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506.1 Travel Payments

1. Overview

This section provides guidance on the processing of payments to employees in respect of work related travel and the obligations of the University with respect to payment summaries, tax instalment deductions and record keeping requirements under Income Tax and Fringe Benefits Tax (FBT) Legislation.

It will assist in distinguishing between 'travel allowances' to be processed via the payroll system and 'travel reimbursements' to be processed via the accounts payable system. It will also highlight the legislative requirements of both types of payments.
 
This information should be read in conjunction with the University Policy and Guidelines for Travel available at  http://info.anu.edu.au/fbs/Business_Functions/Business_Travel/Travel_Policy_Guidelines.asp 

1.1 What is the difference between a travel 'allowance' a travel 'reimbursement' and a 'travel advance'?

To determine the processing method for travel payments and the taxation obligations of these travel payments, it is necessary to distinguish between a travel allowance and a reimbursement of travel costs.

Travel Allowance

A travel allowance is a definite predetermined amount or grant to cover an estimated expense. It is paid regardless of whether the recipient incurs the expected expense. The recipient has the discretion whether or not to expend the allowance.

Travel allowances are assessable income of the recipient and may require tax instalment deductions to be withheld.

Travel Reimbursements

A travel reimbursement occurs when the recipient is compensated exactly, either in whole or in part, for an expense already incurred.

Travel reimbursements are not assessable income of the recipient but are subject to Fringe Benefits Tax legislation. For more information, see the FBT section 1201 of the manual.
 

Travel Advance

This is where a 'lump sum' is paid in the amount of the travel. The lump sum is based on a percentage of the 'budgeted' amounts. Travel advances are not assessable income but are subject to FBT legislation. Travel advances must be acquitted against the 'exact' amount of expenses actually incurred. Unused travel allowance must be repaid.

2. Travel reimbursements

2.1 What types of payments are 'reimbursements'

The intention of a reimbursement is to exactly compensate the recipient for expenditure incurred. In effect, the payment is acknowledgment that the recipient has incurred the expense on behalf of the University.

Three basic questions to consider when determining whether a particular payment qualifies as a reimbursement are:

If the answer to these questions is 'yes', then the payment is likely to qualify as a reimbursement. The fact that an amount has been calculated as fair compensation for costs incurred (or considerably less than costs expected) is not sufficient grounds for classifying the payment as a reimbursement. Unless documentary evidence is obtained by the University to substantiate the claim in full, the payment cannot be termed a reimbursement.

Here are examples illustrating the principles applied in classifying payments as reimbursements or allowances.

2.2 How are reimbursements to be processed?

Travel reimbursements are to be paid through the Accounts Payable system using the employee number as the creditor code. Vendor Code 'Get Employee'. If tax invoices are provided, the GST component can be claimed.

2.3 How are reimbursements to be documented?

In accordance with Finance and Business Reference Manual 1201 Fringe Benefits Tax, the accounts payable claim for the reimbursement (including where the payment is an advance) must clearly demonstrate the work related nature of the travel expenditure. As a result, the following information must be provided on the claim for payment: The claim must clearly demonstrate a link between the travel expenditure incurred and official University activities.

Where the payment is a reimbursement of expenditure already incurred, original supporting Tax Invoices/receipts are to be provided with the claim for payment indicating the relevance of the expenditure to the travel.

2.4 Are reimbursements taxed?

Documentation supporting the reimbursement must clearly indicate the extent to which the travel is work related. Reimbursement of travel for accompanying persons or non-work related travel will be subject to Fringe Benefits Tax to be paid by the University.

Travel reimbursements are not assessable income of the employee and hence do not appear on the employee's payment summary.

All travel expenditure for accompanying persons or other non-work related travel should be charged to account 5584 (other fringe benefits).

2.5 Ownership of supporting documents

All original documentation supporting travel reimbursement claims must be retained by the University. Where expenses have been reimbursed in full, the original documents (Tax Invoices/receipts etc) must be retained by the University in order to claim GST input tax credits.

If the employee has not been reimbursed in full for expenditure incurred they may request photocopies of documentation to support their personal income tax return.

In such cases the original documentation should be marked to indicate that the expenses have been partially reimbursed prior to photocopying.

Sample wording: A $200 contribution towards this expenditure was reimbursed by the Research School of Chemistry.
Authorised by..........................................   Date......................

This will notify accounts payable staff that copies of documentation have already been provided to the employee, and avoid the issue of multiple copies being provided. It will also assist employees in calculating their entitlement to a deduction for income tax purposes.

 

3. Travel, Field, and Survey Advances

Where the payment is only an advance, the claim must clearly indicate a commitment to acquit the advance on return from the related travel. Wherever practicable, advances should be charged against an appropriate advance account and not directly expensed. The processing and acquittal of advances should be processed as a voucher through ESP Financials using the 'Open Item Accounting' functionality - http://info.anu.edu.au/fbs/Training_and_Support/__News_and_Tips/Accounts_Payable/_2003_25.asp  This is required in order to claim GST input tax credits incurred by the employee. Supporting documentation is to be attached to the voucher register for filing in Finance and Business Services.

 

3.1 How are advances to be acquitted? Revised Draft Procedures Here

All travel advances paid through the accounts payable system are to be acquitted by the employee on their return from the travel. This means that they must provide original supporting Tax Invoices/receipts for any expenditure necessarily incurred during the travel indicating the relevance of the expenditure to the travel. This documentation should be provided within 15 days of return from travel.

The reimbursement documentation must then be totalled and reconciled to the advance paid. This should include any foreign currency conversion calculations. Any excess of the advance over expenditure incurred must be refunded by the employee and receipted back to the advance account.

Where overseas or domestic travel involves being away for 6 or more nights in a row, a travel diary must also be provided. A travel diary is a record of activities undertaken during the travel. It is not a record of expenses incurred during the travel. Taxation legislation requires that work related activities are recorded by specifying in a diary or similar document:

4. Travel Allowances (per diems)

4.1 What types of payments are 'allowances'

Allowances are payments of a definite predetermined amount to cover an estimated expense. The recipient is not required to provide documentary evidence to substantiate expenses, nor refund any excess funds.

An allowance contains an element of approximation. Whether it is considered fair compensation, a contribution towards out of pocket expenses, an entitlement or otherwise, the nature of the payment distinguishes it from a reimbursement.

Examples of travel allowances paid are:

4.2 How are allowances to be processed?

Travel allowances are to be paid through the Payroll and Personnel system using the allowance code as specified in table 4.3.1

4.3 Are travel allowances taxed?

Travel allowances are regarded as assessable income of the employee and generally subject to PAYG tax instalment deductions. However, in the following cases tax instalment deductions do not have to be made by the University (that is the employee receives the full amount of the payment) where allowances are paid: Approval has been obtained from the Australian Taxation Office (ATO), negating the requirement to deduct tax instalments on the above allowances but only when it is expected that: Where an allowance is paid in accordance with the Industrial Office circular (per diem rates) but no overnight absence is involved (part day), the University is required to deduct tax instalments from these allowances at the time of payment.

Per diem payments for work related travel involving an overnight absence and motor vehicle allowances appear on the employee's payment summary, but as a non taxable amount. In these cases, the rates paid are consistent with the approved ATO rates as based on amounts reasonably expected to be incurred for work related purposes. All other allowances are to appear on the employee's payment summary.

Per Diem/Travel Allowance Rates

The ATO TR2002/12 clearly states that the University can determine an amount up to the per diem rates specified. Many areas on campus are already paying a percent of per diem, instead of the full amount.

Extract from the ATO tax ruling TR2002/12:

"In setting the reasonable amount for purposes of this Ruling the Commission 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.  The Commissioner determines the reasonable amount only for the purposes of the tax law, ie the amount that will be accepted for exception from the requirement to obtain and keep written evidence for substantiation purposes. It is not provided for the purposes of being used for employment or industrial relations purposes in setting the amount of allowances paid.  The commissioner is not entitled under the tax law to have any specific regard to the fairness or appropriateness of the allowance paid as part of any remuneration arrangement."

 

Table 4.3.1

  Type of allowance
Allowance Code
On payment summary
Tax Deducted ?
Per diem - overnight *
180
No
No
Per diem - part day *
175
Yes
Yes
Motor Vehicle Allowance *
180
No
No
Outside Studies Program **
192
Yes
Yes
Other travel allowances
175
Yes
Yes

* Paid in accordance with University circular

** Includes other approved Professional Development Programs
 

4.4 Ownership of supporting documents

Any documentation obtained by the employee in relation to expenses intended to be covered by a travel allowance remains the property of the employee. The documents may be required to support deductions claimed on the employee's personal income tax return. This is further discussed here.

If the employee is entitled to claim a reimbursement for specific expenses associated with a duty journey in addition to a travel allowance, the documentation remains the property of the University as evidence of the entitlement to a reimbursement and substantiation for FBT purposes.

5. Payment to third parties

5.1 What are payments to third parties?

Payments for travel and related expenditure are also made directly to third parties, for example Qantas, hotels or conference organisers.

5.2 How are payments to third parties to be processed?

Payments to third parties are to be paid through the Accounts Payable system.

5.3 How are payments to third parties to be documented?

In accordance with Finance and Business Reference Manual 1201 Fringe Benefits Tax, the accounts payable claim must clearly demonstrate the work related nature of the travel expenditure. As a result, the following information must be provided on the claim for payment: The claim must clearly demonstrate a link between the travel expenditure incurred and official University activities.

The payment must be supported by original invoices indicating the relevance of the expenditure to the travel.

5.4 Are payments to third parties taxed?

Documentation supporting the reimbursement must clearly indicate the extent to which the travel is work related. Payment for travel expenditure for accompanying persons or non-work related travel will be subject to Fringe Benefits Tax to be paid by the University.

Payments to third parties are not assessable income of the employee and hence do not appear on the employee's payment summary.

All travel expenditure for accompanying persons or other non-work related travel should be charged to account 5584 (other fringe benefits).

5.5 Ownership of supporting documents

All original documentation supporting travel reimbursement claims must be retained by the University. Where expenses have been reimbursed in full, the original documents (Tax Invoices/receipts etc) must be retained by the University in order to claim GST input tax credits.

If the employee has not been reimbursed in full for expenditure incurred they may request photocopies of documentation to support their personal income tax return.

In such cases the original documentation should be marked to indicate that the expenses have been partially reimbursed prior to photocopying.

Sample wording: A $200 contribution towards this expenditure was reimbursed by the Research School of Chemistry.
Authorised by..........................................   Date......................

This will notify accounts payable staff that copies of documentation have already been provided to the employee, and avoid the issue of multiple copies being provided. It will also assist employees in calculating their entitlement to a deduction for income tax purposes.

Feedback: Please direct all comments to FBS-BusinessSolutions@anu.edu.au
The information on this page was updated on 17 Jun,2008.
This page has been authorised by Director, Finance and Business Services as the relevant officer.
URL: http://www.anu.edu.au/finance/manual/500/506_1.htm 

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