The AAT has found that a truck driver’s work expense claims exceeded the reasonable amounts for the 2012 and 2013 years and he was therefore required to substantiate the expenses, but was allowed some deductions, under the Commissioners s900-195 discretion. It also upheld the Commissioner’s decision to impose a 25% shortfall penalty.
- In the 2012 year, the taxpayer claimed deductions, through his tax agent, of $20,790 in ‘travel allowance expenses’, calculated on the basis (the agent said) of 252 nights away, making the per night/day amount for food: $82.50, just below the $87 reasonable amount, per day, set out for food, in that year (inTD 2011/17). In that year, the the taxpayer received a travel allowance of only $11,340, based on $50/night and nearly 227 overnight trips. On the basis of the 227 overnight trips, the daily food amount would have been $91.58 (above the $87 daily reasonable amount).
- In the 2013 year, the taxpayer claimed deductions, through his tax agent, of $20,706 in ‘travel allowance expenses’, calculated on the basis (the agent said) of 238 nights away, making the per night/day amount for food: $87.00, just below the $89.60 reasonable amount, per day, set out for food, in that year (in TD 2012/17). In that year, the the taxpayer received a travel allowance of only $9,525, based on $50/night and approximately 190 overnight trips. On the basis of the 190 overnight trips, the daily food amount would have been $109 (above the $89.60 daily reasonable amount).
- Before the Tribunal, the taxpayer’s tax agent made unsubstantiated claims regarding the number of days the taxpayer spent away from home, to justify the work-expense claim, as below the reasonable daily amount, allowed by the Commissioner.
- The Tribunal instead relied on information given by the taxpayer’s employer to calculate the number of days spent away from home as that information was deemed to be the more reliable.
- Based on the employer’s number of days, the taxpayer’s claims amounted to $91 and $109 per day (in the respective years) which was more than the simple arithmetic total, of reasonable amounts, for food, per day, set out in in the Commissioner’s determinations for those years (of $87 and $89.60 respectively).
- In truth, there were other problems with the claims, such as the taxpayer not being able to identify which meals he had on the trip or exactly how many.
- The underlying problem was that the taxpayer’s log book was not good enough to substantiate his trip details.
- In the objection process, the Commissioner exercised his discretion to allow deductions, despite not complying with the substantiation requirements in s900-195 of the ITAA97. He did this on the basis that the taxpayer spent about half the year away for work purposes and he withdrew money from ATM’s at least some of which would have been for food and drink. The Commissioner allowed 25% of those withdrawals as relevantly incurred, and allowed deductions for $7,405 in each of the 2012 and 2013 years.
The substantive decision – $7,405 deductions allowed pa
In any event, the AAT found, on the above basis, that that the Taxpayer’s claims exceeded the Commissioner’s ‘reasonable amount’ per day and that taxpayer was required to substantiate the whole of his work-expense travel claims. The taxpayer couldn’t do this and, technically, wasn’t entitled to any deductions (a terrible shame, as he could have ‘limited’ his claim to the reasonable amount, per day, and had at least those deductions).
But rather than allow no deductions, the Commissioner exercised his discretion, allowing 25% of what Mr Tyl had claimed. That resulted in Mr Tyl being allowed deductions of $7,405, in each year, for work-related travel expenses [though I note that $7,405 of the claimed $20,790 is about 35%].
The AAT agreed with this approach and upheld the Commissioner’s objection decision.
The shortfall penalty – 25% (lack of reasonable care) upheld
In relation to the penalty for failing to take reasonable care, the AAT said the taxpayer did not keep receipts even though he should have know that he may be required to substantiate the claims. It said the agent also erroneously advised that the taxpayer was not required to substantiate his travel expense claims. According to the Tribunal, the actions of both the taxpayer and his agent could not be regarded as having taken reasonable care and held that the 25% penalty applied by the Commissioner was the correct base penalty.
The relevant law for substantiating work related travel expenses (quite complicated – worth running through)
The law relating to claiming work related ‘travel allowance expenses’, as allowable deductions, whilst treading through the substantiation expenses, is quite complicated and worth revising.
- The expenses (typically food and accommodation) must be deductible under s8-1 of the ITAA97, which it ordinarily wouldn’t be as private expenditure. Travelling away from home, however, will mean that the expenses cease to be private, and become deductible, at the core s8-1 level.
- Subdiv 900-B, however sets out super added substantiation requirements for ‘work expenses’ before a deduction is allowed. ‘Work expenses are defined in s900-30, as expenses incurred, in deriving ‘salary and wages’, which includes ‘travel allowance expenses’.
- He has also published tax ruling about this reasonable travel allowance expense substantiation concession: TR 2004/6.
- Under s900-30, ‘travel allowance expenses’ are food and accommodation expenses ‘covered by’ a travel allowance, paid by an employer, towards the cost of being away from the taxpayer being away from his or her ordinary residence. There is, therefore, a ‘sleep away from home’ requirement.
- Without the required ‘substantiation’; the otherwise deductible amounts, will not be deductible (s900-10). There are, however, some exceptions to this.
- The main exemption is, that there is no need to substantiate ‘travel allowance expenses’, if the amount you claim, as deductions, does not exceed the amount that the Commissioner considers reasonable (s900-50). For this purpose, the Commissioner publishes ‘Tax Determinations’, setting out these reasonable amounts, each year, such as TD 2011/17, and TD 2012/17, referred to above. Both the TR and the TDs bind the Commissioner as they are ‘public rulings’.
- There is some ‘fine print’, though. The first is that the ‘travel allowance’ paid, must ‘cover’ all of the ‘travel allowance expenses’ claimed as deductions (see the definition of ‘travel allowance expenses’ in s900-30(2)). If there is no travel allowance paid, or the claim is for more than the allowance paid, then all of the travel expenses must be substantiated (see TR 2004/6 (para 76).
- Second, the taxpayer might incur ‘travel allowance expenses’, in excess of the reasonable amount, but he or she does not have to substantiate any of those expenses, as long as they do not claim deductions for more than the reasonable amount.
- Third (and conversely), if the deductions claimed, exceed the reasonable amount, they ALL have to be substantiated (as the concession is only for deductions claimed, within the reasonable limits).
- Fourth, there must be ‘travel allowance expenses’, actually incurred, for ALL of the deductions claimed. It is a common misconception that this exemption (from the substantiation requirement) does away with the underlying deductibility requirements of there being amounts incurred, that they are incurred to derive assessable income. Likewise, they must be capable of coming within this substation exemption: of not only being for ‘food’ or ‘accommodation’ but relevantly ‘covered’ by the ‘travel allowance’ amount. The Commissioner makes this point in TR 2004/6 (para 15).
- Fifth, the ‘reasonable’ amount is divided up by ‘breakfast’, ‘lunch’ and ‘dinner’ amounts which are different. It is not as simple, therefore, as adding up the maximum accommodation and 3 meals per day and applying it mechanically to the number of nights you were away. For instance, you could under calculate what is reasonable because there could be a second day’s meals (even if only one night’s accommodation). Further, you might have breakfast the first day and dinner the second day, at home, which don’t count. Alternatively, you could over calculate, if away 2 nights but left after dinner the first day and arrived home, in time for breakfast the third day (then there would be 2 nights accommodation allowed but only 3 meals allowed, in the middle day). Additionally, different amounts are allowed for different localities. In practice, the employee would have to keep a log of the date, time and place when/where the trip started and finished, together with the meals actually taken on the road (noting breakfast, lunch or dinner).
- Sixth, the concession only applies to employees (who receive a ‘travel allowance’ and incur the expenses as such). An owner-driver, could not claim the concession.
- Seventh, there is a special provision, in the TD’s for truck drivers (as applied in this case) – see for instance TD 2011/17, para 12. The Commissioner has determined that the only amounts that are reasonable, for truck drivers, are the food amounts for ‘other country centres’ and that no amount is allowed for accommodation (as they generally sleep in their truck). Claims for accommodation expenses would require documentary evidence, in accordance with the substantiation requirements (see TR 2004/6, para 72).
Reconstitution of the Tribunal
As a matter of interest, this matter was heard by Deputy President Aplins whose appointment expired before she decided the case and gave her reasons. This happens from time to time and often leaves practitioners wondering what will happen. In this case, the AAT President (by delegation to Deputy President Forgie, reconstituted the Tribunal by appointing Senior Member Fice to continue the proceedings. The relevant provisions of the Administrative Appeals Tribunal Act 1975, under which this happened are as follows.
- The President gives written directions as to who will constitute the Tribunal (s19A).
- The President can revoke the s19A directions, if the member (amongst other things) ceases to be a member (s19D(2)).
- The reconstituted Tribunal may take into account any record of the proceeding to date, including any record of the evidence (s19D(4)) and in this case, the reconstituted Tribunal did take into account all the material previously admitted into evidence and the transcript. Note that this section is only permissive, and does not require the Tribunal to proceed, without further evidence or, indeed, a re-hearing.
(Tyl v CofT  AATA 2850, AAT, Fice SM, AAT File Nos 2015/1931-1932, 10 January 2018.)
[FJM; LTN 7, 11/1/18; Tax Month January 2018]
- Did the substantiation provisions apply to the truck driver’s ‘travel allowance expense’ deduction claims?
- Did the truck driver succeed in getting deductions of more than $7,500 per year?
- Was this by complying with the substantiation provisions?
- Is the substantiation exemption, for reasonable travel allowance expense claims, allowed under s900-50?
- Can an accommodation expense, fit within this substantiation exemption?
- Can truck drivers claim accommodation costs under this substantiation exemption?
- Can you claim deductions for ‘reasonable’ level travel allowance expenses, even if they are not all incurred?