CASE 1/93

Gerber DP

Administrative Appeals Tribunal

Decision date: 16 November 1992

Dr P Gerber (Deputy President)

The taxpayer (``T'') is a truck driver, employed in the relevant years by two local transport companies. In his returns for the 1987 and 1988 years, T claimed deductions for - in the main - sustenance in connection with long distance travel undertaken in the course of his employment.

2. In brief compass, the employers paid T some $20 (occasionally $26) per day for his long distance trips (which were duly returned as income). T, however, claimed $30 each day in purported reliance on Taxation Ruling IT 2368, which states that:-

``... it is accepted that an allowance paid to an employee long distance truck driver of not more than $30 per day in respect of food and drink is a reasonable allowance... It follows that the substantiation requirements will not apply in respect of claims of up to this amount.''

(my emphasis).

3. An earlier ruling - Taxation Ruling IT 2327 issued on 27 June 1986 - states that:

``The substantiation requirements do not apply where a taxpayer receives a travel allowance to cover costs of accommodation, food and drink, and incidentals associated with travel by the employee within Australia which the Commissioner considers reasonable in amount. In such a case the travel expenditure may be deductible without the requirement for documentary evidence, provided it does not exceed the amount of the allowance.''

4. It is clear that Taxation Ruling IT 2368 is seeking to convey that where an employer pays an amount of $30 per day to a long distance truck driver, such amount may be claimed without the need for substantiation. However, the requirement for substantiation is not avoided where the actual payment by the employer is less than $30 per day and the claimed deduction exceeds the allowance, as in the instant case. As I read the relevant rulings, the Commissioner grants an indulgence with respect to substantiation where the employer pays a reasonable travel allowance ($30 per day in the case of long distance truck drivers) and the claimed deduction does not exceed the allowance received. If, however, a claimant seeks a deduction in excess of the allowance - as here - the Commissioner's indulgence is spent, with consequence that one must henceforth look to the Income Tax Assessment Act (``the Act''), which provides that the whole of the claim requires substantiation. I find there is no ambiguity in the two rulings, although the taxpayer's error is, in the circumstances, understandable, albeit no less fatal. I will return to the relevant substantiation provisions later.

5. The plot thickens when, on 15 March 1989, the Commissioner requested T to attend a desk audit, requiring him, in reliance on subsec 82KZA(2) of the Act, to produce documentary evidence relating to the expenses claimed for the years ended 30 June 1987 and 1988. T did not attend in person but was represented by a clerk employed by Messrs Patrick & White, chartered accountants of Armidale. T admits that he did not, at that time, advise his accountants of the existence of a diary purportedly recording details of his various claims. In the result, no substantiation records in respect of the claimed meal and travel expenses were submitted to the auditor. The respondent thereupon issued amended assessments on 2 June, 1989, increasing T's taxable income by $920 in 1987 and $1,050 in 1988. In other words, the Commissioner, as an act of grace, allowed T's claim to the extent of the actual payment by the employer for each

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qualifying day, and disallowed the difference ($10 per day) as claimed.

6. Pausing here, it was - or should have been - obvious to the applicant and his advisers that the respondent was seeking documentary support for the deductions as claimed (some receipts with respect to expenses unrelated to this claim were produced on this occasion).

7. On receipt of the amended assessments, the applicant's accountants lodged objections against the partial disallowance of his travel/ meal expenses, stating, inter alia, ``the evidence to substantiate a claim of $30 per day for travel and meals is the truck driver's log books. Such claims made on behalf of our client has been derived from an analysis of such log books''. In other words, even at this stage the existence of the ``diary'' was not disclosed.

8. The objection having been disallowed in December 1989, the applicant requested that the objection decisions be referred to this Tribunal on 2 February 1990. These dates are, in my view, not without significance since it was not until 26 March 1992, i.e. more than two years after the issue was sought to be determined by this Tribunal, that the applicant's accountants provided the respondent with what now purports to be an ``on road expenses diary'', adding ``that the only record of the on road expenses incurred is as per diary and no receipts were obtained''.

9. I have no doubt whatever that this so- called ``diary'' is a sham, in that it purports to record all expenses for meals, etc at or about the time they were alleged to have been incurred, whereas I am satisfied that the entries are of recent origin, ``manufactured'' from the log books which all truck drivers are compelled to keep in New South Wales. These books record details of journeys travelled, including driving time, rest periods etc. Thus, by way of example, on 10 May 1987, T left Armidale for Sydney at 2.15 p.m., had a meal and a break at Murrurundi between 6.45 p.m. and 7.45 p.m., arriving in Sydney at 1 a.m. the next day. He rested in Sydney, returning to Armidale at 2.15 p.m. that day, recording stops at Newcastle and Murrurundi.

10. In short, nothing could be easier than to create, ex post facto, a ``diary'' setting out the alleged cost of meals, etc on the days when they were supposed to have been incurred. I am satisfied that this was done on this occasion despite the taxpayer's vehement denials.

11. Turning to the ``diary'', the first thing to note is that it is in pristine condition, the pages are all without exception ``virginal white'', with not a smudge anywhere; not at all what one would expect of a diary that had been carried around in a truck and used several times a day for making entries. On the other hand, the log books have the appearance of having been frequently handled. Looking at the diary entries themselves, all are (save with one possible exception) entered neatly with a blue biro. Yet one of the log books has entries in black as well as blue-black biros. In other words, I am asked to believe that T would make entries in his log book for weeks at a time with a black or blue- black biro, and then switch to a blue biro for all the notations in his ``diary''.

12. Looking at the entries for 10/11 May 1987, the following appear:-

    10 May 87     Tea                 $7.50
        "         Freeway             $2.40
    11 May 87     Breakfast           $2.00
        "         Phone               $4.20
        "         Lunch               $2.35
        "         Freeway             $2.40
        "         Tea                 $8.70

13. It is against this background that the failure to provide the so-called ``diary'' at the desk audit becomes explicable. T claims he did not produce it for the audit because ``I completely forgot about it''. For good measure, the ``diary'' commences on 2 July 1986, leaves a few blank pages after the last entry on 29 June 1987, and then recommences on 2 July 1987, coming to an end on 30 June 1988 with ``Tea $8.20''. The rest of the diary is blank. When asked why the diary began and ended exactly with the years now under review, the applicant had no plausible explanation. He claims he continues to keep other diaries since June 1988. When I indicated some interest in these other diaries, T claimed they were at home. His counsel thereupon sent him home to fetch them, but alas, he returned shortly afterwards without the diaries, claiming that he could not find them.

14. There are other features which support the ``sham'' theory. A member of the accounting firm acting for the taxpayer (not the clerk who attended the desk audit) deposed that he first became aware of the existence of the

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diary in March 1992. He asked the taxpayer ``why the hell didn't you bring this in before''? It seems that ``the ATO wasn't interested in log books'', which hardly answers the question. This witness prepared the objection by looking at the number of trips and multiplying that number by $30 (``it costs too much going through diaries'').

15. A workmate was called to lend weight to the genuineness of the ``diary''. After giving the Tribunal his own strong views on the substantiation requirements, the witness was shown exh ``D'' (the diary) and claimed to recognise it as belonging to the taxpayer, adding gratuitously that he recalled T buying it immediately after he, the witness, had shown him an extract from a journal, (exh ``H''), which was faxed to the Tribunal at a late stage of the proceedings and identified by the witness as a page from a magazine called ``Road Transport'', dated 7 August 1986 headed ``Politicians' Greed Proves Boon For Truckies. TAX PERK IS `ON'!''. This evidence is in contrast with T's testimony as to when he bought the diary (some six months before he began using it on 2 July 1986). Whilst I am satisfied that this witness did his level best to tell the truth, I am likewise satisfied that he was clearly confused as to what exactly he had shown the applicant and when. Having read the article, there is nothing in it which would suggest to a truck driver that he needs a diary for tax purposes. The witness was previously shown an extract from another publication (not made an exhibit) and expressed some surprise that the Tribunal should have a copy of it. It may well be that he confused that extract with exh ``H''. In the circumstances, this evidence amounts to little more than the fact that this witness is strongly opposed to substantiation, and, albeit hearsay, that his views are shared by many of his colleagues.

16. As noted above, I am satisfied beyond reasonable doubt that the so-called ``diary'' is a fabrication and of no evidentiary value.

17. Turning to the law, subsec 82KZ(4) provides:

``[Overtime meal or travel allowance]


  • (a) the amount of-
    • (i) an overtime meal allowance paid or payable to a taxpayer (in this sub- section referred to as the `relevant taxpayer'); or
    • (ii) a travel allowance that was paid or is payable to a taxpayer (in this sub-section also referred to as the `relevant taxpayer') and relates solely to travel by the taxpayer within Australia,

    (whether or not the allowance was paid or is payable under an industrial instrument) is, in the opinion of the Commissioner, reasonable having regard to the total of the amounts of the outgoings that it would be reasonable for a taxpayer to whom the allowance was paid or is payable to incur-

    • (iii) if sub-paragraph (i) applies - in respect of the food and drink to which the allowance relates; or
    • (iv) if sub-paragraph (ii) applies - in respect of the travel to which the allowance relates, in respect of accommodation, the purchase of food and drink, and expenditure incidental to the travel; and
  • (b) the total of the amounts of the eligible expenses in relation to the allowance incurred by the relevant taxpayer and claimed by the relevant taxpayer as deductions in respect of the year of income in which the expenses were incurred does not exceed the amount of the allowance,

this section and section 82KZA do not apply, and shall be deemed never to have applied, in relation to the relevant taxpayer in relation to any of the expenses referred to in paragraph (b).''

18. It was submitted by Mr McEwen, counsel for the applicant, that the travel allowance that the applicant received was ``paid or payable'' pursuant to the Transport Industry (State) Award 1987 (NSW). The relevant section for present purposes is clause 9 of the award, which provides:

``9. Travelling and Living Away Allowances

  • (iv) Employees engaged on work or in travelling in connection with work which precludes them from reaching their home at night shall be paid all reasonable and actual expenses incurred in obtaining accommodation for the night, including

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    an evening meal, bed and breakfast, provided that-
    • (a) the employee shall submit to his employer an itemized list, with supporting accounts, showing the detail of the expenses incurred;
    • (b) before an employee proceeds on the work, the subject of this subclause, he shall be given in advance an amount of money calculated, so far as that is reasonably practical, to cover the expenses to be incurred. Upon his return from such work and the submission of the itemized list referred to in paragraph (a) above, any balance due to the employer or the employee shall be paid to or by the employee as the case might be;
    • (c) should an employee not submit the itemized list as required by paragraph (a) of this subclause, he shall be paid an amount of $16.00 per day expenses.
  • (v) An employee... who is required by his employer to spend a Saturday, Sunday or a public holiday away from his home but who is not required to work on such days, shall be paid, in addition to the amount due to him in accordance with the provisions of this clause, the sum of $14.80 for each such day he is required to spend away from his home. The said $14.80 being to compensate the employee for any additional expense and for any inconvenience and/or disability he might incur by being required to spend such days away from his home.''

19. Having submitted that the award provided that long distance truck drivers were entitled to all reasonable and actual expenses incurred, counsel asked rhetorically "what was the amount of the allowance paid or payable pursuant to subsec 82KZ(4)(a)(ii)?" The answer, he submitted, is that although T was only paid $20 per trip, the amounts payable under the award were all reasonable and actual expenses incurred. This, it was submitted, gave rise to an entitlement to be reimbursed to the extent of the difference between any actual - albeit reasonable - expenses, incurred and the amounts received. From this, Mr McEwen deduced that since T's actual expenses were of the order of $33 per trip, his claimed deduction of $30 per trip must be allowed.

20. This enterprising submission overlooks a number of facts, even if one ignores my finding that the diary is a sham, and hence that there is no evidence of actual expenditure incurred. Thus, in the first place, it involves an underlying assumption that a provision in an award, to the effect that an employee ``shall be paid all reasonable and actual expenses incurred'', overrides the specific provisions of subsec 82KZ(4), which only exclude from substantiation those reasonable eligible expenses which do not exceed the allowance, ``whether or not the allowance was paid or is payable under an industrial instrument''. For good measure, the submission ignores the provision in the award itself, to the effect that any entitlement to reimbursement for actual expenses incurred is dependent upon the employee providing to his employer ``an itemized list, with supporting accounts, showing the detail of the expenses incurred''; alternatively, where the employee fails to submit the itemized list as required, it provides that the employee ``shall be paid an amount of $16.00 per day expenses''.

21. With all due respect to counsel, I am satisfied that the relevant statutory provision is quite clear: where an employer pays an allowance with respect to ``eligible expenses'' which the Commissioner considers reasonable, no substantiation is required provided the eligible expenses claimed do not exceed the allowance.

22. It is with no disrespect to learned counsel that I totally reject his submission based on the industrial award.

23. Mr McEwen next sought some comfort from a later ruling (IT 2469). I freely confess that I do not follow this submission. Whatever lingering doubts may have existed as to the effect of the earlier rulings were put to rest by Taxation Ruling IT 2469. The ruling states - this time without any ambiguity at all - that:

``employee long distance truck drivers who receive a travel allowance of less than $30 a day to cover food and drink expenses may claim deductions up to the amount of the allowance received without substantiation. However, where a claim for food and drink expenses is greater than the allowance received, the total amount of the claim (including the amount covered by the

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allowance) will be required to be substantiated in full.''

How this can give comfort to this applicant I am unable to apprehend. Nevertheless, it is submitted - with some courage - that the applicant is entitled to be reimbursed for actual expenses in excess of $20 per day, vide cl 9(iv) of the award. As counsel put it: "For the applicant to obtain the benefit of this, allowance received per Taxation Ruling IT 2469 needs to be equated with entitled to be paid his reasonable and actual expenses, vide cl 9(iv)". Even if I were to accept this enterprising submission, having found that the applicant's evidence of his ``actual expenses'' has been faked, whatever substance there may be in this argument disappears.

24. Counsel next submitted that if the allowance is not exempt under subsec 82KZ(4), subsec 82KZ(1)(d) requires documentary evidence of the claimed expense to be an allowable deduction. Subsection 82KU(1) sets out what constitutes ``documentary evidence'' (these have already been explained and trenchantly commented upon by Mr Roach; cf Case W124,
89 ATC 975). The subsection provides-

``[Receipt, invoice for non-depreciation expense]

A reference in this Subdivision to documentary evidence of an expense incurred by a taxpayer is, except in the case of depreciation, a reference to a document, being a receipt, invoice or similar document, that-

  • (a) sets out-
    • (i) in any case - in the English language; or
    • (ii) in a case where the expense was incurred outside Australia - in a language of the country where the expense was incurred,

    particulars of-

    • (iii) the date on which the expense was incurred;
    • (iv) unless sub-paragraph (v) applies - the name of the person who supplied the goods or services to which the expense relates;
    • (v) if the goods or services to which the expense relates were supplied in the course of a business carried on by a person - the name of the person or the business name under which the person carried on the business;
    • (vi) the amount of the expense expressed in the currency in which the expense was incurred;
    • (vii) the nature of those goods or services; and
    • (viii) the date on which the document was made out;
  • (b) is supplied by or on behalf of the person referred to in sub-paragraph (a)(iv) or (v), as the case may be; and
  • (c) is obtained by or on behalf of the taxpayer at, or as soon as reasonably practicable after, the time when the expense is incurred.''

25. Looking at the legislative requirements, counsel submitted that ``the circumstances of this case'' do not fit within the various statutory provisions. Thus subsec 82KZ(1)(d) requires that claimed expenses are only allowable if there is documentary evidence; subsec 82KU(1) sets out the constituent elements of ``documentary evidence'', being ``a receipt, invoice or similar document''. I have some sympathy for this submission to the extent that it is based on the impossibility of obtaining receipts for some of the expenses said to have been incurred, such as telephone and bridge tolls, and harsh to insist on receipts for every meat pie consumed ``on the road'', a situation only partially provided for by subsec 82KU(7) (limiting such undocumentable expense to $200 in the year of income). Be that as it may, and leaving aside bridge tolls and telephone expenses (which, in any event, are said to involve ``double dipping''), the bulk of the claimed expenditure in this case relate to meals, for which documentary evidence can be obtained, albeit at great inconvenience to both customer and provider, if only because long distance truck drivers are more likely to eat at pie stalls than dine at the Ritz. Given the statutory requirements, this taxpayer can only succeed if he can bring himself within the confines of subsec 82KU(8), which provides:-

``For the purposes of sub-section (6), where the Commissioner is satisfied, having regard to the nature of an expense incurred by a taxpayer, that it would be unreasonable to expect the taxpayer to have obtained documentary evidence of the expense, the

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expense shall be deemed to be, and always to have been, an undocumentable expense.''

However, the benefit of being labelled an ``undocumented expense'' is largely illusory, since subsec 82KU(6) insists on an attenuated requirement - labelled ``deemed'' documentary evidence - which demands that at the time such an expense is incurred, or as soon as practicable thereafter, specified details are made in English by or on behalf of the taxpayer in a diary or similar document, and each entry in the diary must be signed by the person who makes the entry. The details to be entered are:

the date the expense was incurred;

the name of the person who supplied the goods or services or the business name of the supplier;

the amount expressed in the currency in which it was incurred;

the nature (a description) of the goods or services; and

the date the diary etc entry was made and the name of the person making the entry.

Then - and only then - will such documentary evidence satisfy the requirements for ``undocumented expenses''. One may well ask with friends like this, who needs enemies?

26. I am satisfied that, in all the circumstances of this case, it is unreasonable to expect this taxpayer to obtain receipts for the expenses incurred on food and drink, and accordingly, the expense is deemed to be and always to have been an undocumented expense. However, the failure to produce acceptable records at the hearing which satisfy the requirements of subsec 82KU(6) is fatal to these claims.

27. On the evidence, there are no ``special circumstances'' within the meaning of subsec 82KZAA which would relieve this taxpayer from the burden of substantiation. In my view, a taxpayer can only seek such an indulgence if he comes to the Tribunal with ``clean hands''.

28. Having found that the so-called ``diary'' is a sham, I have engaged in the above exercise partly out of courtesy to counsel, who laboured valiantly to clear a path through this jungle of gibberish (subsecs 82KT-82KZB), and partly for the exercise in doing cryptic crosswords whilst going blindfolded through a maze. If these provisions - and subsequent rulings - were intended to enlighten long distance truck drivers, they have clearly failed. On the other hand, the amendments are eminently successful in increasing revenue, since the evidence in this case suggests that long distance truck drivers are abandoning claims for what is euphemistically described as ``eligible expenditure'' rather than engage in the Herculean task of making the kind of detailed diarised entries now required by the Act.

29. For the above reasons, the objection decisions for the years ended 30 June 1987 and 1988 are affirmed.

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