Edited version of private ruling

Authorisation Number: 1011641026103

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Ruling

Subject: Meal and incidental expenses

1. Is the meal allowance assessable income?

Yes.

2. Are you entitled to a deduction for meal and incidental travel expenses?

No.

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You have a home in place A.

You were employed in place B for almost a year.

For a few weeks, your employer reimbursed your costs for temporary accommodation and food receipts.

For the next several months you moved into a rental home in city B with your spouse and child. You then all returned to place A.

Your employment contract at place B continued longer than originally expected and you returned to place B for several more weeks. During this time you stayed in temporary accommodation in between trips back to place A. During this period your family remained in place A.

Your employer covered the accommodation and paid an allowance of $65 per day to cover your meal expenses for this period.

You wish to claim meal and incidental expenses for these days without substantiation.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 15-2.

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Section 900-30

Reasons for decision

Summary

A meal allowance is assessable income. Your meal and incidental expenses are private in nature and no deduction is allowable. As you are not entitled to a deduction, the exception from substantiation provisions has no application.

Detailed reasoning

Assessable income

Section 15-2 of the Income Tax Assessment Act 1997 (ITAA 1997) states that your assessable income includes the value to you of all allowances, gratuities, compensation, benefits, bonuses and premiums provided to you in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by you.

Your meal allowance forms part of your assessable income and should be declared on your tax return.

Allowable deductions

Section 8-1 of the 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. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 11 ATD 404; (1958) 7 ATR 166 (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 N.L.Tongkah Compound N.L. v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 8 ATD 431; (1949) 4 AITR 236), 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. Federal Commissioner of Taxation (1956) 95 CLR 344; (1956) 11 ATD 147; (1956) 6 AITR 379 and Federal Commissioner of Taxation v. Hatchett (1971) 125 CLR 494; 71 ATC 4184; (1971) 2 ATR 557).

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.

In your case you did not receive an overtime meal allowance. Therefore, we need to consider whether you were undertaking work related travel. You were employed in place B for most of the income year. During some of this time you received a meal allowance.

As stated above, the meal allowance received is assessable income. However, you are 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.

Before considering the substantiation requirements, it is necessary to determine whether your meal expenses are deductible.

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. A travel allowance that is not paid or payable to cover specific work related travel is not considered a travel allowance for the purposes of the exception from substantiation. An amount for travel expenses that has been folded in as part of normal salary/wages is not considered to be an allowance. If a set amount is payable each fortnight regardless of the travel undertaken, the exception from substantiation does not apply.

In your case, you receive an allowance for meal expenses for a period while you were working in place B. Your contract in place B went for almost a year. It is considered that place B was your normal place of work for this period. While it is acknowledged that your family were in place A during a time, it is not considered that your travel between place A and B was work related travel. Rather it was private travel carried out to enable you to commence your employment duties. The distance of the travel does not alter the private nature of the travel. That is, you were not away from home overnight for work purposes, as place B was your new work and home base for the period of the contract.

As place B was your normal place of work, your meal expenses were not associated with any work related travel. You incurred expenses for meals while living and working in place B. These expenses are not incurred in gaining or producing your assessable income. Rather they are a private expense and no deduction is allowable.

That is, the meal allowance you received from your employer does not fall within the definition of a travel allowance under subsection 900-30(3) of the ITAA 1997. You are not entitled to a deduction for your meals as they are considered to be private in nature. It follows that the exception from the substantiation provisions contained in Division 900 of the ITAA 1997 has no application in your circumstances.

Similarly, any incidental travel expenses incurred in relation to your travel to and from place B were not incurred during the actual performance of your work, that is, during the production of assessable income and are therefore not deductible under section 8-1 of the ITAA 1997.