Edited version of private ruling

Authorisation Number: 1011736074599

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Ruling

Subject: Travel allowance

Question 1

Can you claim a deduction for the difference between the allowance paid by the employer and the 'reasonable amount' using a travel diary?

Answer

No

Question 2

Can you claim a deduction for travel expenses without substantiation, when the total of the allowance paid (ATO Allow and taxable) is below the' reasonable amount'?

Answer

No

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

You are employed as a long-haul international pilot.

You receive a travel allowance from your employer.

This allowance is shown on your payment summary as 'ATO allow' and 'taxable' amounts.

Amounts paid up to the reasonable amount are shown on your PAYG Payment summary as 'ATO Allow'. Amounts paid in excess of the reasonable amount are shown as 'TAXABLE'

Your employer calculates the allowance you receive by considering the costs associated with eating all meals at the hotel you are located in whilst sleeping away from home.

On a flight-by-flight basis, the allowance you receive will sometimes be greater than the reasonable allowance calculated for that port, however others will be less.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Subdivision 900-B

Income Tax Assessment Act 1997 Subdivision 900-E

Income Tax Assessment Act 1997 Section 900-65

Income Tax Assessment Act 1997 Section 900-150

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.

Substantiation

Under Subdivision 900-B of the ITAA 1997, a deduction is not allowable for a work expense, including a travel allowance expense, unless the expense qualifies as a deduction under a provision of the Act and you have obtained and retained written evidence of the expense. If your travel expenses are covered by a travel allowance, this subdivision provides a substantiation exception, which provides relief from the requirement to keep written evidence as would otherwise be required under Subdivision 900-E of the ITAA 1997.

Taxation Ruling TR 2004/6 explains that an expense must be actually incurred as required by section 8-1 of the ITAA 1997, before a claim can be made. You cannot automatically claim a deduction just because you receive an allowance.

Furthermore, as outlined in paragraphs 15 and 39 of TR 2004/6, if you rely on the exception from substantiation, you may still be required to show the basis for determining the amount of your claim, that you actually incurred the expense, and that it was for work-related purposes. What counts as evidence for a claim subject to the substantiation exception will vary according to individual circumstances and the nature of the expense. If necessary, it is acceptable for a reasonable estimate to be the basis for claims having regard to the taxpayer's occupation and the types of expenses that would be expected to be incurred. This is a significantly lesser requirement than the need to keep written evidence.

TR 2004/6 further states at paragraph 16 that where a taxpayer receives a bona fide travel allowance and incurs deductible expenses in relation to it:

· Where the deduction claimed is more than the reasonable amount, the whole claim must be substantiated with written evidence, not just the excess over the reasonable amount.

· Where the allowance paid by the employer is greater than the reasonable amount the taxpayer may still use the exception from substantiation if the claim for deduction is not greater than the reasonable amount. In that case the allowance must be shown as assessable income and written evidence is not required to support the claim.

· Where the deductible expense is less than the allowance received, the taxpayer must show the allowance as assessable income in the tax return, and only claim the amount of the deductible expenses incurred.

Travel Diary

A travel record, such as a travel diary, is a record of activities undertaken during the travel. It is not a record of expenses incurred during the travel. The purpose of a travel record is to show what activities were undertaken in the course of producing assessable income, so that expenses can be attributed to those income-earning activities (paragraph 82 of TR 2004/6).

According to section 900-150 of the ITAA 1997, you record an activity by specifying in a diary or similar document:

· the nature of the activity

· the day and approximate time when it began

· how long it lasted, and

· where you engaged in it.

Under section 900-65 of the ITAA 1997 crew members of international flights need not keep travel records (that is a record of activities undertaken during the travel). The exception is from keeping travel records only. It is not an exception from keeping written evidence for travel expenses if required. The exception from keeping travel records applies if:

· the allowance covers travel by the taxpayer as a crew member of an aircraft;

· the travel is principally outside Australia; and

· the total of the losses or outgoings claimed for the travel that are covered by the allowance does not exceed the allowance received.

Conclusion

Where the allowance paid is less than the 'reasonable amount', you can claim the difference provided you have actually incurred the expense. You may still be required to show the basis for determining the amount of your claim and that the expense was actually incurred for work related purposes. A travel diary is a record of activities undertaken during travel. It is not a record of expenses incurred during travel.

Amounts paid in excess of the reasonable amount are shown as 'Taxable' on your payment summary. You can still use the exception from substantiation if the claim for deduction is not greater than the reasonable amount. However where the deduction claimed is more than the reasonable amount, the whole claim must be substantiated with written evidence.