Edited version of private ruling

Authorisation Number: 1011490883743

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Ruling

Subject: work-related expenses

Question

Can you claim a deduction up to the Commissioner's reasonable allowance amounts, without substantiation, where the travel allowance you receive has not been included in your assessable income?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2010

Year ended 30 June 2011

The scheme commences on:

1 July 2009

Relevant facts and circumstances

You are employed.

You travel on a continuous service that operates between city A and city B return.

You work a continual shift rotation of X hours on, X hours resting.

You are paid an allowance of $X for each X hours or part of X hours to cover expenses incurred for food and provisions.

The allowance is calculated from the time of signing on at your home location to the time of signing off at your home location.

The allowance paid is based on the national meals and take away food component of the Consumer Price Index (CPI).

You are unable to substantiate your costs for the food that you take with you.

You have not spent in excess of your allowance amount.

The travel allowance has not been included in your assessable income and is not included on your PAYG payment summary.

You provided a copy of your Agreement.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1,

Income Tax Assessment Act 1997 Division 900,

Income Tax Assessment Act 1997 Section 900-30,

Income Tax Assessment Act 1997 subsection 900-30(3) and

Income Tax Assessment Act 1997 Section 900-50.

Reasons for decision

Allowances

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.

Allowances received by an employee from an employer are generally assessable income to the employee. However, 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 and the substantiation requirements.

Generally, travel allowances must be shown as assessable income in an employee's tax return unless the following exception applies:

- the allowance is not shown on the employee's 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.

Were the exception applies, the allowance received is not required to be shown as assessable income in the employees 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.

Substantiation

As a general rule, written evidence is required to substantiate any expense you wish to claim as a deduction.

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 an exception to this requirement for work-related domestic travel expenses covered by a travel allowance provided the Commissioner considers the total expenses for travel covered by the allowance is reasonable. These include expenses incurred for accommodation, meals and incidentals. The travel must be away from the taxpayers ordinary residence and undertaken in the course of their duties as an employee (section 900-30 of the ITAA 1997).

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

1. You received a bona fide travel allowance

2. Your claim for travel expenses does not exceed the reasonable amounts set out by the Commissioner for travel allowance expenses and

3. You have actually incurred the amount of the expense claimed

A bona fide travel allowance is an amount that could reasonably be expected to cover meals or expenses incidental to the travel. The meals and incidental amounts considered to be reasonable by the Commissioner for employees are covered by Taxation Determination TD 2009/15 for the 2009-10 income year and TD 2010/19 for the 2010-11 income year.

In your case, you were paid an allowance equivalent to $Y per day and you do not spend in excess of this amount. It is considered that this allowance falls within the definition of a travel allowance under subsection 900-30(3) of the ITAA 1997 and does not exceed the Commissioners reasonable amounts. However, this amount has not been included in your assessable income in your income tax return. Therefore, you are not entitled to claim a deduction for these expenses.

In your situation you have advised that you do not incur expenses greater that your allowance. Therefore, you would not be entitled to deduction.

If you actually incur expenses greater that the allowance you are being paid, you can claim an amount up to the Commissioner's reasonable amounts without substantiation. However it must be noted that you must have actually incurred the expenses and be able to provide a reasonable basis for your claim if the ATO requests this at a later date (for example: by way of review of your tax affairs).

If you incur expenses greater than the Commissioner's reasonable amounts you must substantiate the whole amount of your expenses. It must be noted that in order to make a deduction claim you must include the allowance as assessable income.