Edited version of private ruling

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Ruling

Subject: Travel expenses

Question:

Are you entitled to use the Commissioner's reasonable allowance amounts to calculate your work related meal and incidental expenses?

Answer: No.

This ruling applies for the following period

Year ended 30 June 2010

Year ending 30 June 2011

The scheme commenced on

1 July 2009

Relevant facts

You are employed by a company whose head office is overseas and you are required to overseas as part of your employment.

In the 2009-10 income year, you spent a total of 101 days overseas for work.

You received a per diem amount from your employer to cover the cost of meals and incidentals of approximately AU$100 a day.

This per diem amount is not included in your salary and wages and is not shown as an allowance on your payment summary.

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

You have stated that during your overseas visits, your meals and incidental expenses exceeded the Commissioner's reasonable amounts for that destination.

You did not retain receipts for the meals and incidental expenses incurred while overseas.

You have stated that your employer has not increased the per diem amount paid for overseas travel for some years due to financial difficulties but they are aware that the amount in insufficient to cover the necessary expenses.

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 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), 

· 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.

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

Allowances such as travel 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 as well as meet the substantiation requirements.

The cost of meals and incidentals incurred in the course of work-related travel away from home may be deductible. However, section 900-10 of the ITAA 1997 requires you to substantiate the expenses.

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.

The objective of the substantiation exception is to relieve taxpayers covered by the exception from the requirement to substantiate claims for deductible expenses by using detailed calculations, records or receipts. If a claim for expenses that are covered by a travel allowance qualifies for exception from substantiation, it is not necessary to keep written evidence as would otherwise be required under Subdivision 900-E of the ITAA 1997.

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 and you must keep travel records if the travel involves you being away from your ordinary residence for six or more nights in a row.

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.

In your case, to establish whether the exception from substantiation of your travel expenses applies in your circumstances, we need to consider whether your per diem amounts 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. 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. Furthermore, 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. A token amount of allowance, for example $5 per day to cover meals for travel that involves sleeping away from home, would not be considered a payment that is expected to cover the purchase of three meals per day while travelling for work. The payment would not be considered a travel allowance for the purpose of the exception from substantiation.

The Commissioner publishes reasonable amounts for accommodation, meals and deductible expenses incidental to travel. Taxation Determination TD 2009/15 sets out the relevant amounts that the Commissioner considers reasonable for the 2009-10 income year. The amounts set for meal and incidental expenses represent amounts that could reasonable be expected to be incurred for such expenses.

In your case, you were paid a per diem amount by your employer of approximately AU$100 a day to cover your meals and incidental expenses while travelling overseas for work. The amount received were considerably less than the Commissioner's reasonable amounts. In fact, the amount you received is less than one third of the Commissioner's reasonable amount per day for meals and incidentals for the overseas countries you visited.

It is not considered that the amounts you received would reasonably cover the expenses that you incurred. You have stated that your meal and incidental expenses exceeded the Commissioner's reasonable amounts per day and that your employer is fully aware that the per diem amount was insufficient to cover the expenses you were expected to incur.

It is considered that the per diem amounts you received do not constitute a bona fide travel allowance and could not reasonably be expected to cover your meals and incidental expenses related to your travel. That is, the per diem amounts you received from your employer do 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 section 900-55 of the ITAA 1997 in regard to your travel expenses and you can not use the Commissioner's reasonable amounts to calculate your expenses.