Employees who relocate for work purposes are not entitled to a tax deduction for the relocation costs and airfares they incur (as those expenses are deemed private).
In contrast, an employer is entitled to a tax deduction for paying or reimbursing an employees relocation costs. For an employee to effectively make their relocation expenses tax deductible they need to salary sacrifice their relocation costs with their employer.
This involves the employee having their gross annual wage reduced by the amount of relocation costs. The employer then either pays the relocation costs directly or reimburses the employee for the relocation costs they have already paid.
Jill relocates from Perth to Darwin for a new job and pays $11,000 relocation costs to transport her furniture. Once starting work in Darwin Jill salary sacrifices the $11,000 of expenses with her employer.
The employer reduces Jill’s gross wage for the first month by $10,000, and not $11,000, as the employer claims back the $1,000 GST input tax credits on the $11,000 relocation expenses reimbursement. The employer then reimburses Jill the $11,000 relocation costs she has incurred. This results in no overall cost to the employer. The benefits to Jill are:
- Saves $4,700 in tax (which is the tax she would have normally paid on $10,000 of salary income).
- Saves the $1,000 GST on the $11,000 relocation expenses (which is claimed back by the employer).
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Please Note: Many of the comments in this publication are general in nature and anyone intending to apply the information to practical circumstances should seek professional advice to independently verify their interpretation and the information’s applicability to their particular circumstances.