As the FBT year comes to a close and particularly as employees begin to travel more frequently for work post-COVID, there has never been a better time for employers to ensure that they are across the travel diary requirements to support the treatment of travel benefits as ‘otherwise deductible’ in the 2023 FBT return.
What is a ‘travel diary’?
A travel diary is a record maintained by an employee that provides details of their travel movements, including the dates, places, times and duration of activities when travelling for work. While the ATO does not require travel diaries to be recorded in a specific format, minimum requirements have been outlined by the ATO in MT 2038.
Generally speaking, the maintenance of a travel diary by an employee is taken to be documentary evidence of the nature of the expenses incurred for the purpose of the employee claiming an income tax deduction.
Where such expenses are provided by the employer to an employee, either directly or via reimbursement, the maintenance of a travel diary by the employee supports the treatment of the work-related component of these travel expenses by the employer as ‘otherwise deductible’ for FBT purposes. Where a travel diary is required, this documentation must be obtained by the employer prior to the lodgement of the FBT return.
When are employees required to keep a ‘travel diary’?
There are currently two circumstances under the Fringe Benefits Tax Assessment Act 1986 in which an employee is required to maintain a travel diary in order to allow the employer to apply the otherwise deductible rule to the work-related component of their travel expenses:
- The employee was travelling overseas for a continuous period of more than 5 nights; or
- The employee was travelling within Australia for a continuous period of more than 5 nights and the travel was not undertaken exclusively in the course of gaining or producing their assessable income.
In determining whether a travel diary needs to be kept, consideration should be given to the total number of nights the employee is away from their home, including any transit time.
The failure to maintain a travel diary in the above situations may result in the travel being characterised as wholly private in nature, which could trigger FBT for the employer where the costs of the travel have been met by the employer.
What options are available to an employer if the employee has not maintained a travel diary?
In the event that a travel diary has not been maintained by an employee in the above circumstances, the ATO has provided additional guidance on another option that may be available to an employer to support the classification of travel expenses as otherwise deductible in certain circumstances.
Where the benefit provided by the employer constitutes either an expense payment or residual benefit and employees are subject to a consistently enforced prohibition on private use while travelling, the requirement to obtain a travel diary may be waived. In these circumstances, the employer may instead choose to make an annual ‘no private use declaration’ stating that the travel benefits provided were only for employment related purposes and there was no private portion, which will allow these expenses to be treated as otherwise deductible. The approved version of this declaration is available for employers to download from the ATO website.
In the absence of either a consistently enforced prohibition on private use by the employer with respect to travel benefits, or a travel diary having been provided by the employee to the employer prior to lodgement of the FBT return, the provision of travel benefits by the employer in the two circumstances outlined above will attract FBT, even if the intention was for the travel to be entirely work-related.
As overseas travel becomes more common-place, employers should ensure that they have appropriate systems and policies in place either to obtain a travel diary from the employee in respect of overseas travel greater than 5 consecutive nights, or to allow the employer to complete a no private use declaration in respect of the provision of travel benefits in these circumstances.
Proposed reduction to FBT record keeping requirements
Following announcements made by the Federal Government in the 2020-21 Federal Budget, an exposure draft of the proposed changes to FBT record keeping requirements was released by Treasury in September 2022 for public consultation. The proposed legislation gives the Commissioner of Taxation the power to modify, by legislative instrument, existing FBT record keeping obligations to allow employers to rely on existing corporate records, rather than the employee declarations and other prescribed records, to finalise their FBT returns where the Commissioner considers the alternative records adequate.
As part of this process, a draft legislative instrument was also released in relation to alternate records that the Commissioner will accept as constituting a travel diary for FBT purposes. The draft legislative instrument allows employees to rely on adequate alternative records in place of a travel diary, provided those records contain all of the following information:
- the name of the recipient receiving the benefit;
- the duration of the travel;
- for each activity undertaken by the employee in the course of producing their assessable income while undertaking the travel, the:
- place where the activity was undertaken;
- date and approximate time when the activity commenced;
- duration of the activity; and
- nature of the activity.
Following this process, Treasury Laws Amendment (2022 Measures No.4) Bill 2022 was introduced into Parliament in November 2022, which included the proposed legislative changes to the Fringe Benefits Tax Assessment Act 1986 to allow the Commissioner to make subsequent determinations by legislative instrument regarding alternate FBT related records to reduce the compliance burden on employers.
To the extent the Bill is still before Parliament at the time of writing this article, it will not apply to the 2023 FBT year as the Bill only has application to FBT years starting on or after the commencement of the Bill. Nonetheless, employers should consider whether the introduction of this Bill, once passed, will present an opportunity to revisit your approach to record keeping, particularly in relation to travel diary requirements.
If you have any questions about your FBT obligations, please reach out to your PwC specialist.
