Practical compliance guidelines for employee travel: Practically perfect?

By Hayley Lock, Partner, Andy Larmour, Director and Graeme Hartnett, Manager, KPMG Australia

Our previous article regarding Practical Compliance Guideline 2021/D1 highlighted the Australian Taxation Office’s (ATO) compliance approach when determining if allowances or benefits provided to an employee relate to travelling on work or living at a location.

The PCG incorporates a day-count test, allowing employers a numerical basis for categorisation which will allow for the possibility of, among other things, the automation of the classification-of-travel aspect of the FBT process.

Since the draft PCG’s publication a lot of conversation has taken place focusing on the implications of not meeting the requirements under the PCG, particularly where the days of a trip or combination of trips fall just the wrong side of one of the day-count tests.

This article considers whether the PCG is the silver bullet employers might have been looking for in terms of being able to relatively quickly and definitively classify whether someone is travelling on business or living away from home. 

It seeks to provide more detail on the reason for PCGs, what they are designed to do and what they are not designed to do and importantly, what happens an employer chooses not to follow the PCG.

A PCG provides guidance as to what will be accepted by the ATO as reasonable. 

However, if a scenario under consideration does not meet the requirements for the PCG to apply, this does not necessarily mean that a favourable conclusion cannot apply.

The taxpayer would of course be required to substantiate the position adopted, in the event of an ATO review/audit.

In the context of PCG 2021/D1, an employee may be required to travel to a particular location for a combined period of more than 90 days, meaning the PCG could not be relied upon.

Instead the employer would need to consider all relevant facts and circumstances.

Should these support the position that the employee was travelling for business, an employer might adopt this position, ensuring the backup to it was retained on file.

Background to PCGs

  • A PCG provides broad law administration guidance, highlighting how the ATO will administer various areas of taxation law.
  • PCGs are designed to assist a taxpayer with managing their tax affairs, by offering broader law administration guidance that highlights the ATOs assessment of relative levels of tax compliance risk. This broad guidance caters to “the masses”, as opposed to a private ruling which is more specific to an individual taxpayer’s facts and circumstances.
  • The ATO notes that a PCG may set out:

“how we assess tax compliance risk across a range of activities or arrangements in relation to a certain area of the law – where we would consider an activity or arrangement low risk (unlikely to require scrutiny) and where we might consider an activity or arrangement high risk (likely to attract scrutiny)……a practical compliance solution where tax laws are creating a heavy administrative or compliance burden, or where the tax law might be uncertain in its application.”

  • PCGs are not public rulings and they do not have the legally binding effect of a ruling.  Rather, the ATO’s aim is that PCGs should contain clear and concise statements of how they can be relied upon by the relevant classes of taxpayers to which they apply.

Concluding comments

PCG 2021/D1 sets a “safe harbour” in the sense that, provided that the requirements under the PCG are met and the PCG is used in good faith, the ATO won’t dedicate compliance resources to confirming the underlying taxation outcomes of the arrangements set out in the guidance.

If the facts and circumstances aren’t such that the PCG can be applied, the taxpayer will need to ensure a comprehensive analysis is undertaken, beyond merely measuring the number of days of travel, to determine the status of the employee who is away from the usual workplace. 

This article was originally published on KPMG Tax Now, KPMG Australia’s subscription tax news service for clients.

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