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FARDELL v FC of T

Members:
Mr J Block DP
Mr S E Frost SM

Tribunal:
Administrative Appeals Tribunal, Sydney

MEDIA NEUTRAL CITATION: [2011] AATA 725

Decision date: 19 October 2011

J Block (Deputy President) and SE Frost (Senior Member)

Part A - Background

1. The objection decision under review is that dated 25 June 2010 and in terms of which the Respondent disallowed objections by the Applicant against amended assessments in respect of the tax years ended 30 June 2007 ("the 2007 year") and 30 June 2008 ("the 2008 year"). The 2007 year and the 2008 year are collectively referred to as the "relevant years".

2. The Applicant was represented by Mr D Raphael and Mr B Young of Counsel, instructed by Mr R Read, while the Respondent was represented by Ms M Hirschhorn of Counsel and instructed by ATO Legal Services.

3. The Tribunal had before it the T-Documents lodged pursuant to section 37 of the Administrative Appeals Tribunal Act 1975; in addition it admitted exhibits as follows:

Exhibit A1 Photograph of Toll's Linehaul truck facing to left
Exhibit A2 Photograph of Toll's Linehaul truck
Exhibit A3 Document relating to interstate truck driving laws
Exhibit A4 Applicant's witness statement
Exhibit A5 Statutory Declaration of Robert Read as amended
Exhibit A6 Roadhouse Menu #1
Exhibit A7 Roadhouse Menu #2
Exhibit A8 Roadhouse Menu #3
Exhibit R1 Respondent's Tender Bundle #1
Exhibit R2 Respondent's Tender Bundle #2
Exhibit R3 Respondent's Tender Bundle #3

4. The documentation before the Tribunal can fairly be described as very lengthy indeed; this is particularly so in respect of exhibits R1, R2 and R3. The Tribunal was furnished with Statements of Facts and Contentions; after the hearing on 13 September 2011 was concluded, and in accordance with a pre-arranged timetable, the Tribunal received lengthy and comprehensive submissions from both parties. The Applicant furnished written submissions dated 23 September 2011 and in addition (and shortly thereafter) addendum submissions with respect to penalty. The Respondent furnished final written submissions dated 5 October 2011 which included appendices A, B, C and D containing analyses. Although the appendices are helpful and in our view accurate, we do not think it necessary to include their content in these reasons.

5. The Tribunal was informed that this matter is of some importance in that the general question involved in this application affects, apart from the Applicant, other truck drivers employed by Toll Holdings Ltd ("Toll"); it may be noted also that Mr Read was and is the tax agent in respect of the Applicant and also a number of other truck drivers employed by Toll and whose circumstances are similar and who are interested accordingly in the outcome of this application.

6. Oral evidence was given by the Applicant and after him by Mr Read; it may be noted that Mr Read was present at the hearing during most of the period when the Applicant gave evidence, but we do not think any part of Mr Read's evidence is open to question for this reason.

7. The witness statement of the Applicant (Exhibit A4) reads as follow:

  • "1. My full name is Wayne FARDELL, I am a long distance truck driver employed by Toll Linehaul for the last nine years. I am based at their SMITHFIELD depot in Sydney. I usually pick up the B-Double around 7pm and drive in to various interstate cities. My route mainly consisted of Sydney, Adelaide, Perth and back.
  • 2. In the 2007 & 2008 financial years I had my tax returns prepared by my accountant Robert Read, the principal of the taxation practice Robert V Read & Associates. Bob advised me, as in previous years, that I was not required to obtain written evidence or receipts regarding the purchase of my meals.
  • 3. I am paid an allowance for food and drinks by Toll which is shown on my payment summary at the end of the financial year. I am paid approximately $31 for every night away. When doing my tax return I would inform Bob of the number of days away. This is based on my trip sheets.
  • 4. Bob showed me the breakdown of the meal amounts that I am entitled to claim without requiring substantiation. I advised Bob I would easily spend that much on my meals.
  • 5. I eat at Roadhouses along the highway routes. This is because they have hot meals comfortable chairs, air conditioning and television. Driving B-Doubles we are regulated to where we can park and eat.
  • 6. Due to the long period spent in the truck I like to have a hot meal so that I can relax and get out of the truck. In a typical shift I would have bacon and eggs for breakfast which costs around $15 or $16 and two cups of coffee which are $4 each. For lunch I would have the lunch special which is prepared and quickly served. It generally costs about $20.00 and I would also have two cups of coffee.
  • 7. Dinner consists of steak with salad or vegies which costs around $25 to $30 and a desert which is about $8 with two cups of coffee or coke which both cost around $4.
  • 8. I do believe that I would at anytime while driving the truck spend at least the reasonable commissioners rate for food for employee truck drivers."

8. The reasonable Commissioner's rate referred to in [8] of the Applicant's written statement is explained later in these reasons, at [11].

9.

  • a) The witness statement of Mr Read (Exhibit A5) reads in the form in which it was originally sworn as follows:
    • "1. I am the registered tax agent and accountant for Mr Fardell (' the taxpayer ').

      2007 Income Tax Return

    • 2. On 31 July 2007, and prior to the lodgment of the taxpayer's 2007 income tax return, I had a meeting with the taxpayer to discuss the expenses to be claimed as an income tax deduction in the taxpayer's 2007 income tax return.
    • 3. In the meeting, the taxpayer had advised me that his driver's truck logbooks were destroyed by water and his employer would not provide photocopies of the logbooks.
    • 4. In the meeting with the taxpayer prior to the lodgment of the 2007 income tax return, I asked the taypayer:

      I said 'How many working days were you living away from home in the period 1 July 2006 ti 30 June 2007?'

      He said '245 days'.

    • 5. In the same meeting, I then asked the taxpayer:

      I said 'On a daily basis for the days you were away, did you pay at least $78.65 per day, for meals expenses at breakfast, lunch and dinner?'

      He said 'Yes.'

    • 6. In the same meeting, I then advised the taxpayer that an income tax deduction claim for $19,269 (being 245 days × $78.65 per day) could be claimed as an income tax deduction in the 2007 income tax return on the basis of the daily rate in the ATO ruling and on the basis that the employer had a copy of the logbooks which were destroyed.

      2008 Income Tax Return

    • 7. On 22 August 2008, and prior to the lodgment of the taxpayer's 2008 income tax return, I had a meeting with the taxpayer to discuss the expenses to be claimed as an income tax deduction in the taxpayer's 2008 income tax return.
    • 8. In the meeting, the taxpayer had advised me that his driver's logbooks were destroyed by water and his employer would not provide photocopies of the logbooks.
    • 9.In the meeting with the taxpayer prior to the lodgment of the 2008 income tax return, I asked the taxpayer:

      I said 'How many working days were you living away from home in the period 1 July 2007 to 30 June 2008?'

      He said '246 days.'

    • 10. In the same meeting, I then asked the taxpayer:

      I said 'On an daily basis when you were away, did you pay at least $78.65 per day, for meal expenses at breakfast, lunch and dinner?

      He said 'Yes.'

    • 11. In the same meeting, I then advised the taxpayer that an income tax deduction claim for $19,938 (being 246 days × $81.05 per day) could be claimed as an income tax deduction in the 2008 income tax return on the basis of the daily rate in the ATO ruling and on the basis that the employer had a copy of the logbooks which were destroyed.
    • 12. In these meetings, I also informed the taxpayer that the return would be lodged based on the information provided.
    • 13. The above oral evidence was communicated to the ATO during the conduct of the ATO audit in T9-98 to T9-108, being correspondence made by my firm in relation to the ATO audit."
  • (b) When Mr Read's evidence commenced he said that he wished to effect a minor amendment to Exhibit A5. He said (TS 65) "In the statement I have said that Mr Fardell told me about the water damage to his records. That can't have been at the time of the interview for his tax return. It would have to have been at the time I called him in for his audit". Mr Read therefore sought the deletion of clause 3 of Exhibit A5 and it was tendered in this amended form.
  • (c) At a later stage of his evidence Mr Read said that he wished for similar reasons to delete clause 8 of Exhibit A5.

10. During each of the relevant years, the Applicant received from his employer (Toll) a "living away from home allowance" (referred to as LAFHA) in the Applicant's PAYG payment summaries in respect of the relevant years. That allowance is referred to in these Reasons as "LAFHA" or as "the Allowance". The Allowance received in the 2007 year was $6,516.00 and the Allowance received in the 2008 year was $6,889.00. The Applicant claimed deductions of $19,314.00 in respect of the 2007 year and $19,998.00 in respect of the 2008 year; those deductions ("the Deductions") were claimed as work-related travel expenses.

11. The Deductions were claimed by the Applicant as the cost of meals consumed by him at roadhouses along highway routes which were driven by him as a long distance truck driver employed by Toll. The Deductions were claimed by the Applicant in his tax returns yearly by reference to the Commissioner's daily rates (published by the Commissioner from time to time in Taxation Determinations) and which cover three meals per day; the daily rate in respect of the 2007 year was $78.65 pursuant to TD 2006/43 and $81.05 in the 2008 year pursuant to TD 2007/21.

12. The Deductions claimed were unquestionably significant not only in relation to the Allowance received but also in relation to the Applicant's total assessable income in respect of the relevant years. Put in approximate terms, the deductions amounted to a little more than one-fifth of the Applicant's total assessable income for the relevant years.

13. The Applicant was not able to produce any documents of any kind by way of substantiation of the cost of the meals in respect of which he sought Deductions. He said that he did not make payments by way of credit card because of a fear that the relevant credit card facility might not, for whatever reason, be available. He gave evidence as to a loss of certain records caused by water damage at his home, but the water damage in question in the evidence before the Tribunal related to his log books and not to meal vouchers; copies of relevant log books and trip sheets were produced by Toll in response to Summons.

14. The evidence before the Tribunal sets out in the clearest possible terms that the Deductions were claimed simply and purely on an arithmetical basis. The methodology employed involved in the first instance the calculation of the number of days involved and this was achieved by dividing the total Allowance for the relevant year by the amount of the applicable daily allowance; the Deduction was then claimed by reference to the number of days so calculated multiplied by the reasonable rate referred to previously in these Reasons.

15. As became clearer during the course of the hearing, the methodology employed was flawed in at least one fundamental respect. This is so because of the "change over" system which commonly applied. By way of example, the Applicant would sometimes (and apparently in general terms most usually in relation to Brisbane) drive halfway to Brisbane and then effect a change over by swapping his trailer and load with the driver coming from Brisbane whereupon the Applicant would then haul the second trailer back to Sydney. Put in other words and in respect of trips to Brisbane which were (notwithstanding Exhibit A4) the most usual trips undertaken by him, he would not in respect of a change over trip sleep away from home. It is relevant to note that the Applicant nevertheless received the Allowance in respect of change over trips which were paid by reference purely and simply to a trip in excess of a stipulated mileage. We do not think it necessary to go into detail as to hold-over payments which also were made, although on the evidence before us, comparatively rarely and certainly less frequently than was the case with change-over trips.

Part B - the issues

16. The Respondent in his final written submissions dated 5 October 2011 ("RS") described the issues (accurately in our view) in clause 8 of RS as follows:

"The application for review raises the following issues:

  • (a) Whether the Deductions met the requirements of s.8-1 ITAA 1997 during the income years? Specifically:
    • (i) whether all of the Deductions were actually 'incurred' by the Applicant in the relevant income years;
    • (ii) whether all of the Deductions were incurred by the Applicant in the course of gaining or producing his assessable income in the relevant income years (i.e. whether the 'occasion' of the Deductions was when the Applicant was travelling away from home in the course of his employment duties); and
    • (iii) whether any of the Deductions constituted a loss or outgoing of a private or domestic nature in the relevant income years (i.e. the 'occasion' of any of the Deductions was sustenance whilst at home/returning home and hence of a private nature).
  • (b) Whether the Applicant was required to substantiate the Deductions with written evidence pursuant to s.900-15 ITAA 1997 and Subdivision 900-E ITAA 1997.
  • (c) Whether the requirements for an exception to the substantiation requirements above were satisfied for the purposes of s.900-50 for 'domestic travel allowance expenses'. Specifically,
    • (i) Whether the Applicant received a 'travel allowance' (within the meaning in s.900-30(3)) during the relevant income years or a 'bona fide travel allowance' for the purposes of TR 2004/6 (refer paragraph 18); and
    • (ii) If so, whether the Applicant incurred 'travel allowance expenses') (within the meaning in s.900-30(2) or paragraph [18] of TR 2004/6) during the relevant income years.
  • (d) Whether there was any other basis for relief from the substantiation requirements?
  • (e) Whether the Applicant and/or his tax agent failed to take reasonable care in claiming the Deductions such that the Applicant is therefore subject to a penalty of 25% of the shortfall amount pursuant to s.284-75(1) and s.284-90(1)-Item 3 of Schedule 1 of the Taxation Administration Act 1953 ('TAA').
  • (f) If so, whether there is any basis for remission of the penalty pursuant to s.298-20 of Schedule 1 of the TAA."

Part C - the enterprise agreement and related matters

17. For the purposes of the relevant income years in question, the terms and conditions of the Applicant's employment were governed by:

  • a) in the 2007 income year - the Toll Linehaul Enterprise Agreement 2004 ("the 2004 EA"), which provides at clause 3.2:
    • "3.2 This Agreement shall apply throughout the Commonwealth of Australia and is to be read in conjunction with the Transport Workers' (Long Distance Drivers) Award 2000. Where there is inconsistency between this Agreement and the Award, this Agreement shall prevail."
  • b) in the 2008 income year - the Toll Linehaul Enterprise Agreement 2007 ("the 2007 EA"), which provides at clause 3.2 and 3.3:
    • "3.2 The general terms and conditions of employment covered by this Agreement shall be those prescribed by the Transport Workers' (Long Distance Drivers) Award 2000 at the date the Agreement was made. Except for any Award provisions that are prohibited content under the Workplace Relations Act 1996, the terms of the Transport Workers' (Long Distance Drivers) Award 2000 are incorporated as part of this Agreement in accordance with s355 of the Act. Where any inconsistency between the Award and the terms of this agreement arise, then the terms of this agreement will apply.
    • 3.3 This Agreement shall apply throughout the Commonwealth of Australia and is to be read in conjunction with the Transport Workers' (Long Distance Drivers) Award 2000. Where there is inconsistency between this Agreement and the Award, this Agreement shall prevail."

18. Clause 9.3 of the 2004 EA stated:

"Living Away From Home Allowance

In addition to the kilometre rate shown in Table 9.1, an employee engaged in long distance driving operations, as defined in Clause 6.6 will, for each 24 hour period spent away from home, be paid a Living Away From Home Allowance as shown in Table 9.1."

19. Clause 6.6 of the 2004 EA defined "Long distance operation" or "trip" as:

"… any return journey where the distance travelled in a 24-hour period exceeds 500 kilometres and the journey involves a principal place of commencement and a principal destination. Shuttle and relay operations shall be included in this definition."

20. Table 9.1 of the 2004 EA listed the amount to be paid for the LAFHA after 26 June 2006 as $27.04.

21. Clause 9.3 of the 2007 EA stated:

"Living Away From Home Allowance

In addition to the kilometre rate shown in Table 9.5, an employee engaged in long distance driving operations, as defined in Clause 6.9 will, be paid a Living Away from Home Allowance as shown in Table 9.5."

22. Clause 6.9 of the 2007 EA defined "Trip or Changeover" as:

"…any return journey where the distance travelled in a 24-hour period exceeds 500 kilometres and the journey involves a principal place of commencement and a principal destination. Shuttle and relay operations shall be included in this definition."

23. Table 9.5 of the 2007 EA listed the amount to be paid for the LAFHA up to 30 June 2008 as $28.39.

24. The Transport Workers' (Long Distance Drivers) Award 2000 ("the Award") came into effect on or from the beginning of the first full pay period to commence on or after February 2001 and remained in force, subject to amendments, until 31 December 2009. Clauses 20.1.1 and 20.1.2 of the Award, as amended on 9 February 2006 stated:

  • "20.1 Living Away From Home Allowance
    • 20.1.1 An employee engaged in ordinary travelling on duty or on work on which the employee is unable to return home and takes their major rest break under the applicable driving hours regulations away from home shall be paid $28.67 per occasion. This will not be payable where an employee is provided with suitable accommodation away from the vehicle. Any issue concerning what constitutes 'suitable accommodation' can be resolved through Clause 11 - Settlement of Disputes, of the Award.

      In exceptional circumstances, where amounts greater than those specified are claimed, an employee will need to demonstrate why the claim is necessary and gain approval from a representative of the employer. Such approval will not be unreasonably withheld.

    • 20.1.2 If an employee is engaged in more than one long distance operation or part thereof in a fortnight, the wages due for each long distance operation or part thereof shall be separately calculated in accordance with this clause."

Part D - the applicant's travel records

25. During the 2007 year the Applicant completed a weekly Trip Sheet in respect of the driving undertaken by him for Toll in the course of his employment duties during that week. The Trip Sheets for the 2007 year are at T26-201; T26-247.

26. During the 2007 income year, the Applicant also completed a daily log book (called the National Driver Log Book Daily Sheet), which provided further details of the trip(s) taken each day including the vehicle driven, the time spent driving, rest breaks and the time and place of departure and destination. The National Driver Log Book Daily Sheets from 20 January 2007 to 30 June 2007 are contained in Exhibit R1 at Tab 5 on pages 1-124 and from 1 July 2006 to 31 August 2006 are contained in Exhibit R2 at Tab 3 on pages 1-55.

27. During the 2008 income year, the Applicant completed a weekly Trip Sheet in respect of the driving that he undertook for his employer in the course of his employment duties that week. The Trip Sheets for the 2008 income year are at T26-248; T26-303.

28. During the 2008 income year, the Applicant also completed a daily log book (called the National Driver Log Book Daily Sheet) which provided further details of the trip(s) taken each day including the vehicle driven, the time spent driving, rest breaks and the time and place of departure and destination. The National Driver Log Book Daily Sheets from 1 July 2007 to 30 June 2008 are contained in Exhibit R1 at Tab 5 on pages 125-407.

29. Appendices A and B to the RS contain an analysis of the information contained in both the Trip Sheets and the National Driver Log Book Daily Sheets for the relevant income years together with the days the Allowance was paid pursuant to Pay records (Exhibit R1 at Tab 2 on pages 1-52) for the Applicant provided to the Tribunal by Toll under summons.

Part E - the evidence of the applicant

30. We have previously in these reasons included the content of Exhibit A4 which is the Applicant's witness statement. The Applicant's evidence-in-chief was comparatively brief and the remainder of this part relates in the main to the cross-examination of the Applicant.

31. The Respondent has in clause 20 of RS summarised the evidence of the Applicant in a form which can be accepted and it is for that reason that we include the whole of clause 20 of RS as follows:

"The oral evidence of the Applicant, Mr Fardell indicated, relevantly, the following:

  • (a) He was a line haul truck driver and his main route was between Sydney and Brisbane in the relevant income years - 90% of the time but has driven further to Townsville and has done Sydney to Perth, back to Adelaide, back to Brisbane and Sydney (Fardell in chief at T/S 11, line 46, T/S 12 at line 18-19, T/S 13, lines 36-40, but cf Fardell Witness Statement at [1] where Brisbane not mentioned and Mr Fardell said his route consisted mainly of Sydney, Adelaide, Perth and back - see Fardell XXN, T/S 34 at lines 19-27 and note no explanation for this discrepancy in response to a question from the Deputy President T/S 37, lines 9-19).
  • (b) All line haul driving was night work (Fardell in Chief at T/S 14, line 2). He was permitted to drive 14 hours per day (Fardell in Chief at T/S 14, line 7-9).
  • (c) Mr Fardell's depot for the 2007 income year was Smithfield (Fardell Witness Statement [1]) and for the 2008 income year was Eastern Creek (Fardell XXN T/S 32, lines 4-9).
  • (d) Each time Mr Fardell returned to his depot (i.e. after a trip), he then drove home to Harrington Park (near Camden) where he lived (Fardell XXN, T/S 32, lines 32-34, Fardell XXN 36, lines 4-10 re: trip sheet at T26-247).
  • (e) Mr Fardell carried a portable fridge with him in which he carried drinking water for his trips (Fardell XXN, T/S 33, lines 10-28).
  • (f) Mr Fardell was required to complete a 'trip sheet' for each trip and he filled them out each night be departed (Fardell XXN, T/S page 34, lines 35-47, page 35, lines 1-15) and he was also required to complete a National Driver Logbook Daily Sheet each time he stopped or started (Fardell XXN, T/S page 35, lines 17-22).
  • (g) Mr Fardell's most recent trip to Brisbane in 2011 (Fardell in chief T/S 14 lines 22-45, page 15, page 16 and page 17, lines 1-17) involved the following:
    • (a) Arrive at depot at 6pm, perform safety checks/collect paperwork which takes half an hour;
    • (b) Leave depot begin driving and arrive at first rest break (Beresfield) at approximately 8.30pm for evening meal (meat and vegetables, sweets and two or three coffees);
    • (c) Leave and begin driving to next rest break (Grafton) and arrive there at approximately 4am for ready made meal ('salad or whatever goes on') and coffee again.
    • (d) Leave and begin driving to next rest break (Rocklea in Brisbane) at about 7am for breakfast (bacon and eggs).
    • (e) Arrive Brisbane about 9-10am depending on traffic.
  • (h) Mr Fardell said his evidence above was 'very similar' to the 2007 and 2008 income years (Fardell in chief T/S 17 at lines 10-15; but cf Fardell XXN 40, lines 8-18 where Mr Fardell agreed Kempsey was a common place that he stopped in the 2007 income year - i.e. rather than Grafton: see also Appendix D which summarises the places where Mr Fardell stopped for rest breaks in the income years, Fardell XXN 55-56 where he agreed Kempsey, Beresfield, Urunga, Ballina were common stops in the income years).
  • (i) Mr Fardell was required by law to have a 10 hour break in Brisbane following this trip. He usually slept in his truck. Toll provided a room in Brisbane at Arcacia Ridge. Mr Fardell used the shower and amenities there but preferred to sleep in his vehicle, the sleeper berth of his truck. (Fardell in chief at T/S 17 (lines 25-46)-18 (lines 1-28)).
  • (j) Mr Fardell said that a trip to Perth took approximately 3 days. He was required to take a long break of 10 hours when he arrived in Perth (Fardell in chief T/S 19 at lines 1-5). There were only 3 trips to Perth in the 2007 income year (Fardell XXN pages 37-38).
  • (k) Mr Fardell's evidence as to what he paid for meals on his last trip to Brisbane (i.e. Wednesday 7 September 2011 i.e. Note the evidence is more than 4 years after the close of the 2007 income year and 3 years after the close of the 2008 income year) was as follows:
    • (a) Evening meal: $25 for steak, veggies, a few chips and Big Red. A cappuccino is around the $4 mark (Fardell in chief T/S 20, lines 18-37);
    • (b) Light meal at Grafton: $16-18 (Fardell in chief T/S 20, lines 36-39)
    • (c) Breakfast: $18-20 and coffee, 'between $4-$5 depending on what destination you're at' (Fardell in chief T/S 20, lines 41-47)
  • (l) Mr Fardell said he paid in cash for all his meals because he didn't take the chance of paying with a credit card in case the machine was not working and he could keep track of his money a bit better (Fardell in chief T/S 21, lines 18-25).
  • (m) In relation to Exhibits A6, A7 and A8 (the roadhouse menus from Grafton Transit Centre, Waddy Roadhouse and Caltex Gumly Gumly), they were not menus obtained by Mr Fardell himself (but other drivers that had been audited). Mr Fardell agreed that they might not have been the places that he ate at the most in the 2007 and 2008 years (Fardell XXN 56, lines 35-45). Mr Fardell could not confirm if they were 'current' menus either (Fardell XXN 57, line 15). In any case, the menus seemed to show bacon and eggs costing about $10-$10.70, main meals range from $14.50-$26 (some showing steak including vegetables for $16.50-$16.90). Mr Fardell agreed it was quite difficult to estimate too precisely exactly what he incurred in 2007 and 2008 and noted that was why he said in his statement it was 'approximately' (Fardell XXN 58, lines 34-36). He believed that he spent at least the Commissioner's rate for food for employed truck drivers (Fardell Witness Statement paragraph 8, Fardell XXN at page 58 (lines 34-47)-59 (lines 1-7)).
  • (n) In the case of Mr Fardell's trips to Brisbane, he would leave at night and get to Brisbane in the morning. That same night be would leave to return to Sydney and would arrive the next morning (i.e. Wednesday morning). In other words he would be back in Sydney two days later (cf Applicant's objection that said he was sometimes away from home for six to seven days during the income years): Fardell in chief T/S 24, lines 1-46). He said the trip was between 36-40 hours; a 12 hour drive by law each way and a 10 hour rest break (Fardell in chief T/S, lines 1-11).
  • (o) Mr Fardell explained that he sometimes did changeover trips (Fardell in chief T/S 25, lines 5-17)- he would drive halfway to Brisbane, do a changeover by meeting the Brisbane driver that came down, swap trailers and then Mr Fardell would return to Sydney. He said 'With the driving hours I require another break on the way home, so we sleep in the truck for approximately six to seven hours, and back into the Sydney Depot'. He further said at T/S 25, lines 15-17 that that day was 'Generally about 18 hours, 19 hours that day is, with my - my rest on the way back' (however cf Mr Fardell's evidence in XXN immediately below that the trips were 'generally' about 14 hours inclusive of pre/post trip tasks).
  • (p) In the relevant income years, the 'changeover trips' involved a trip to Macksville (near Nambucca about 500km from Sydney) (Fardell XXN 36, lines 17-33; note Mr Fardell concedes at line 32 he does not have stop for his rest break on these trips contrary to the evidence in the paragraph immediately above) and/or Clybucca (20km south of Macksville) (Fardell XXN 38, lines 34-41). The trip sheets (eg T documents 26-247) and log books (Respondent's Tender Bundle 2, Tab 3, page 50), indicate Mr Fardell leaves his depot at 8.30pm and arrives back at his depot at 9a.m the following morning in the case of a Changeover trip. They were 12 hour trips but with pre and post trip activities, the time away was generally 14 hours (Fardell XXN, page 42-page 44 inclusive - see T/S 44, line 25-26).
  • (q) Mr Fardell knew that he was entitled to the living away from home allowance if he drove more than 500km and that he was entitled to a living away from home allowance on the days he did his Macksville or Clybucca changeover trips despite the fact that he wasn't actually living away from home for those particular trips (Fardell XXN 44, lines 28-42). He also knew that the number of "days away" that he informed Mr Read of for the purposes of his income tax return included the days he did a changeover trip (Fardell XXN, T/S 54, lines 23-42, also at page 55, lines 14-30).
  • (r) Mr Fardell confirmed he was also doing 'Changeover trips' in the 2008 income year (Fardell XXN T/S 45-46: see at page 46, lines 18-22).
  • (s) Mr Fardell explained that a 'holdover' occurs when there is no freight for the driver and the driver has to stay the night in a particular state. Mr Fardell agreed he was entitled to a holdover allowance if this happened. (Fardell XXN T/S 47, lines 31-47). Mr Fardell's pay slip for 16 January 2008 (when a holdover occurred: see T documents T26 272 for Wednesday 16 January 2008) indicated no LAFHA was paid but instead a holdover allowance of $56.78 - see Fardell XXN T/S 48-49).
  • (t) In relation to his income tax returns, Mr Fardell said the following:
    • (a) He told Mr Read the days that he claimed living away and then Mr Read informed him of the Commissioner's amount he was allowed to claim without receipts. Mr Read would tell Mr Fardell what he believed could be claimed based on each day Mr Fardell was away (T/S 26, lines 28-36).
    • (b) In response to a question from the Deputy President at T/S 60, lines 27-34:

      THE D. PRESIDENT: So your evidence is simply this: you asked Robert Read what you were allowed to claim. He said that the Commissioner's report, as you described it, allowed you $80-$90 a day, and that's what you claimed?---Yes, sir.

      For every day that you were away, you claimed $80-$90?---Yes, sir.

      Whatever the figure was for the relevant year?---Yes, sir"

32. We consider that the evidence of the Applicant as given at the hearing is broadly and save as set out hereafter in this part acceptable.

33. Clause 20 of RS notes correctly in our view that there is a degree of discrepancy between the Applicant's oral evidence and Exhibit A4, but we do not think those discrepancies are indicative of anything other than the fact that Exhibit A4 was perhaps prepared with rather less care than was desirable.

34. The Applicant's evidence as to the cost of meals consumed by him during the relevant years, given some years after the relevant years, cannot be regarded as anything other than guess work. We think it likely that it constitutes an effort long after the event by the Applicant to reconstruct the amounts expended in order to justify a deduction in accordance with the daily rate and regardless of the fact that the Applicant did not on all relevant days eat three meals while on the road and away from home and for that matter, on some relevant days would not have slept away from home and in all probability would have eaten no meals away from home.

35. It is significant that the Applicant has not been able to produce any evidence by way of substantiation of his meals expenditure. He said as set out previously that he preferred to pay in cash because of fear of a breakdown in the credit machine. His evidence indicates that by and large and as might be expected he took his meals at the same restaurants on a regular basis; he explained that the size of his vehicle was such that parking it was possible only at a limited number of venues. On this basis evidence might have been available from the restaurants concerned for what in all probability he might have spent during the relevant years and having regard in particular to the fact that he appears to have utilised a comparatively small number of venues. Menus were exhibited but they were menus provided by other drivers. It is most likely in our view that the Applicant was not concerned with the acquisition and retention of suitable vouchers simply because he did not think it necessary to do so. That said, the Tribunal accepts that during the relevant years the Applicant did expend some amounts on meals consumed while driving his vehicle but at the same time the Tribunal cannot form any view as to how much was expended and when it was expended. It is hardly necessary to make the point that the Applicant bears the onus. In this context, there was no evidence whereby any meal vouchers would have been available; as set out previously, the loss of material due to water damage would appear on the evidence before us to relate to log books and not to meal expenditure vouchers.

Part F - the evidence of Mr Read

36. As indicated previously Mr Read was present during the giving of most of the evidence of the Applicant.

37. As was the case with the Applicant, we consider that we can deal with Mr Read's evidence by reference to clause 21 of RS which we consider to be correct, and which is included in these Reasons as follows:

"The oral evidence of the tax agent, Mr Read indicated, relevantly, the following:

  • (a) Mr Read had no memory of specifically completing Mr Fardell's income tax returns for the 2007 and 2008 income years (Read in chief at T/S 67, lines 11-17).
  • (b) Mr Read prepared two or three income tax returns for Mr Fardell before the 2007 income year but could not recall if he had similarly received a living away from home allowance (Read XXN 67, lines 37-44).
  • (c) His usual procedure in interviewing long distance truck driver clients was as follows (Read in chief at 66, lines 15-47):
    • (a) He would ask the driver for his group certificate. If it was marked 'living away from home' or 'overnight' allowance, Mr Read would assume he was a long-distance truck driver.
    • (b) He would ask the driver where he goes to.
    • (c) He would then ask if the driver could confirm the number of days he was away - has the driver added his logbooks up or has he brought a copy of the logbooks.
    • (d) If the log books were not present, Mr Read would ask for a copy of one of his payslips (weekly). He would then divide the unit allowance from the payslips into the total allowance 'to obtain the number of days'.
    • (e) He would then tell the driver that 'because you're paid an allowance, you're allowed to use the Commissioner's reasonable rate that he gazettes every year'.
    • (f) He would then ask the driver if he would have spent the Commissioner's reasonable rate/ If the driver says, yes, then the total amount would be claimed for each of the driver's days away. If he says 'less', then the claim would be less than that figure.
  • (d) For an existing client such as Mr Fardell, Mr Read would have spent 20 minutes to half an hour with him concerning his income tax return, after this meeting the tax returns were prepared in pencil by Mr Read by marking amounts on a worksheet, a computer operator would key it intothe computer, a total of income and expenses is prepared by Mr Read and he consults the Master Tax Guide to work out the client's refund, a manual check is done if the figure on the computer differs to the handwritten figure, any corrections are made and the return is then lodged (Read XXN at 68, lines 29-47 and at 69, lines 1-6).
  • (e) Mr Read was familiar with 'changeover trips' and was aware Toll paid a LAFHA for a changeover trip (Read XXN 70, lines 19-30) but the driver would not sleep away from home (Read XXN 70, line 44). He agreed that his 'arithmetic calculation' would have given the wrong answer because it would include days that the driver received a LAFHA but did not sleep away from home (Read XXN 70 at lines 32-44). He acknowledged that if he was aware there were changeovers he would make an adjustment by taking out one whole days of meals from the overall calculation for each of the changeovers (Read XXN 71, lines 1-6). He could not recall whether or not he was aware if Mr Fardell did changeovers at the time of the 2007 and 2008 income years but thought he was probably not (Read XXN 74 at lines 39-42).
  • (f) Mr Read conceded that there would be an error in Mr Fardell's income tax return with respect to changeovers (Read XXN 71, lines 16-34) and that the error would make quite a big effect on Mr Fardell's tax return (Read XXN 72 lines 44-47). He also conceded that 'we do work with the tax rulings and the rulings are fairly explicit on that. You've got to be away for 24 hours to be able to claim your meals' (Read XXN 73, lines 9-11).
  • (g) Mr Read stated that he has done tax returns for Mr Fardell since the income years in question and from the 2009 income year onwards, no meals have been claimed for changeovers (Read XXN 76 at lines 6-12).
  • (h) About 10-15% of Mr Read's other clients that claim meal expenses keep vouchers for meals that they have eaten on the road (Read XXN 76 at lines 13-14 in response to a question from the Deputy President).
  • (i) Mr Read was aware that the only way the an exception from substantiation would apply was if the LAFHA was a 'travel allowance' under the legislation or a 'bona fide travel allowance' under the Commissioner's ruling (Read XXN 77, lines 2-7).
  • (j) Mr Read saw the group certificates (T documents: T9-108 and T9-100) for Mr Fardell for the 2007 and 2008 income years which referred to 'LAFHA' and the relevant amounts (Read XXN 77, lines 27-45, at 78, lines 1-20). He did not see the Enterprise Agreement 2004 (Read XXN 78, lines 20-46) and agreed it was 'very likely' he had not seen the Enterprise Agreement 2007 (Read XXN 79, lines 5-9) until the tax audit occurred. He did not see the Transport Workers (Long Distance Drivers) Award until during the audits or post-audit (Read XXN 80, lines 5-7).
  • (k) Mr Read agreed with the proposition that his own 'arithmetic calculation does not show or prove the nights away. What it proves, only, is how many times he was paid the LAFHA unit allowance'. (Read XXN 84, lines 29-34).
  • (l) Mr Read noted in one of his answers that the LAFHA allowance doesn't appear to be CPI adjusted but the Commissioner's rate is (Read XXN 87, lines 24-26).
  • (m) Mr Read is tax agent for 12 other truck drivers that have the same taxation issue as Mr Fardell and have lodged applications in the Tribunal (Read XXN 87-88 (see lines 1-3). He did not consider seeking a ruling on this issue at the time the income tax returns were lodged (Read XXN 88, lines 1-14) and has in fact never sought a private ruling (Read re-examination 91, lines 13-19)."

38. As is the case in respect of the Applicant we see no reason to make any adverse finding of fact as regards Mr Read. At the commencement of his evidence he noted that a clause in his written statement (statutory declaration) should be deleted because it was not correct, and again as set out previously later said that another clause in his witness statement should be deleted for a similar reason.

39. Mr Read admitted that the methodology employed by him was flawed and it was necessary to allow by way of example for change-over trips. It is likely that with the benefit of hindsight he might have taken more care with the Applicant's returns. He admitted that he had not properly considered the relevant enterprise agreements.

Part G - deductions under section 8-1 of the Income Tax Assessment Act 1997 ("ITAA")

40. Section 8-1 of ITAA reads as follows:

  • "8-1 General deductions
    • (1) You can deduct from your assessable income any loss or outgoing to the extent that:
      • (a) it is incurred in gaining or producing your assessable income; or
      • (b) it is necessarily incurred in carrying on a *business for the purpose of gaining or producing your assessable income.

      Note: Division 35 prevents losses from non-commercial business activities that may contribute to a tax loss being offset against other assessable income.

    • (2) However, you cannot deduct a loss or outgoing under this section to the extent that:
      • (a) it is a loss or outgoing of capital, or of a capital nature; or
      • (b) it is a loss or outgoing of a private or domestic nature; or
      • (c) it is incurred in relation to gaining or producing your *exempt income or your *non-assessable non-exempt income; or
      • (d) a provision of this Act prevents you from deducting it.

      For a summary list of provisions about deductions, see section 12-5.

    • (3) A loss or outgoing that you can deduct under this section is called a general deduction.

      For the effect of the GST in working out deductions, see Division 27.

      Note If you receive an amount as insurance, indemnity or other recoupment of a loss or outgoing that you can deduct under this section, the amount may be included in your assessable income: see Subdivision 20-A."

41. As set out previously the Tribunal was not furnished with contemporaneous or corroborative evidence as to the fact that the Deductions were incurred during the relevant years. It should not in our view have been impossible to procure evidence as to menus and prices where the Applicant usually stopped during the relevant years.

42. It is relevant to note that the Tribunal has in other cases seen fit to reduce deductions claimed on reasonable rates and in order to ensure that they reflect the amounts actually incurred. We refer in this context to
Re McIntosh and Federal Commissioner of Taxation 2001 ATC 2272; (2001) 47 ATR 1242; [2001] AATA 702: The question as to whether the whole or part of the Deductions were incurred by the Applicant in the income years is ultimately a question of fact for the Tribunal. It is noted in other cases, pursuant to the requirements of s.8-1, the Tribunal has reduced allowable deductions claimed on the basis of the Commissioner's reasonable rates to those actually incurred by the taxpayer in the income year.

43. It is of course altogether clear that an expense cannot be claimed unless it was incurred.

44. If the amounts sought to be deducted were in fact incurred they must have been incurred in the course of producing the relevant income. Food and drink expenditure will not ordinarily provide the necessary connection to a taxpayer's earning activities (
Federal Commissioner of Taxation v Cooper 91 ATC 4396; (1991) 21 ATR 1616 at 1637.5 and 1638.2 per Hill J), but will usually be private in nature. However, there are exceptional cases (
Roads and Traffic Authority of New South Wales v Commissioner of Taxation 93 ATC 4508; (1993) 43 FCR 223 at 240, per Hill J):

"…Where a taxpayer is required by his employer, and for the purposes of his employer, to reside, for periods at a time, away from home and at the work site, and that employee incurs expenditure for the cost of sustenance, or indeed other necessary expenditure which, if the taxpayer had been living at home, would clearly be private expenditure, the circumstance in which the expenditure is incurred, that is to say, the occasion of the outgoing operates to stamp that outgoing as having a business or employment related character."

45. It seems to us, having regard to the authorities just referred to, that if the Applicant is entitled to a deduction for meals he can be so entitled only when on a trip which required him to sleep away from home. In the absence of such a requirement, the expenditure must necessarily be regarded as private in nature.

46. In clause 42 of the Applicant's submissions, the Applicant claimed that "The Applicant incurred the amounts as an income tax deduction in deriving the LAFHA of $6,408 in the year ended 30 June 2007 and the LAFHA of $6,833 in the year ended 30 June 2008".

47. We do not, however, regard that as an accurate characterisation of the factual arrangement. The Allowance was paid to the Applicant by Toll on the basis that the terms of the Enterprise Agreement were satisfied. Put in simple terms, the Allowance became payable whenever the Applicant drove his vehicle for more than 500 kilometres. The derivation of the Allowance did not depend on any expenditure on food and drink at roadhouses. In fact, we find that the Allowance (so called) is more accurately described as a "loading", payable in recognition of the inconvenience or hardship involved in long-distance driving.

48. The Applicant relies on the decision of the High Court in
Commissioner of Taxation v Anstis 2010 ATC 20-221; (2010) 241 CLR 443; [2010] HCA 40. It is our view that Anstis is distinguishable; the joint judgement of French CJ, Gummow, Kiefel and Bell JJ explained at [31]:

"The reason or motive of the respondent for incurring those education expenses, which could be characterised, for example, as obtaining a qualification to undertake future employment as a teacher, is not determinative of the question whether they were incurred in gaining or producing income. The occasion of the outgoings was to be found in what the respondent did to gain or produce, by establishing and retaining her entitlement to, the receipts provided by the terms of the social security legislation."

49. Put in succinct terms, the meal expenditure in question cannot be said to have been incurred in the derivation of the Allowance.

50. However, on a more fundamental level, some of the expenditure can be seen to have been incurred by the Applicant in the course of gaining his assessable income (represented by his standard wage plus the long-distance "loading"). This is because some of the expenditure has an "employment related character" (RTA case; see [43] above) rather than the usual private character. But in the absence of reliable information as to the amounts actually incurred, we cannot determine how much of the expenditure is within one category rather than the other. For that reason the Applicant has failed to establish that the assessments are excessive:
George v Federal Commissioner of Taxation (1952) 86 CLR 183; [1952] HCA 21 and
Federal Commissioner of Taxation v Dalco 90 ATC 4088 ; (1990) 168 CLR 614; [1990] HCA 3. Refer also to Part H of these reasons, where we discuss the substantiation requirements of the ITAA 1997.

Part H - substantiation of "work expenses" and other substantiation aspects

51. Section 900-15 provides as follows:

  • "900-15 Getting written evidence
    • (1) To deduct a *work expense:
      • (a) it must qualify as a deduction under some provision of this Act outside this Division; and
      • (b) you need to substantiate it by getting written evidence."

52. A "work expense" (s 900-30(1)) is "a loss or outgoing you incur in producing your salary or wages". "Travel allowance expenses" count as work expenses (s 900-30(2)), and we will deal with this in more detail later.

53. Section 900-20 provides:

  • "900-20 Keeping travel records
    • You need to keep travel records if your expense is for travel that involves you being away from your ordinary residence for 6 or more nights in a row.
    • The travel may be within or outside Australia. Subdivision 900-F tells you about travel records.
    • Note: Members of international flight crews may be exempt from keeping travel records for losses or outgoings covered by travel allowances: see section 900-65"

54. The general position, then, is that a taxpayer must get "written evidence" to substantiate work expenses, and must keep "travel records" for expenses related to travel of 6 or more nights in a row.

55. In the present case there is no written evidence in relation to the Deductions claimed by the Applicant in the 2007 and 2008 income years.

56. Further, there was a claim in the objection that the Applicant sometimes was away from home for 6-7 days at a time during the income years. The only evidence from the Applicant about these occasions arose during cross-examination and appears to be related to three trips to Perth in the 2007 year (and it is unclear how many such trips occurred in the 2008 income year). Neither the Applicant nor the Applicant's tax agent has produced any travel records for these extended trips.

57. Section 900-25 deals with retention of the abovementioned written evidence and travel records as follows:

  • "900-25 Retaining the written evidence and travel records
    • (1) Once you have the material required by section 900-15 or 900-20, you must retain it for 5 years. There is no need to lodge it with your *income tax return. The Commissioner may require you to produce it: see Subdivision 900-G. The period for which you must retain it is called the retention period.
    • (2) The 5 years start on the due day for lodging your *income tax return for the income year. If you lodge your return later, the 5 years start on the day you lodge it.
    • (3) However, the *retention period is extended if, when the 5 years end, you are involved in a dispute with the Commissioner that relates to the expense. See section 900-170.
    • (4) If you do not retain the material for the *retention period, you cannot deduct the expense. If you have already deducted it, your assessment may be amended to disallow the deduction.
    • (5) If you lose any of the material, there are rules that might help you in section 900-205."

58. It follows that unless there is an exception from the substantiation requirements the expenses cannot be deducted. See in particular Subdivision 900-E of ITAA 1997.

59. Contrary to the Applicant's submission at paragraphs [49] and [54] of his written submissions, the Payment Summaries (or group certificates) for the Applicant for the 2007 and 2008 years contain no references whatsoever to the expenses that the Applicant claims to have incurred on food or drink in the relevant years. That document is not "written evidence" of the expenses. At paragraph [54], the Applicant cites s 900-135 ITAA 1997. This is a provision concerned with certain expenses that are in fact shown on a Payment Summary (such as union dues) and provides that the employee's copy of the Payment Summary is written evidence of the amount of the expense. It does not have any relevance to the expenses in question in the present proceedings.

60. It is next necessary to consider the exceptions from substantiation for "domestic travel allowance expenses". For the purposes of the relevant income years, s 900-50 was in the following terms:

  • "900-50 Exception for domestic travel allowance expenses
    • (1) You can deduct a *travel allowance expense for travel within Australia without getting written evidence or keeping travel records if the Commissioner considers reasonable the total of the losses or outgoings you claim for travel covered by the allowance.
    • (2) In deciding whether the total of the losses or outgoings you claim is reasonable, the Commissioner must take into account the total of the losses or outgoings of the following kinds that it would be reasonable for you to incur for the travel:
      • (a) accommodation;
      • (b) food or drink;
      • (c) losses or outgoings incidental to the travel."

61. It is clear that the section is limited to "travel allowance expenses", which, according to s 900-30(2), are losses or outgoings you incur "for travel that is covered by a travel allowance". Furthermore, the loss or outgoing must:

  • (a) be for accommodation or for food or drink; or
  • (b) be incidental to the travel.

62. As defined in s 900-30(3), a "travel allowance" is an allowance your employer pays or is to pay to you to cover losses or outgoings:

  • (a) that you incur for travel away from your ordinary residence that you undertake in the course of your duties as an employee; and
  • (b) that are losses or outgoings for accommodation or for food or drink, or are incidental to the travel.

63. The Respondent contends, and correctly in our view, that the Allowance received by the Applicant called "LAFHA" in the relevant years was not a "travel allowance" (as defined in s 900-30) nor a "bona fide travel allowance" as defined in the same terms in paragraph 18 of the Respondent's public ruling TR 2004/6. The issue is dealt with in some considerable and commendable detail, in paragraphs 53 to 60 of RS, from which we quote only paragraph 57, as follows:

  • "57. In order to qualify for payment of the Allowance:
    • (a) For the purposes of the Enterprise Agreement 2004, firstly, it was necessary for the employee to be engaged in 'long distance driving operations' (defined in clause 6.6) and secondly, that they spend a 24-hour period away from home. Clause 6.6 defined 'Long Distance Operations' as '…any return journey where the distance travelled in 24-hour period exceeds 500 kilometres and the journey involves a principal place of commencement and a principal destination. Shuttle and relay operations shall be included in this definition'. The terms 'principal place of commencement' and 'principal destination' do not appear to be separately defined.
    • (b) On the basis of the dual requirements above, it means that even if an employee did spend a 24 hour period away from home, but drove 500 kilometres or less in that period (eg 499 kilometres) the employee would not have qualified for the Allowance. In other words, mere travel away from home was not sufficient of itself to qualify for the Allowance.
    • (c) There is no apparent reason why, if the Allowance had been paid or intended to be paid to cover an employee's losses or outgoings on food, drink or incidentals whilst living away from home (which is denied), that there should have been any distinction between employees that lived away from home but drove 500km or less in a 24 hour period on the one hand and employees that lived away from home and drove more than 500 km in a 24 hour period on the other hand. The presence of a 500 kilometre threshold is suggestive that the Allowance is instead compensating a particular category of employees engaged in long distance driving, perhaps for the hardships that this may entail (rather than to cover food or drink or incidentals whilst travelling which it is reasonable to expect would have been incurred by drivers that drove 499 or 501 kilometres in a 24 hour period alike).
    • (d) For the purposes of the Enterprise Agreement 2007, the position is even more stark in that the only requirement to qualify for the Allowance was for the employee to be engaged in 'long distance driving operations'. In clause 6.9 of the Enterprise Agreement 2007, this term was effectively defined in the same terms as clause 6.6 in the Enterprise Agreement 2004.
    • (e) In other words, for the 2008 income year, it appears that the only necessary qualification to receive the Allowance was that an employee drove more than 500km in a 24 hour period. It was not necessary for the employee to actually sleep away from home at all. Accordingly, it appears that an employee could commence and end a shift at a depot near his home and provided he drove a more than 500km round trip in a 24 hour period would qualify for the Allowance.
    • (f) On the other hand, employees that travelled 500km or less but stayed away from home overnight, again, would not appear to have qualified for the Allowance. There is insufficient relativity between the quantum of the allowance in question and the 'purpose' for which it is said to be paid.

64. Those observations are undoubtedly right, and they put paid to any argument on behalf of the Applicant that the Allowance is a "travel allowance" as defined in s 900-30. As we have already indicated, the LAFHA is simply a "loading" paid to drivers for travelling long distances. This being so, the Applicant did not incur "travel allowance expenses" because there were no losses or outgoings incurred by the Applicant for "travel that was covered by a travel allowance". It follows that the exception from substantiation in s 900-50 cannot apply to the Applicant's circumstances.

Part I - relief from substantiation

65. The Applicant has not furnished any reasons as to why he is entitled to seek relief from the substantiation rules. He claimed at the time of objection that he did suffer a loss of records caused by water damage, but the records in question were his log books; no such claim was made in respect of meal vouchers.

66. Subdivision 900-H of ITAA is entitled "relief from effects of having to substantiate" in the follow terms:

"Subdivision 900-H - Relief from effects of failing to substantiate

900-195 Commissioner's discretion to review failure to substantiate

Not doing something necessary to follow the rules in this Division does not affect your right to a deduction if the nature and quality of the evidence you have to substantiate your claim satisfies the Commissioner:

  • (a) that you incurred the expense; and
  • (b) that you are entitled to deduct the amount you claim.

900-200 Reasonable expectation that substantiation would not be required

Not doing something necessary to follow the rules in this Division does not affect your right to deduct an amount if the only reason was that you had a reasonable expectation that you would not need to do it in order to be able to deduct that amount.

900-205 What if your documents are lost or destroyed?

  • (1) If you have a complete copy of a document that is lost or destroyed during the * retention period, it is treated as the original from the time of the loss or destruction.
  • (2) If you don't have such a copy, but the Commissioner is satisfied that you took reasonable precautions to prevent the loss or destruction, the rest of this section explains what to do.
  • (3) If the lost or destroyed document was a travel record, log book or other document that is not written evidence of an expense under Subdivision 900-E, you do not need to replace it; your deduction is not affected by your failing to retain or produce the document.
  • (4) If the lost or destroyed document was written evidence, you must try to get a substitute document that meets all the original requirements (except the time limit for getting the original).
  • (5) If you succeed, your deduction is not affected by your failing to retain or produce the original document. The substitute document is treated as the original from the time of the loss or destruction.
  • (6) If it is not reasonably possible to succeed, your deduction is not affected by your failing to retain or produce the original document.
  • (7) If it is reasonably possible for you to get a substitute document, but you don't get one, this section does not protect you from the consequences of failing to retain or produce the original."

67. In relation to 900-195 the Applicant has not produced corroborative evidence as to the deductions claimed by him. The Applicant has not in fact produced any evidence in support of a contention that he is entitled to relief from the substantiation rules. As set out previously in these reasons his loss of records related to log books but not to meal vouchers. The probabilities strongly favour the proposition that he did not ever seek to receive or in fact receive or retain any of such vouchers.

Part J - The applicant's "submissions in reply"

68. On 10 October 2011 the Applicant's counsel filed with the Tribunal a document entitled "Applicant's Submissions in Reply". According to the document itself, it was filed "in accordance with our understanding of the directions of the Tribunal".

69. The timetable for the filing of written submissions after the conduct of the hearing was set by way of oral directions made by the Tribunal with the consent of the parties. It is clear from an examination of the transcript of the hearing that there was no agreement as to the filing of "submissions in reply" by the Applicant. Accordingly we decline to take that document into account.

Part K - penalty

70. Administrative penalty was imposed in this case at 25% of the tax shortfall. That 25% rate applies to a case where the shortfall results from a failure on the part of the taxpayer (or the taxpayer's agent) to take reasonable care to comply with a taxation law: see Schedule 1 to the Taxation Administration Act 1953 (TAA), s 284-75 and the table in s 284-90.

71. The first question is whether the shortfall resulted from a failure on the part of the Applicant himself to take reasonable care to comply with a taxation law. We are satisfied that it did not. The Applicant's approach to his taxation obligations seems to us to be entirely acceptable - he provided information to a registered tax agent and relied on that agent to prepare his tax return for him. It cannot reasonably be expected of a long-distance truck driver (who has engaged a registered tax agent to prepare his tax returns) that he, the driver, should undertake a detailed analysis of the taxation law and Commissioner's rulings to determine whether a draft return prepared for him by his agent contains accurate information. There is no shortcoming in the level of care taken by the Applicant in this case.

72. The second question is whether the shortfall resulted from a failure on the part of the agent, Mr Read, to take reasonable care to comply with a taxation law. In answering that question we need to take into account two particularly pertinent factors. They are, first, that the Deductions claimed by the Applicant amounted to roughly three times the level of the "allowances" against which they were claimed; and second, that the Deductions represented a little over one-fifth of the Applicant's total assessable income for the relevant years. Those two factors should, in our opinion, have caused the agent to undertake further enquiries about the so-called "LAFHA". Those enquiries may have involved an approach to the trade union involved in negotiating the Enterprise Agreements, or to Toll, or to both of them, to establish the true character of the payment to his client. We should emphasise that we are not dealing here with a case where the agent asked but got no answers, but rather with a case where the agent failed to ask the questions in the first place. In the circumstances - and all the more so, where the agent's own evidence is that he has more than 600 clients who are long-distance truck drivers - it is clear to us that the level of care taken by the agent cannot be regarded as "reasonable". For that reason the imposition of administrative penalty at the rate of 25% is undoubtedly correct.

73. But there is still the question of remission under s 298-20 in Schedule 1 to the TAA. In
Dixon v Federal Commissioner of Taxation 2008 ATC 10-047; (2008) 167 FCR 287; [2008] FCAFC 54, the Full Court of the Federal Court stated (at 292) that the relevant question to be determined when exercising the discretion to remit is:

"whether any part of the penalty should be remitted on the basis that the outcome is harsh, having regard to the particular circumstances of the Taxpayer."

74. We consider that a penalty of 25% in this case is harsh. The Applicant in giving his oral evidence was entirely open and candid. He did not try to any extent to conceal the truth, and he did not embellish his answers in the hope that we would view the facts in any more favourable way than was warranted. In short, his refreshingly straightforward and honest approach to giving his evidence was of considerable assistance to the Tribunal in its task of arriving at the correct or preferable decision. We are strongly inclined to the view that the Applicant's approach to his case in the Tribunal is reflective of his general approach to meeting his tax obligations and we do not consider, in those circumstances, that he should be required to pay an administrative penalty.

75. Accordingly we affirm the objection decision as it applies to the substantive tax liability but remit the administrative penalty to nil.


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