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Ruling

Subject: Substantiation and reasonable travel allowance

Question 1

Where you include the component/s (accommodation/ meals/ incidentals) of your bona fide travel allowance as assessable income, are you entitled to a deduction without substantiation for the travel expenses you have actually incurred up to the reasonable travel amount for these components?

Answer

Yes.

Question 2

For the purposes of daily travel reasonable amounts for the substantiation exception in Subdivision 900-B of the Income Tax Assessment Act 1997, do the travel destinations fall under the category of 'Other country centres'?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts

You are required to work away from home for short periods which involve overnight stays.

Your salary is below $100,841 and you were paid a travel allowance of $40 per day.

When you travel on work your evening meal and accommodation is paid for by your employer.

The travel allowances for the 2011-12 income year were shown on your PAYG Payment Summary.

You had overnight stays when travelling on work in five different places.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Subdivision 900-B

Income Tax Assessment Act 1997 Section 900-55

Reasons for decision

Summary

You can claim an amount for the travel expenses you have actually incurred under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) because they were incurred while you were travelling on work and you have declared the amount as part of your assessable income.

There is relief from substantiation under Subdivision 900-B ITAA 1997 for the expense actually incurred up to the reasonable amounts as set out in Taxation Determination TD 2011/17 for your travel destinations and the components for which you were paid a travel allowance.

Each of the places you stayed at are not listed in any of the tables in TD 2011/17. Therefore each of these places would fall under the category of 'Other country centres'.

Detailed reasoning

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for a loss and outgoing to the extent that it is incurred in gaining or producing assessable income. However, a loss or outgoing is not deductible if it is of a capital, private or domestic nature, or it is incurred in gaining or producing exempt income.

The cost of meals is normally considered to be a private expense and is not an allowable deduction under section 8-1 of the ITAA 1997. However, where you are required to sleep away from home in the performance of your duties, expenditure on food and drink and incidentals are considered to have been necessarily incurred in the performance of your duties and a deduction is allowable.

There is no definition of 'incidentals' in the tax acts. You can claim expenses that are incidental to travel. It has the ordinary dictionary meaning, the expense arises because you are travelling on work. An example would be taxi fares incurred in the place that you had travelled to complete your work.

In addition to the above, most work related travel expenses must also satisfy the substantiation requirements of Division 900 of the ITAA 1997.

However, section 900-55 of the ITAA 1997 provides an exception to this substantiation requirement where a travel allowance is received for domestic travel expenses. If a travel allowance is received and the amount of the claim for expenses is no more than the reasonable amount, as determined by the Commissioner, substantiation is not required.

The Commissioner's view on how the exception from substantiation rule for travel expenses should be applied is set out in Taxation Ruling TR 2004/6. For travel allowance expenses to be considered for exception from substantiation the employee must be paid a bona fide travel allowance and the amount must be included in assessable income. 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. For example, a fixed annual travel allowance amount, paid regardless of how often travel is actually undertaken, would not qualify for the exception from substantiation.

Furthermore, the amount of a bona fide travel allowance must be an amount that could reasonably be expected to cover meals or expenses incidental to the travel.  What is considered to be a bona fide travel allowance depends on the facts of each case. Normally for domestic travel allowances employees can receive payments for accommodation, food and drink, and incidentals. If you are not paid an allowance for one of these items you can only take into account the items for which you receive the allowance in determining the reasonable amount. For example, the employer may pay directly for accommodation, or they may not pay an amount for incidentals, but only for meals.

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.

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.

· 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.

In your case, you have stated that your employer has paid for your evening meal and accommodation and that you have received $40 per day as a travel allowance. You are declaring this amount as part of your assessable income. It is not specified what this $40 travel allowance covers, whether it is just for meals or meals and incidentals. When using the reasonable amounts to get relief from substantiation, you can only include those components for which you were paid an allowance. The amount you can claim is limited to the amount of expense actually incurred. You get relief from substantiation for the travel expenses you have incurred up to the reasonable amount.

Taxation Determination TD 2011/17 sets out the reasonable amounts for accommodation, food and drink, and incidentals for different destinations categorising them as capital cities, High cost country centres, Tier 2 country centres and other country centres. There are tables listing the places that fit into each of the first three categories, with the remaining slotting into other country centres.

The places are not listed in any of these tables, so would fall under the section ''Other country centres' and you would use these applicable amounts.