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Ruling

Subject: deduction - meal expenses - travel allowance

Question and answer

Are you entitled to claim a deduction for meal expenses calculated using the reasonable allowance amounts as set down by the Commissioner against the allowance shown on your payment summary?

Answer: No

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts and circumstances

You are employed by a company.

You work in remote areas and are required to leave home for a rostered period of time, usually more than one week at a time.

During the 2010-11 financial year, you were away overnight for approximately 250 days.

When away for work, you live in employer provided accommodation or accommodation which is paid by your employer or you are reimbursed for the cost of the accommodation.

You are required to supply your own food when working away from home. Your employer pays you an allowance for your meals.

Your food is either purchased at local shops or restaurants (where this is available) or is purchased and transported to the remote location.

You do a special shop for 'away from home food' and shop separately for food while living at home. Supplies for home and supplies for away are not combined.

You provided a copy of your last pay slip for the 2010-11 financial year.

The pay slip provided shows that the gross amount for the 2010-2011 was a certain amount with a year-to-date (YTD) taxable income of a lesser amount. The difference between the gross amount received and the YTD taxable income is equal to the amount paid to you for meals.

The pay slip also shows the allowances paid to you for the full 2010-11 financial year and includes an amount for meals, an amount for travel and an amount for incidentals. The amount for meals is not included in the gross payments on your payment summary.

You also provided a copy of your payment summary for the financial year ended 30 June 2011. The payment summary includes an allowance described as a travel allowance. This amount is made up of travel allowance and the incidentals allowance, which is paid at a daily rate of less than $25.

You provided a copy of your workplace agreement which lists the different allowances together with the amounts paid to you. This agreement lists an amount paid as an 'Incidental allowance' which is paid for each night spent away from home.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1.

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. However, no deduction is allowed to the extent that the loss or outgoing is capital, private or domestic in nature, or related to the earning of exempt income.

The cost of meals is generally a non-deductible private expense unless the occasion of the outgoing gives the expenditure the essential character of a working expense, as in expenditure incurred while travelling away from your ordinary residence on work.

Travel allowance

Taxation Ruling TR 2004/6 applies to individuals who incur work-related deductions for travel expenses where these expenses are covered by an allowance paid by the person's employer.

This ruling provides information for employees to decide whether they can rely on the exception from substantiation for the keeping of written evidence for travel and overtime meal allowance expenses. Employees will need to consider the type of allowance they receive and what the allowance is expected to cover. If they are eligible to use the exception from substantiation, they can decide between maintaining fewer records and claiming up to the reasonable amount for those deductible expenses actually incurred that are covered by the allowance, or keeping written evidence to substantiate their claim.

For domestic travel allowance expenses to be considered for exception from substantiation, the employee must be paid a bona fide travel allowance. The allowance must be paid to cover work-related travel expenses incurred for travel away from the employee's ordinary residence, undertaken in the course of performing duties as an employee and which involves sleep away from home. The work-related travel expenses must be for accommodation, or food or drink, or expenses incidental to the travel.

If the travel allowance expense claimed qualifies for exception from substantiation, it is not necessary to keep written evidence. However, a taxpayer may still be required to show the basis for determining the amount of their claim and that the expense was actually incurred for work-related purposes.

The fact that a taxpayer receives an allowance from their employer, does not entitle them to an automatic deduction up to the amount of the allowance. The taxpayer is still subject to the rules of deductibility and substantiation for the expenses incurred in relation to the allowance.

Only the actual amount incurred on work-related travel expenses can be claimed as a deduction. Where there is an exception from substantiation, it remains a requirement of the law that the expenditure covered by the travel allowance qualifies as a deduction under another provision of the ITAA 1997. A travel allowance expense must satisfy the requirements of section 8-1 of the ITAA 1997 before a claim for a deduction can be made. As incidental expenses are work expenses, any amount claimed as an incidental expense must be deductible under the ITAA 1997.

In the case of a domestic travel allowance, deductibility can generally be shown by reference to the employer's arrangements for payment of allowances. The circumstances under which the employer pays the allowance should be considered.

In claiming a deduction for travel expenses relying on the exception from substantiation for travel allowance expenses, a taxpayer will need to consider the type of allowance they receive and what the allowance is expected to cover. That is, if the allowance is only paid to cover evening meals, you can only claim expenses without getting written evidence for evening meals. If a taxpayer is eligible to use the exception from substantiation, they can claim up to the reasonable amount, for those deductible expenses actually incurred that are covered by the allowance.

In your case, you were required to sleep away from your usual place of residence in undertaking work during the 2010-11 financial year. Your employer paid you an allowance of a certain amount identified as a specified allowance on your pay slip and, this allowance together with another specified allowance is shown as a travel allowance of a certain amount on your payment summary. Information obtained from your employment agreement shows this to be a specific allowance of less than $25 paid for each night spent away from home. As the allowance is not paid to cover meal expenses when you travel away from your home overnight, you are not entitled to claim a deduction for meal expenses against this allowance. However, you are entitled to claim a deduction for deductible incidental work-related travel expenses incurred against this allowance up to the reasonable amount of $16.85 a day for the 2010-11 financial year without substantiation.