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Ruling

Subject: Claiming incidental expenses and substantiation requirements

Question

Can the reasonable amount for incidentals set for each day be claimed as a deduction without receipts where you do not receive an allowance for incidentals?

Answer

No.

This ruling applies for the following period

For years ended 30 June 2011 and 30 June 2012

The scheme commenced on

1 July 2010

Relevant facts

Your employment involves travelling on work.

Your employer pays for most of your travel expenses but does not pay for some of your incidental travel costs.

Receipts can't always be obtained in relation to your incidental expenses and you make cash payments for some small purchases.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Division 900

Income Tax Assessment Act 1997 Subdivision 900-E

Reasons for decision

Summary

You cannot claim the reasonable amount for incidentals without providing receipts, because you do not meet the requirement for the exception to substantiation rules where reasonable travel allowances are paid. You have not been paid an allowance for incidentals by your employer.

Detailed reasoning

Taxation Ruling TR 2004/6 sets out the key points about claiming travel allowance (which includes incidentals) and overtime meal allowance expenses:

Claim must be allowable - A deduction claim cannot exceed the amount actually incurred for work-related purposes. The payment of an allowance does not of itself allow a deduction to be claimed.

Allowance must be paid - The substantiation exception only applies if the employee is paid an overtime meal allowance or travel allowance. The allowance must have an identifiable connection with the nature of the expense covered.

For travel allowance expenses - The employee must sleep away from home.

Substantiation exception - Where the amount claimed is no more than the applicable reasonable amount, substantiation of the claim with written evidence is not required. Note: Written evidence is a receipt from the supplier.

Verification of reasonable claims - In appropriate cases, where the substantiation exception is relied on, the employee may still be required to show:

· How they worked out their claim;

· An entitlement to a deduction (for example that work related travel was undertaken);

· A bone fide travel allowance was paid; and

· If accommodation is claimed, that commercial accommodation was used.

The above requirements are re-stated in Taxation Determination TD 2010/19.

Generally to be entitled to claim a work related expense deduction in your income tax return, it is a two step process:

· You have to show that the expense is a deductible expense incurred in deriving your assessable income; and

· You can substantiate that expense by providing written evidence.

There are some exceptions to the substantiation rule and the Commissioner sets out the conditions where the exception will apply, as set out above.

In your situation you have indicated that you have incurred expenses on incidentals when you were travelling on work. Expenses included in travel expenses are accommodation, food and incidentals. Therefore these expenses may be deductible to the extent that they are incurred in deriving your assessable income.

You do not have receipts to verify these expenses, so have asked if you can claim an amount up to the reasonable amount as set out in the annual taxation determinations where the Commissioner sets these levels. You are looking to apply the exception from the substantiation rules. You have not been paid an allowance for incidentals, so do not meet this requirement. Therefore you would have to substantiate these expenses with written evidence.

Additional information

There is another possible exception that may apply for future years. The requirement to obtain a document from the supplier does not apply if the expense is $10 or less and the total of all such expenses is $200 or less (that is, the total deduction that can be claimed in a year under this exception is $200). In such cases you may instead make a record of the expense but this must be done as soon as possible after incurring the expense.