The ATO has released its updated reasonable travel and overtime meal allowance rates for the 2026–27 income year in Taxation Determination TD 2026/4.

The overtime meal allowance has increased to $40.00, while the reasonable amounts for domestic and overseas travel have also been updated based on salary levels and travel destinations.

Although these figures are widely publicised each year, they are often misunderstood. A common misconception is that employees can automatically claim a tax deduction up to the ATO's published rates. In reality, the rules are much narrower, and applying them incorrectly could lead to deductions being denied as well as interest and penalties.

A travel allowance is the starting point

The ATO's reasonable amounts only become relevant if an employee receives a genuine travel or overtime meal allowance from their employer.

Generally, an allowance should:

• Be paid specifically to cover work-related travel or overtime meal expenses;
• Relate to particular work trips or overtime worked, rather than being a general additional payment;
• Be shown separately from normal salary or wages; and
• Be intended to help cover expenses the employee is expected to incur.

If an amount has simply been built into an employee's normal salary package or is not identified as a separate allowance, the ATO's reasonable rates generally do not apply. Instead, the normal substantiation rules will usually apply to any deduction claimed.

The reasonable rates are not an automatic deduction

One of the most common misunderstandings is that receiving a travel allowance allows an employee to automatically claim the ATO's published rate as a tax deduction.

This is not how the rules operate.

Employees can generally only claim the amount they actually spend on deductible work-related travel or overtime meal expenses. The ATO's reasonable amounts simply mean that, in certain circumstances, employees may not need to keep a receipt for every specific expense.

Importantly, the expenses must still have been incurred and they must relate to work-related activities.

Good records are still essential

Even where a genuine travel allowance has been paid, employees should still keep sufficient records to demonstrate that they incurred the expenses and that their claim is reasonable.

Useful records may include:

• A diary recording work trips and overnight travel;
• Details of meals and incidental expenses incurred while travelling;
• Bank or credit card statements showing the expenses were personally paid;
• A representative sample of receipts; and
• Where travel involves six or more consecutive nights away from home, a travel diary recording the dates, locations and purpose of the travel.

While receipts may not always be required, relying solely on the ATO's published rates without any supporting evidence could expose you to unnecessary scrutiny if your return is reviewed.

Practical tips for employees and employers

If you receive a travel or overtime meal allowance, it is worth checking that the arrangement satisfies the ATO's requirements before claiming a deduction.

Some practical steps include:

• Review your payslip. Check that the allowance is separately identified rather than being included in ordinary salary or wages.
•  Keep records throughout the year. Maintaining a simple travel diary and retaining some supporting documents is much easier than trying to recreate the information months later.
• Only claim what you actually spend. The ATO's reasonable amounts are not a target or standard deduction. They simply provide a benchmark for when the normal receipt requirements may be relaxed.
• Take extra care on longer trips. If you are away from home for six or more consecutive nights, additional travel diary requirements will generally apply.

A little preparation can avoid problems later

The updated reasonable amounts provide a useful guide for employers and employees during the 2026–27 income year, but they should not be viewed as an automatic entitlement to a tax deduction.

Understanding how the rules operate, keeping appropriate records and claiming only genuine work-related expenses can significantly reduce the risk of problems if the ATO reviews your tax return.

If you or your employees receive travel or overtime meal allowances, now is a good opportunity to review your current arrangements. We can help you confirm whether the allowances meet the ATO's requirements and what records should be kept to support any future claims.