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Ruling

Subject: Travel expenses - reasonable allowances

Question:

Are you entitled to claim a deduction for meals and incidentals using the reasonable allowance amounts?

Answers: No.

This ruling applies for the following period:

Year ended 30 June 2011

The scheme commenced on:

1 July 2010

Relevant facts

You receive an allowance from your employer.

The allowance is paid to assist you to meet the additional costs incurred personally as a result of your employer requiring you to work away from home. These include meals and incidental costs.

The allowance is paid as a fixed entitlement and is included in your gross salary.

You worked full-time and stayed at town A during the financial year.

You travelled home on a number of weekends during your stay in town A.

Your employer paid for your accommodation while you worked and stayed in town A.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1.

Income Tax Assessment Act 1997 section 900-50.

Reasons for decision

Meals and incidentals expenses

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.  

The mere receipt of an allowance does not entitle an employee to a deduction. As explained in Taxation Ruling IT 2543 at paragraph 7 that the receipt of an allowance imparts no greater degree of deductibility to an expense which is incurred in relation to that allowance.

The Taxation Board of Review stated in 84 ATC 212 (Case R22) at page 214:

The fact that an allowance of a particular kind is paid to a taxpayer does not of itself impress an outgoing, ostensibly related to that allowance, with any greater degree of deductibility than that which it would have in the event that no such allowance was paid. In fact it is the character or nature of the allowance which determines whether it is properly to be included as assessable income; likewise, it is the nature of the outgoing itself, without regard to the nature of any allowance that might be received, that determines whether it is an outgoing or expenditure that properly falls for deduction

Expenditure on food, drink and incidentals is inherently private in nature and therefore generally not deductible (Federal Commissioner of Taxation v. Cooper 91 ATC 4396; (1991) 21 ATR 1616; Federal Commissioner of Taxation v. Toms 89 ATC 4373; (1989) 20 ATR 466) unless the occasion of the outgoing gives the expenditure the essential character of a working expense, as in expenditure incurred while travelling away from home on work.

To determine what is a bona fide amount to cover meals or expenses incidental to the travel depends on the facts of each case, including the arrangements for payment of the allowance.

You received an allowance to compensate for the cost of meals and incidentals while working in town A during the financial year. You lived in accommodation provided by your employer in town A. You are not considered to be travelling in the course of undertaking employment duties. A deduction for meals and incidental expenses is not allowable as the expenses are private in nature.

Furthermore the allowance you received is paid as a fixed entitlement and is folded into your total annual salary as an annualised amount.

For domestic or overseas travel allowance expenses to be considered for exception from substantiation, the relevant allowance must qualify as a bona fide travel allowance. The travel allowance must be paid for specific journeys undertaken or to be undertaken for work-related travel. A travel allowance that is not paid to cover relevant expenses for specific journeys undertaken or to be undertaken for work-related travel, is not a travel allowance for the purposes of the exception from substantiation. Paragraph 57 in TR 2004/6 provides examples of expenses relating to allowances that would not qualify for the exception from substantiation because they are not travel allowances paid to cover deductible expenses for specific journeys. These are:

· where a fixed annual travel allowance amount of, say, $2,000 a year is paid, regardless of how often or even whether travel is actually undertaken; or

· where a travel allowance is paid at a certain rate per hour for hours worked, even if deductible work-related travel is not undertaken.

In addition at paragraph 59 in TR 2006/4 it explains that where an amount for travel expenses has been folded-in as part of a taxpayer's normal salary or wages (for example under a work place agreement) it is not considered to be a bona fide travel allowance and the exception from substantiation does not apply.

In your case, the allowance you receive is not considered a bona fide travel allowance as the allowance is a fixed entitlement which has been folded into your total annual salary as an annualised sum. Therefore, the exception from substantiation will not apply and you cannot use the reasonable allowance amounts for daily travel as outlined by the Commissioner in TD 2010/19.

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