Are Politicians Travel Claims Fair?
In the heat of the current federal election campaign fury has broken out about politicians ‘double dipping’ on travel claims and use of Canberra properties that are owned by their families.
These claims are not claims available only to politicians – they are available to all taxpayers equally. However, politicians by the nature of their employment are in a situation that make it appear that they are unfairly getting an unjust benefit.
Simply, ‘reasonable’ travel claims of an employee who is required to travel for work purposes, are able to be claimed as tax deductions to offset the income (allowance) that they receive. The tax rules provide relief, particularly to people who have to travel extensively for work purposes. An example best illustrates the situation.
A national salesperson might travel across Australia extensively. Let’s say they typically travel around 100 nights a year, in locations where the accommodation costs are around $250 per night.
Rather than the employer booking and obtaining all hotel bills and paying them directly, they negotiate with the employee to pay them an extra $25000 travel allowance for the year, and the employee can organise their own accommodation.
As well as easing the employer’s administrative burden, the individual taxpayer can also get some relief, by claiming up to the ‘reasonable’ amount set out in ATO tax determinations, and not need to keep hundreds of tax invoices for accommodation and meals expenses, etc. If the taxpayer wishes or needs to stay in more expensive accommodation than is reasonable, such as in a temporarily high-demand tourist area where room accommodation rates might spike, then the taxpayer must retain substantiation documentation to claim more than ‘reasonable’.
So if the taxpayer only travels for 90 nights, then those 90 nights may be claimed against the allowance of income they receive from their employer. For the other 10 nights, that income is not offset, and is not ‘tax free’. Taxed is paid on the difference, when the individual lodges their income tax return.
These rules are available to anybody who needs to ravel for work, where the employer wishes to access the easier administration. It is also available to politicians.
Politicians, more than most other occupations, need to travel to one location (Canberra) frequently, for many weeks at a time. Most are not interested in staying in hotel accommodation for weeks on-end. Hotels might be okay for a holiday, but not as a long-term lifestyle.
So most will rent a property whilst in Canberra. Sensibly, some ‘political families’ who have the means to do so, decide to purchase a property in Canberra in the spouse’s name (or family trust), and then rent the property to the politician.
The rental should be set at a normal market rental, as-if the rental agreement were made on an arms-length basis. Indeed, the ATO has the view, that if the property is rented at less than market value and a tax loss is created (ie the property is overly negatively-geared), then the deductions are capped at the amount of actual rent paid, stopping any tax losses arising. This was indicated (by email) to The Australian newspaper, but this point was not properly indicated on Page 8 of the newspaper published on 24 May 2016 (online article apparently to be updated).
The politicians are not double-dipping. Stopping politicians from obtaining ‘tax free’ income and not properly allowing a taxpayer to claim tax deductions against ‘market value’ rent, would be inequitable to all taxpayers.