Edited version of your written advice

Authorisation Number: 1051200902544

Date of Advice: 10 March 2017

Ruling

Subject: Deductions - work related expenses - travel

Question 1

Are you entitled to a deduction for travel expenses when you have been reimbursed for those expenses?

Answer

No.

Question 2

Are you entitled to a deduction for travel expenses when you have been reimbursed for those expenses?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2015

Year ended 30 June 2016

The scheme commences on:

1 July 2014

Relevant facts and circumstances

You are an employee who is required to travel for work related purposes.

During the 20XX-XX financial year you travelled around Australia.

During the 20YY-YY financial year you travelled around Australia.

You received a reimbursement for your meals when away from home overnight for work purposes, on the provision of receipts.

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

Question 1

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 number of significant court decisions have determined that for an expense to be an allowable deduction:

It must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income-producing expense (Lunney v. FC of T; (1958) 100 CLR 478 (Lunneys case)), 

There must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income (Ronpibon Tin NL v. FC of T, (1949) 78 CLR 47), and

It is necessary to determine the connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces his or her assessable income (Charles Moore Co (WA) Pty Ltd v. FC of T, (1956) 95 CLR 344; FC of T v. Hatchett, 71 ATC 4184).

A deduction is only allowable if an expense:

Is actually incurred,

Meets the deductibility tests, and

Satisfies the substantiation rules.

Expenditure on the daily necessities of life (for example, food and drink) is generally not deductible as it is not incurred in gaining or producing assessable income and is also considered to be private or domestic in nature.

Exceptions to this are where you are undertaking work-related travel and are required to stay away overnight or you work overtime and receive an overtime meal allowance.

A distinction is made between an 'allowance' and a 'reimbursement'.

Allowance - an employee is paid a definite predetermined amount to cover an estimated expense even if the employee does not incur that expense. Allowances are amounts paid to cover anticipated costs or as compensation for conditions of employment regardless of the expense incurred. The allowance is generally assessable income to the employee who may be entitled to a deduction for related expenses that are work related and can be substantiated.

Care is required in identifying the nature of each particular allowance payable under an employee's industrial instrument or contract or employment. If the nature of the allowance does not recompense an employee for expenses incurred during the course of employment, it will then form part of an employee's ordinary pay.

Reimbursement - the employee is compensated for the exact amount of the expense incurred or to be incurred.

In your case you are away from home overnight for work and receive a reimbursement for expenses incurred, on the provision of receipts. As you have been reimbursed for your expenses, you have not incurred any costs in gaining assessable income. Therefore you are not entitled to a deduction for travel expenses reimbursed by your employer.

Question 2

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.

Subdivision 900-B of the ITAA 1997 provides an exception from the substantiation requirements for domestic and overseas travel allowance 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.

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 the exception from substantiation of your travel expenses applies in your circumstances, we need to consider whether your allowance is regarded as a bona fide travel allowance.

In your case, you were reimbursed for your travel expenses and have not been in receipt of an allowance. That is, the reimbursement you received from your employer does not fall within the definition of a travel allowance under subsection 900-30(3) of the ITAA 1997. Therefore you are not entitled to rely on the exception from the substantiation provisions under sections 900-50 and 900-55 of the ITAA 1997 in regard to your travel expenses.

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