TAX on Travel Allowance – 1 July 1998

July 28, 1998

The tax treatment of travel allowances changed from Wednesday 1 July 1998.

NSW Public Sector Unions in conjunction with the NSW State Government continue to pursue an appeal against the Australian Taxation Office’s (ATO’s) refusal to grant an exemption from tax ruling TR 98-10. However in the absence of an outcome to those proceedings members should be aware of the effect of the changes.

The Department issued In-Order 1998/9 (1 May 1998) on the subject, however the Union has confirmed with the ATO that the interpretation provided in that In-Order was inaccurate. The Department’s information in In-Order 1998/15 (24 July 1998) was issued to remedy this situation.

Essentially the tax ruling establishes rules in relation to the tax deductibility of travel allowances and requirements for substantiating a claim with the ATO.

Prior to the implementation of this tax ruling on 1 July 1998, travel allowances had not been subject to the deduction of PAYE tax instalments and have not appeared on members group certificates.

The Department’s implementation of tax ruling TR 98-10 changes this because it sets down what the ATO consider to be ‘reasonable amounts’ for expenses incurred in travelling involving sleep away from home.

The ATO’s ‘reasonable amounts’ are based on allowances in the Federal Public Service awards. The amount of those allowances is determined by surveying a variety of commercial accommodation and food outlets. While the NSW Public Service travel allowance rates are determined in a similar way inconsistencies arise because of the different structure of these surveys. NSW Public Service awards have two categories; capital cities and elsewhere, whereas the Federal Public Service awards have at least five categories.

Where our award travel allowance exceeds the ATO’s ‘reasonable amount’;

the difference between the two amounts will be subject to the deduction of PAYE tax instalments at a members marginal tax rate, and

the full amount of the allowance is required to be shown as assessable income on a members group certificate

the requirements outlined in 1 & 2 above should be dispensed with where members receive additional compensation pursuant to sub-clause 26.6.5 of the award which provides for reimbursement of expenses in addition to the amount of the allowance;

26.6.5.5           Where the meal allowance or the accommodation allowance is insufficient to adequately reimburse the employee for expenses properly and reasonably incurred, a further amount may be paid so as to reimburse the employee for the additional expenses incurred subject to the following:

26.6.5.5.1        The Commissioner may require the production of receipts or other proof that expenditure was incurred.

The table below sets out the ATO’s reasonable amounts in relation to the allowance payable to members under the award. Where our award allowance exceeds the ATO’s ‘reasonable amounts’ the difference appears in bold print. Where our award allowance is less than the ATO’s ‘reasonable amount’ the difference appears as a negative in brackets < – $ >.

ATO Category	ATO reasonable amount	Award travel allowance	Difference
High cost country centres Newcastle Wollongong	$159.20 $135.70	$122.45 $122.45	< – $36.75 > < – $13.25 >
Tier 2 country centres Broken Hill Gosford Griffith Leeton Maitland Orange Wagga Wagga	$116.95 $116.95 $116.95 $116.95 $116.95 $116.95 $116.95	$122.45 $122.45 $122.45 $122.45 $122.45 $122.45 $122.45	$5.50 $5.50 $5.50 $5.50 $5.50 $5.50 $5.50
Other country centres	$107.95	$122.45	$14.50
Sydney	$180.20	$171.85	< – $8.35 >
Canberra	$136.20	$171.85	$14.50

The practical effect of the implementation of the tax ruling is that members who

want to claim a tax deduction for travel allowances in their tax returns, without keeping written evidence, will have to limit their claim to the ATO’s ‘reasonable amount’. To claims a tax deduction above the reasonable amount, members will need to have written evidence to support the whole of their claim, not just the excess over the reasonable amount.

Where members choose not to keep written evidence and limit their tax deduction claim to the ATO’s ‘reasonable amount’ the worst case scenario would apply to the ‘other country centres’ and Canberra categories utilising a marginal tax rate of 49%. In these circumstances the value of the allowance for ‘other country centres’ for example would effectively be reduced from $122.45 to $115.34.

In cases where our award travel allowance is less than the ATO’s ‘reasonable amount’ ie; Sydney, Newcastle and Wollongong;

1. no PAYE tax instalments are required to be deducted from the travel allowance, and

1. there is no requirement for the allowance to appear on member’s group certificates

1. members should be aware that sub-clause 26.6.5 of the award provides for reimbursement of expenses in addition to the amount of the allowance;

26.6.5.5           Where the meal allowance or the accommodation allowance is insufficient to adequately reimburse the employee for expenses properly and reasonably incurred, a further amount may be paid so as to reimburse the employee for the additional expenses incurred subject to the following:

26.6.5.5.1        The Commissioner may require the production of receipts or other proof that expenditure was incurred.

Tax ruling TR 98-10 sets different ‘reasonable limits’ for workers on different salary levels which is elitist and contrary to the principles of progressive taxation. The salary range affected in the 1998/99 financial year involves members with an annual salary below $68,228. This includes all ranks up to Inspector until the pay rise due in February 1999. Inspectors will no longer be affected when the pay rise takes effect.

Members should direct any issues arising from these changes to their rep. on the State Committee of Management (SCOM). Members who want a copy of the tax ruling or clarification on this notice should contact Industrial Officer Kirsten Cameron at the Union Office.

Kirsten Cameron

Industrial Officer

for State Secretary

28 July, 1998