are non-deductible as they are not incurred in performing an employee's income-producing activities, and
  • travelling on work costs which are deductible where they have a sufficiently close connection to the performance of employment duties.

The practical compliance approach set out in PCG 2021/D1 allows taxpayers to determine whether an employee is ‘travelling on work’ or ‘living at a location’. Subject to certain conditions, an employee is deemed to be travelling on work if they are away for no more than 21 consecutive days, and fewer than 90 days in the same work location in a FBT year.

TR 2021/1 continues to reaffirm the general principles around deductibility and associated FBT implications of employee transport expenses, which include that:

  • an employee’s costs of travelling between home and a regular place of work are not deductible; and 
  • travel expenses incurred in the performance of an employee’s employment duties are deductible.

TR 2021/1, which applies before and after its issue date, replaces commensurate transport deductibility guidance in the now withdrawn Draft Taxation Ruling 2017/D6 Income tax and fringe benefits tax: when are deductions allowed for employees’ travel expenses? (TR 2017/D6) and finalises the previously issued Draft Ruling TR 2019/D7. When finalised, TR 2021/D1 and PCG 2021/D1 are also proposed to apply to before and after their date of issue, similarly replacing relevant principles from TR 2017/D6.

Employers should consider how the new guidance may impact any travel benefits provided in the current FBT year and also former FBT years, particularly where application of previous guidance may lead to a different outcome. It is relevant to note that all three documents make reference to the Commissioner of Taxation having regard to earlier ATO guidance, and a taxpayer’s reliance thereon, in deciding whether or not to apply compliance resources with respect to relevant tax matters.

In detail

TR 2021/D1 - travelling vs living expenses

Where an employer provides an allowance, or pays or reimburses an employee for travel expenses, including accommodation, food and drink and incidentals, the costs may be deductible (or ‘otherwise deductible’ for FBT purposes) in certain circumstances.

In detailing the ATO’s preliminary view regarding deductibility principles, TR 2021/D1 makes a distinction between the following concepts:

  • living expenses which are non-deductible. Although these costs are a prerequisite for gaining or producing an employee’s assessable income, they are not incurred in performing an employee's income-producing activities and are also private or domestic in nature; and 
  • travelling on work costs which are deductible if they have a sufficiently close connection to the performance of the employment duties and activities through which the employee earns income.

The draft Ruling also sets out that, if any of the following apply, the employee will not be “travelling on work” and therefore, expenses incurred will be non-deductible living expenses:

  • Personal circumstances: The employee’s personal circumstances are such that they live far away from where they gain or produce their assessable income and the expenses are incurred as a result;
  • Living at a location: The employee has a new regular place of work which is away from their usual residence and therefore the resulting expenses are not an incident of their income-earning activity; and
  • Relocation: The employee has relocated from their usual residence, regardless of whether moving to the new location is required by the employer, such that any expenses are living expenses.

The draft Ruling provides guidance in terms of the factors to consider in determining whether an individual is living at a location or relocating. 

TR 2021/D1 also distinguishes between certain types of allowances provided by employers to employees:

  • travel allowances which can only be paid to cover deductible accommodation, food and drink and incidental expenses incurred by an employee when they are “travelling on work”; and
  • living-away-from-home allowances (considered for FBT purposes) which are paid to provide compensation to an employee for the additional living expenses incurred by an employee because their duties of employment require them to live at a location away from their usual residence.

TR 2021/D1 also provides guidance on the deductibility of incidental expenses and additional property expenses, in addition to commentary on apportionment of expenses and substantiation requirements.

PCG 2021/D1 - travelling on work or living at a location - ATO compliance approach

Although TR 2021/D1 provides principles and factors to assess whether an employee is travelling on work or living at a location’, PCG 2021/D1 provides a practical compliance approach in making such a determination. 

According to PCG 2021/D1, the Commissioner will accept that an employee is ‘travelling on work”, and will generally not apply compliance resources to determine if benefits alternatively relate to expenses for living at a location, when all of the following circumstances are satisfied:


The employer:  The employee:                               
  • provides an allowance to an employee or pays or reimburses accommodation and food and drink expenses for the employee;

  • does not provide the reimbursement or payment as part of a salary-packaging arrangement and the employee is not given the option to elect to receive additional remuneration in lieu;

  • includes the travel allowance on the employee’s payment summary or income statement and withholds tax, where appropriate; and

  • obtains and retains the relevant documentation to substantiate the fact that all of these circumstances are met.
  • is away from their normal residence for work purposes;
  • does not work on a fly‑in fly‑out or drive‑in drive-out basis;
  • is away for a short‑term period being
    • no more than 21 days at a time continuously, and
    • an overall aggregate period of fewer than 90 days (that is, the most being 89 days) in the same work location in an FBT year; and
  • must return to their normal residence when their period away ends.

The 21 day rule of thumb was discarded by the ATO many years ago due to taxpayers increasingly regarding it as a fixed threshold when distinguishing between “travelling on work” and living away from home. This concept is now re-activated in PCG 2021/D1 but together with further criteria that provide sufficient integrity.

TR 2021/1 - Transport expenses

TR 2021/1 finalises TR 2019/D7 and details that transport expenses (for example, in respect to an airline, train, taxi, car, bus, boat or other vehicle) will be deductible where they are incurred in gaining or producing assessable income. This Ruling stipulates that this characterisation will be supported where the travel:

  • fits within the duties of employment (i.e. the obligation to incur the transport expenses arises out of the employment itself and not the employee’s personal circumstances); and
  • is relevant to the practical demands of carrying out the employee’s work duties or role (i.e. the transport expenses are a necessary consequence of the employee’s income-producing activity).

The Ruling also provides the following additional factors that may be relevant in determining the whether a transport expense is incurred in gaining or producing assessable income:

  • the employer asks for the travel to be undertaken
  • the travel occurs on work time, and 
  • the travel occurs when the employee is under the direction and control of the employer.

In conjunction with these factors, the Ruling continues to address what constitutes a regular place of work, along with the deductibility of benefits in specific scenarios, inclusive of employees who are on-call or standby, working from home, or transporting bulky equipment. 

The takeaway

The release of the ATO’s new series of travel Rulings and the Practical Compliance Guideline as we head towards the close of the current FBT year are, in one sense, timely with mobility on the rise again, as COVID-19 restrictions continue to ease in Australia. Importantly, it delivers some certainty to taxpayers who have been closely watching and relying on draft Rulings over a number of years.

As the new Rulings and the Guideline apply retrospectively as well as prospectively, taxpayers who have relied on discontinued deductibility concepts in the withdrawn TR 2017/D6, such as “special demands travel” and “co-existing work locations”, should review their current arrangements for travel to validate whether it continues to be regarded as deductible (for example, because they are “travelling on work”). 

Additionally, for employers who have new projects or programs requiring benefit and travel policies to be developed, it is paramount that the new guidance is considered in determining the nature of travel and the impact of benefits for each scenario and employee cohort (for example, short-term mobilisation on construction projects versus two-year assignments). Upfront planning, including development of governance and procedures (data capture, travelling versus living determination, etc), is a necessary initiative to manage the ongoing challenges of deductibility assessment for travel arrangements. 

Submissions on the draft Ruling and PCG are due by 19 March 2021. PwC will be preparing a submission and would welcome your feedback. If you would like to contribute, please advise your relevant PwC contact.

Contact us

Greg Kent

Partner, PwC Australia

Tel: +61 412 957 101

Anne Bailey

Partner, Workforce, PwC Australia

Tel: +61 407 204 193

Adam Nicholas

Partner, Workforce, PwC Australia

Tel: +61 2 8266 8172

Norah Seddon

Workforce Leader, PwC Australia

Tel: +61 2 8266 5864

Paula Shannon

Partner, Workforce, PwC Australia

Tel: +61 421 051 476