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Edited version of your written advice

Authorisation Number: 1013088308380

Date of advice: 9 September 2016

Ruling

Subject: Work Related Deductions - Meal Allowances.

Question

Is the meal allowance received as shown on taxpayer's employee pay advice tax deductible?

Answer

No

This ruling applies for the following periods:

Year ending 30 June 2015

Year ending 30 June 2016

The scheme commences on:

01 July 2014

Relevant facts and circumstances

Taxpayer receives a Meal Allowance as part of their fortnightly pay.

Under the award, taxpayer is paid normal time for 8 hours per day. Anything in excess of that is to be paid in overtime rates.

In lieu of being paid overtime, their employer is currently paying a Meal Allowance for the inconvenience of having a 30 minute lunch break at daily changing work locations.

The Meal Allowance forms part of taxpayer's Taxable Earnings.

Summary

A deduction is not allowed for the expenses incurred in purchasing your lunch even though a meal allowance is paid. The expense is considered to be private in nature and there is not sufficient nexus with the nature of your work or the earning of your income that would override the fact that it is private in nature, to make it deductible.

Relevant legislative provisions

Income Tax Assessment Act 1997 (ITAA 1997)

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 deriving your assessable income or in carrying on a business. However, no deduction is allowed for expenses to the extent to which they are of a capital, private or domestic nature.

Generally, meal expenses are not allowable as a deduction under section 8-1 of the ITAA 1997 on the basis there isn't a sufficient connection between the expenditure and the income earning activities. However, there is, no general proposition that meal expenses can never be deductible: FC of T v Cooper 91 ATC 4396; (1991) ATR 1616, Roads and Traffic Authority of NSW v. FC of T 93 ATC 4508; (1993) 26 ATR, Re Carlaw and FC of T 95 ATC 2166; (195) 31 ATR 1190, AAT decision in Case 9/96 ATC 186.

We should not confuse the deductibility of an expense and the need for substantiation of a deductible expense. Under Subdivision 900-B of the ITAA 1997, a deduction is not allowable for a work expense, including a meal allowance expense or travel allowance expense, unless the expense qualifies as a deduction under a provision of the Act and written evidence of the expense has been obtained and retained by the employee taxpayer.

An expense must be actually incurred before a claim can be made. A taxpayer cannot automatically claim a deduction just because they receive an allowance.

The deductibility of the expenditure on meals will depend on the essential character of the expenditure on the basis of the facts in each case. In this case, the relevant expenses are considered to be private in nature. For this meal expense to which the meal allowance relates, to be considered deductible it would have to be incurred while travelling on work or paid as a bona fide overtime meal allowance. You are not considered to be travelling on work during your normal daily work hours as there is no overnight stay involved and it does not fit the definition of a bona fide overtime meal allowance. A 'bona fide overtime meal allowance' is defined at paragraph 87 in Taxation Ruling TR 2004/6. It has to be paid in relation to working overtime. The meal allowance is not paid in relation to working overtime.

No deduction is allowable for expenses incurred in purchasing your lunch, even though a meal allowance is paid. It is considered to be private in nature.

Bona fide overtime meal allowance

As stated above, meal expense are generally considered to be a private expense and therefore are not deductible. There are some exceptions to this rule, one being bona fide overtime meal allowance expenses and is limited to allowances paid under certain laws.

Unless the following exception applies, all allowances must be shown as assessable income in the employee's tax return. However where:

The allowance received is not required to be shown as assessable income in the employee's tax return. Where the allowance is not required to be shown as assessable income in the employee's tax return, and is not shown, a deduction for the expense cannot be claimed in the tax return.

The obligations for employer's to withhold from allowances are set out on the ATO website in a fact sheet 'Withholding from allowances' and in PAYE Bulletins.

For Award overtime meal allowances (the allowance must be paid under an industrial instrument in connection with overtime worked) if it is paid up to the reasonable allowances amount the employer is not required to withhold and not required to show it on the payment summary. If it is paid over reasonable allowances amount the employer has to withhold from the excess above the reasonable amount and they have to show the total allowance separately in the allowance box with an explanation.

The allowance' is not a deductible allowance. These are shown in Table 1 - Allowances subject to PAYG Withholding. Allowances for non-deductible expenses - for example -meals (not award overtime meal allowances or overnight travel allowance), the employer has to withhold and include the allowance in the gross payment.

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