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Edited version of private advice
Authorisation Number: 1012655907276
Ruling
Subject: Substantiation exception for reasonable travel allowance expenses
Question 1
Are you entitled to a deduction for meal expenses up to the Commissioner's reasonable allowance amounts without substantiation when you receive an allowance and are away from home overnight for work-related purposes?
Answer
No.
Question 2
Are you entitled to a deduction for meal expenses incurred and substantiated when you are away from home overnight for work-related purposes?
Answer
Yes.
This ruling applies for the following periods
Year ended 30 June 2012
Year ended 30 June 2013
The scheme commences on
1 July 2011
Relevant facts and circumstances
You are an employee who is required to sleep away from your ordinary from your ordinary residence for work-related purposes.
Your employer pays you an amount for every night you are required to sleep away from home. The allowance is paid for the cost of meals. Your employer pays for your accommodation.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Income Tax Assessment Act 1997 Division 900
Income Tax Assessment Act 1997 Section 900-30
Income Tax Assessment Act 1997 subsection 900-30(2)
Income Tax Assessment Act 1997 subsection 900-30(3)
Income Tax Assessment Act 1997 Section 900-50
Reasons for decision
You can deduct from your assessable income any loss or outgoing to the extent that it is incurred in gaining or producing your assessable income except where the loss or outgoing is capital or private in nature (section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)).
A number of significant court decisions have determined that for an expense to be an allowable deduction:
• it must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income-producing expense (Lunney v. FC of T; (1958) 100 CLR 478)
• there must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income (Ronpibon Tin NL v. FC of T, (1949) 78 CLR 47), and
• it is necessary to determine the connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces his or her assessable income (Charles Moore Co (WA) Pty Ltd v. FC of T, (1956) 95 CLR 344; FC of T v. Hatchett, 71 ATC 4184).
A deduction is only allowable if an expense:
• is actually incurred
• meets the deductibility tests, and
• satisfies the substantiation rules.
As a general rule, expenditure on the daily necessities of life (for example, food and drink) is not deductible as it is not incurred in gaining or producing assessable income and is also considered to be private or domestic in nature.
An exception to this general rule is where an employee is undertaking work-related travel and they are required to sleep away from home overnight.
In your case, you are required to sleep away from home for work-related purposes and, on such occasions you receive an allowance to buy meals. Such an allowance is assessable income; however, you are not automatically entitled to a deduction for expenses incurred in relation to the allowance. The expenses must meet the criteria for deductibility under section 8-1 of the ITAA 1997 as well as meet the substantiation requirements.
The substantiation rules that apply to certain types of expenses, including travel allowance expenses, are set out in Division 900 of the ITAA 1997 together with some exceptions available for certain work-related expenses.
A travel allowance expense is a loss or outgoing you incur for travel that is covered by a travel allowance (subsection 900-30(2) of the ITAA 1997).
A travel allowance is an allowance your employer pays or is to pay to you to cover losses or outgoings that you incur for travel away from your ordinary residence that you undertake in the course of your duties as an employee and that are losses or outgoings for accommodation or for food or drink or are incidental to the travel (subsection 900-30(3) of the ITAA 1997).
Section 900-50 of the ITAA 1997 provides an exception from the substantiation requirements for domestic travel allowance expenses. Taxation Ruling TR 2004/6 Income tax: substantiation exception for reasonable travel and overtime meal allowance expenses explains the way in which this substantiation exception operates.
The exception from substantiation for travel allowance expenses provided by section 900-50 of the ITAA 1997 will only apply where all three of the following criteria are met:
• you receive a bona fide travel allowance
• your claim for travel expenses does not exceed the reasonable amounts set out by the Commissioner for travel allowance expenses, and
• you have actually incurred the amount of the expense claimed.
What is considered to be a bona fide travel allowance depends on the facts of each case. The amount paid must be an amount that could reasonably be expected to cover the relevant expenses. This does not require that the amount paid by the employer must equate dollar for dollar to the employees actual expenditure; however, the quantum of the travel allowance must be relative to the purpose for which it is said to be paid.
The Commissioner publishes reasonable amounts for accommodation, meals and deductible expenses incidental to travel each year. Taxation Determinations TD 2011/17 and TD 2012/17 set out the amounts the Commissioner considers are reasonable for the years ended 30 June 2012 and 30 June 2013 respectively. The amounts set for meal and incidental expenses represent what could reasonably be expected to be incurred for such expenses.
In your case, you are paid an allowance to cover the cost of your meals when you are required to sleep away from home for work-related purposes. It is considered that the amount you receive would not cover what you would reasonably be expected to incur for your meal expenses, and as such, the allowance you receive is not a bona fide travel allowance and therefore does not fall within the definition of a travel allowance in subsection 900-30(3) of the ITAA 1997.
Consequently, you are not able to rely on the substantiation exception contained in section 900-50 of the ITAA 1997 in regard to the meal expenses you incur when you are required to sleep away from home for work purposes.
While you are unable to rely on the exception from substantiation this does not mean that you cannot claim deductions for your meal expenses when you are required to sleep away from home for work purposes. To be entitled to claim a deduction for your meal expenses you will need to have the relevant written evidence to substantiate the expenses you have actually incurred.
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