Duncan and Commissioner of Taxation (Taxation)

[2024] AATA 974

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(Decision by: Dr N A Manetta)

Duncan and Commissioner of Taxation (Taxation)

Tribunal:

Member:
Dr N A Manetta

Legislative References: - Income Tax Assessment Act 1936 (Cth); Income Tax Assessment Act 1997 (Cth)

Case References:
Fardell v Federal Commissioner of Taxation - [2011] AATA 725; [2011] ATC 10-208
Frugtniet v ASIC - [2019] HCA 16; (2019) 266 CLR 250; (2019) 79 AAR 9

Hearing date: 7 February 2024
Decision date: 7 May 2024

Adelaide

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Decision by:
Dr N A Manetta

REASONS FOR DECISION

1. This is an application by Mr John Duncan seeking a review of a decision of the respondent dated 7 October 2022 in respect of an objection lodged by him. By this decision, the respondent maintained the disallowance of a substantial portion of certain expenses claimed by Mr Duncan in respect of the tax year ending 30 June 2021. Mr Duncan was a long-haul truck driver during the course of this year, and he claimed significant food and drink expenses for the days he was on the road.

2. Mr Duncan maintains that he was entitled to claim the expenses as a deduction under the Income Tax Assessment Act, 1936 (Cth) ('ITAA') as he was travelling away from home on work. He submits that it was not necessary for him to substantiate his expenditure. He further submits that there was no need for him to have incurred the expenses he claimed, provided he stayed within a limit set by the respondent as a reasonable amount for a person in his position to spend on food and drink. Mr Duncan claimed $100 per day for each day he was on the road, which he submits falls beneath the aggregate upper limit of $105.75 per day implied^[1] by the respondent as a reasonable expenditure.

3. As I understand the evidence, at the objection stage the respondent accepted that some $8,393 of the claimed total of $28,200 should be allowed because bank statements provided by Mr Duncan evidenced that this amount had actually been spent by Mr Duncan on the purchase of food and drink at roadside cafes and the like.^[2] A revised assessment notice was issued.^[3] The balance of $19,807 was not allowed, however.

TRIBUNAL'S TASK

4. I must decide what level of expense should be allowed as a deduction. I do not simply review the respondent's decision and reasoning for error, but decide the matter afresh on the evidence before me. This manner of proceeding implies that I may affirm the decision under review notwithstanding the presence of an error in the respondent's approach if that is the correct or preferable decision on the evidence before me. Equally, I may set aside the decision under review notwithstanding the absence of any discernible error in the respondent's approach if that is the correct or preferable decision on the evidence before me.^[4]

5. I accept the respondent's contention that the applicant bears the onus both of proving that 'the assessment is excessive or otherwise incorrect' and of proving 'what the assessment should have been': see section 14ZZK(b)(i) of the Taxation Administration Act 1953 (Cth) ('TAA').

6. At the hearing before me, Mr Humphries appeared for Mr Duncan; Ms Richtering, for the respondent.

STATEMENT OF CONCLUSION

7. I have decided to affirm the decision under review. I shall first set out the background facts and then my reasons for this conclusion.

BACKGROUND FACTS

8. During the year ending 30 June 2021, Mr Duncan was a long-haul road-transport driver employed by Collins Transport Pty Ltd. It was agreed by the parties that Mr Duncan spent 282 days on the road in that year, including 141 nights. Mr Duncan claimed $100 per day in food and drink expenses, making a total of $28,200. It is accepted by the respondent that $8,393 was actually spent by Mr Duncan on food and drink at roadhouse cafes and the like, and this amount was allowed when the matter was at the objection stage. The revised assessment reflects this revision. I shall proceed on the same basis.

9. Mr Humphries submitted^[5] that as a long-haul driver, Mr Duncan was paid an allowance during the relevant year by his employer under the Road Transport (Long Distance Operations) Award 2020 ('the Award'). Clause 18.3(c) of the Award was in the following terms during the year ending 30 June 2021:

18.3 Expense-related allowances

(a) ...

(b) ...

(c) Travelling allowance

(i) An employee engaged in ordinary travelling on duty or on work which (sic) the employee is unable to return home and takes their major rest break under the applicable driving hours regulations away from home must be paid $41.26 per occasion.^[6] This will not be payable where an employee is provided with suitable accommodation away from the vehicle. (emphasis added)

(ii) 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. Approval will not be unreasonably withheld.

(iii) If an employee is engaged in more than one long distance operation or part thereof in a fortnight, the allowance due for each long distance operation or part thereof must be separately calculated in accordance with clause 18.3(c).

(d) ...

(e) ... .

10. I was informed at the hearing that in respect of each of the 141 nights he was away – each night being the relevant 'occasion' for the 'major rest break' under the Award – Mr Duncan was paid $45.03 (as the Award-stipulated allowance). That seems strange, I must say, since the allowance was fixed at a lower rate during the financial year in question. It increased to $45.03 in a subsequent year only. That is a minor, if unexplained matter, however, and in the end the discrepancy has not made any difference to my decision. I accept that Mr Duncan was paid $45.03 in respect of each of the 141 nights he was away.

11. I record the following further facts. I was informed that Mr Duncan suffers from a post-traumatic stress disorder and was, therefore, unable to give evidence. No oral evidence, however, was called from Mr Duncan's spouse as to his expenditure while on the road. I was informed by Mr Humphries that in cases where Mr Duncan did not purchase food and drink on the road, he would most likely have purchased meal ingredients, kept them in the refrigerator of his long-haul transport vehicle, and then prepared meals for himself in the kitchenette with which his vehicle was equipped. As I say, no sworn evidence was adduced before me from Mr Duncan's spouse as to how much would have been spent per road trip on the purchase of meal ingredients. No other evidence in this regard was led before me. I do not regard Mr Humphries' email containing what was said to be Mr Duncan's wife's retrospective analysis of three months of shopping receipts as reliable evidence of the likely expenditure.^[7]

REASONS

12. I now turn to apply the law. I accept the respondent's concession that, in principle, Mr Duncan's expenditure on food and drink whilst travelling away overnight from his home as required by his employer would be a deductible work expense.^[8] Generally speaking, the ITAA requires a person who claims an expense to obtain appropriate records (e.g., receipts) to substantiate the expense: see section 900-15. Mr Duncan has not done this in respect of his claimed expenses, at least not to a satisfactory degree.

13. Mr Duncan submits, however, that he is eligible to claim the benefit of what is often referred to as a 'substantiation exception'. This relieved him of the need to obtain or keep supporting records. Sections 900-30 and 900-50 of the ITAA are relevant in this regard. I note that section 900-30 is a definition section that must be read in conjunction with section 900-50, which provides for the substantiation exception. I set out the relevant parts of the sections below:^[9]

900-30 Meaning of work expense

General

(1) A work expense is a loss or outgoing you incur in producing your salary or wages.

Travel allowance expenses included

(2) Travel allowance expenses count as work expenses. A travel allowance expense is a loss or outgoing you incur for travel that is covered by a travel allowance. The loss or outgoing must:

(a) be for accommodation or for food or drink; or

(b) be incidental to the travel.

(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.

The travel may be within or outside Australia.

(4)...

...

(7)... .

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) .... .

14. I note further that the parties are agreed that the respondent issued a Taxation Determination (No 2020/5) specifying the following maximum amounts as 'reasonable' for drivers in the year ending 30 June 2021: $25.75 for breakfast, $29.35 for lunch, and $50.65 for dinner.^[10]

Conditions for Application of Substantiation Exception

15. The provisions quoted above imply that there are four conditions Mr Duncan must satisfy before he can claim the benefit of the substantiation exception. They are as follows:

First, Mr Duncan must have received a 'travel allowance', as defined;

Secondly, Mr Duncan must have expended $28,200 on food and drink while on the road; that is, he must have 'incurred' this level of expense;

Thirdly, Mr Duncan's expenditure must fall within the limits specified in Taxation Determination 2020/5; and

Fourthly, Mr Duncan's outgoings or expenses on food and drink must be 'covered by a travel allowance'.

I now turn to each of these conditions.

(i) Was a travel allowance paid to Mr Duncan?

16. A travel allowance is defined in section 900-30(3) to be an allowance that the employer pays to an employee to cover losses or outgoings incurred for travel away from home, being losses or outgoings either for accommodation or for food/drink (or for 'incidentals').

17. The allowance that Mr Duncan received under cl. 18.3(c) of the Award is not payable 'where an employee is provided with suitable accommodation away from the vehicle'. I infer from this limitation that the allowance cannot have been intended to reimburse a driver for food/ drink expenses. An employer may provide accommodation for a driver (in which case the allowance is not payable), but not food or drink with that accommodation. The amount Mr Duncan received as an allowance under the Award was not intended to meet his food and drink expenses, in my opinion.

18. I am prepared to accept for the purposes of my review that the allowance was intended to cover losses or outgoings incurred for accommodation. I do so with some reluctance because the specified amount seems rather meagre: it is difficult to believe that appropriate overnight accommodation could have been found in the relevant year for $41.26 per night (or $45.03^[11] per night for that matter). The amount required to be paid to a driver under the Award might be better classified as some sort of hardship allowance or loading; i.e., an amount payable where drivers had to sleep in their vehicle because no alternative accommodation was provided. I need not decide that, however. I am prepared to proceed on the basis that the allowance is intended to meet accommodation expenses.

19. The allowance is, therefore, a 'travel allowance', as defined, and it was paid to Mr Duncan.

(ii) Did Mr Duncan expend monies in respect of food and drink as he has claimed?

20. The second condition is that Mr Duncan must have spent the monies he has claimed on food and drink ($100 per day on average on each of 282 days); i.e., he must have incurred the expense he has claimed. Mr Humphries put to me that this was not a necessary condition. He submitted that an employee in Mr Duncan's position is entitled to an automatic deduction up to the reasonable amount determined by the respondent in the Taxation Determination. He added together the figures in the Determination for breakfast, lunch and dinner and arrived at a maximum figure of $105.75 per day.

21. In my opinion, this argument should be rejected. The definition of travel allowance expense in section 900-30(2) set out above is quite clear that the claimed expense must be one the taxpayer 'incurs'.^[12]

22. If one supposes, for example, that Mr Duncan happened to know families along the route that would provide him with meals for free, Mr Duncan would clearly have no food or drink expenses to claim. Mr Duncan could not lawfully claim up to $105.75 per day as a deduction for non-existent expenditure on food and drink. If Mr Humphries' submission were correct, it would mean that the ITAA intended to establish automatic deductibility of up to $105.75 per day for long-haul drivers provided they have received a travel allowance (that they declare as income). That was not intended in my opinion. The driver must have incurred the claimed expense, and the driver must demonstrate an acceptable methodology for estimating expenses that have been incurred where he or she seeks to rely on the substantiation exception.

23. I accept that Mr Duncan expended monies totalling $8,393 on food and drink when he attended roadside cafes and the like, and these have been allowed by the respondent in the revised assessment.^[13] I also accept that Mr Duncan must otherwise have expended monies on food and drink. On Mr Duncan's case, these monies were spent purchasing meal ingredients.

24. On the evidence before me, I do not have a reliable way of estimating how much money was expended by Mr Duncan on purchasing these ingredients. It would not be reasonable to estimate this expenditure by reference to his average expenditure at roadside cafes and the like. I note that at the objection stage, Mr Duncan provided evidence of expenditure at supermarkets and other stores as evidence of his likely expenditure on food. This evidence did not apparently relate to purchases made while on the road, but related, rather, to purchases made at stores near Mr Duncan's home.^[14] There was no reliable way of deciding which of the items purchased related to Mr Duncan's road trips and which did not. I note that Mr Humphries did not seek to make that apportionment before me. I have already indicated^[15] that I do not regard the contents of Mr Humphries' email as a reliable basis for attempting an apportionment.

25. I bear in mind that Mr Duncan bears the onus of showing what the 'assessment should have been' under section 14ZZK(b)(i) of the TAA. He has not discharged that onus in respect of this condition in my view.

(iii) Is the amount claimed by Mr Duncan reasonable?

26. The amount claimed by Mr Duncan ($100 per day) would have been reasonable if it had been incurred and provided the limits specified in the Determination were not exceeded: $25.75 for breakfast meals, $29.75 for lunch meals, and $50.65 for dinner meals. There is no sufficient evidence regarding these matters as I have said, however.

(iv) Was the disputed expenditure 'covered by the allowance'?

27. The fourth condition, which flows from the definition of travel allowance expense, is that Mr Duncan's expenditure must be 'covered' by the travel allowance. The reason for this condition, one assumes, is that the allowance is intended to be declared by the driver as 'income' in his or her return while the reasonable expenses that are not substantiated, but nevertheless incurred, will appear in the return as correlative deductions. In my opinion, Mr Duncan's expenditure was not 'covered' by the allowance he received. The allowance in question was not intended to reimburse a driver for expenditure on food and drink for the reasons given, but was, at best, an allowance designed to compensate him or her for accommodation expenses (and then probably only partially).

28. The expression 'covered by the allowance' in the definition of travel allowance expense implies, in my opinion, that the expenditure in question was of a type intended to be reimbursed through the allowance. I accept that once the conditions for the payment of the allowance under cl.18(3) of the Award are met, the allowance becomes payable and may be spent as he or she thinks fit. Under the Award provisions, the allowance becomes payable whenever the employer fails to provide suitable accommodation away from the vehicle. It does not matter that the employee may not expend monies in respect of accommodation: he or she receives the allowance and is not accountable for its expenditure. But when the definition of travel allowance expense refers to a loss or outgoing for travel that is 'covered by' a travel allowance, it means, in my opinion, a loss or outgoing of a type that was intended to be reimbursed by that allowance. In this case, food and drink were not intended to be reimbursed by the allowance payable under cl 18.3(c) of the Award.

29. Even if I am wrong in that conclusion as a matter of law, the question remains whether I should set aside the respondent's amended assessment in circumstances where I have no reliable basis for determining how much money was expended by Mr Duncan in respect of groceries from which he would prepare meals in the vehicle. As I have said, Mr Duncan bears the onus of showing what the correct assessment should have been under section 14ZZK(b)(i) of the TAA.

30. Mr Humphries explained that his practice in respect of long-haul drivers was to ask them at an interview for their estimate of how much they spent on average, and Mr Duncan had indicated that he had spent $100 per day. But that indication from Mr Duncan to Mr Humphries was most likely no more than a broad-brush estimate. For example, it would be surprising if Mr Duncan did not have a different spending pattern at cafes than he had when buying ingredients at a supermarket or grocery store.

31. As I have earlier stated, I have no sufficient evidentiary basis for deciding what might have been spent by Mr Duncan on average at breakfast, lunch, and dinner when he prepared meals for himself. The amount he spent in cafes and the like cannot be a reliable guide, as I have said. I accept that Mr Duncan was not apparently well enough to give evidence, but it was not suggested that his wife, for example, was not able to give evidence. In any event, if there is no evidentiary basis for me to allow a claimed level of expense, I may not do so, and the statutory onus under the TAA clearly falls on the taxpayer.

CONCLUSION

32. Mr Duncan has not satisfied all four conditions for the application of the substantiation exception in respect of the disputed amount of $19,807. In my opinion, the decision under review should be affirmed.

I certify that the preceding thirty-two (32) paragraphs are a true copy of the reasons for the decision herein of Senior Member Dr N A Manetta

Associate

Dated: 7 May 2024

Date of hearing: 7 February 2024

Advocate for the Applicant: John Humphries - HBS Accountants

Advocate for the Respondent: Mira Richtering - Commissioner of Taxation