Edited version of your private ruling

Authorisation Number: 1012565401245

Ruling

Subject: travel expenses

Question 1

Are you entitled to a deduction for meal and incidental expenses incurred up to the Commissioner's reasonable allowance amounts, without substantiation, where the per diem payments received are included in your assessable income?

Answer

No.

Question 2

Are you entitled to a deduction for work related meal and incidental expenses incurred and substantiated for the periods you are away overnight for work and where the per diem payments you received are included in your assessable income?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2013
The scheme commenced on

1 July 2012

Relevant facts

You are an employee. Your salary is more than $105,000 and less than $186,000.

You travelled both domestically and overseas for work purposes.

You received a per diem amount from your employer for your meals and incidental expenses for your work travel. The per diem is a fixed amount for daily meals based on costs at your travel destination.

Your employer pays for your accommodation and airfares.

Where breakfast is included in your accommodation, your per diem amount is reduced accordingly. When you travelled overseas, you received per diem payments between $xx and $xx. In city A and city B in Australia you received $xx per diem.

Based on hotel bills and your credit card details you estimate that you spend in excess of $xxx per day on meals/drink and incidentals when travelling for work. City A hotel breakfasts usually cost approximately $xx and dinners are approximately $xx.

The per diem amounts received were not included on your PAYG summary.

Your meals and incidental expenses incurred exceed the per diem rate paid by your employer.

You have kept a travel diary. You have receipts for meals had at the hotels, but do not have all records of your meal and incidental expenses incurred outside the hotel.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Section 900-30

Income Tax Assessment Act 1997 Section 900-50

Income Tax Assessment Act 1997 Section 900-55

Reasons for decision

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.

A deduction is only allowable if an expense:

· is actually incurred,

· meets the deductibility tests, and

· satisfies the substantiation rules.

A deduction may be allowed for meal and other work related incidental expenses incurred when you are undertaking work-related travel and are required to stay away overnight.

In your case you are away from home overnight for work and receive a per diem amount on such occasions for your meal and incidental expenses.

Such an allowance is assessable income and should be declared as assessable income. However, where

· the allowance is not shown on your payment summary,

· the allowance received is a bona fide travel allowance,

· the allowance received does not exceed the reasonable amount, and

· the allowance has been fully expended on deductible expenses,

the allowance received is not required to be show as assessable income and a deduction for the expenses cannot be claimed.

Where the allowance is declared as assessable income, an employee is not automatically entitled to a deduction for expenses incurred in relation to an allowance. The expenses must meet the criteria for deductibility under section 8-1 of the ITAA 1997 as well as meet the substantiation requirements.

Division 900 of the ITAA 1997 sets out the substantiation requirements when claiming expenses but also provides some exceptions available for certain work related expenses.

Section 900-50 of the ITAA 1997 provides that 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 outgoings you claim for travel covered by the allowance.

Similarly, section 900-55 of the ITAA 1997 provides that you can deduct a travel allowance expense for travel outside Australia without getting written evidence under the same conditions as for domestic travel allowances, except that you still have to get written evidence for losses or outgoings for accommodation.

The exception from substantiation for travel allowance expenses provided by sections 900-50 and 900-55 of the ITAA 1997 will only apply where all three of the following criteria are met:

· You received 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.

Therefore, to establish whether your payments should be declared as assessable income and whether the exception from substantiation of your travel expenses applies in your circumstances, we need to consider whether your per diem payments are regarded as a bona fide travel allowance.

Subsection 900-30(2) of the ITAA 1997 states that a travel allowance expense is a loss or outgoing you incur for travel that is covered by a travel allowance.

Subsection 900-30(3) of the ITAA 1997 states that 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.

Taxation Ruling TR 2004/6 discusses the conditions when the substantiation exception for travel allowance expenses applies. For travel allowance expenses to be considered for the exception from substantiation, the employee must be paid a bona fide travel allowance. The amount of a bona fide travel allowance must be an amount that could reasonably be expected to cover the relevant travel expenses. This does not require that the amount paid by the employer must equate dollar for dollar to the employees actual expenditure. However there must be relativity between the quantum of the travel allowance and the purpose for which it is said to be paid. What is considered to be a bona fide travel allowance depends on the facts of each case. 

In your case, you were entitled to a maximum of $xy for meals and incidental expenses for domestic travel and on most occasions you were paid $xx or less in relation to both your domestic and overseas meal and incidental expenses.

You advised that your dinner costs alone are usually $xx. Therefore it is considered that your per diem amounts received for both your domestic and overseas travel are not a payment that is expected to cover the purchase of your meals and incidentals while travelling for work. Therefore, the payments would not be considered a bona fide travel allowance. It follows, that your per diem payments should be declared as assessable income on your tax return and the substantiation exception as provided for in sections 900-50 and 900-55 of the ITAA 1997 do not apply.

The reasonable amounts for meals and deductible expenses incidental to travel as found in Taxation Determination TD 2012/17 are not relevant in your circumstances.

You previously advised that the example in paragraphs 18 and 19 of TD 2012/17 resembles your situation. In that example, the employee was paid a travel allowance of $150 for meals and incidentals. This is substantially more than the amount you received. Unlike your situation, $150 is regarded as a bona fide travel allowance in relation to meal and incidental expenses.

To be entitled to claim a deduction for your work related meal and incidental expenses, in addition to including the per diem payments as assessable income, the expense must be actually incurred and you must have the appropriate written evidence and the necessary travel records.

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