Edited version of private advice

Authorisation Number: 1012626242702

Ruling

Subject: travel expenses

Question 1

Are you entitled to claim a deduction for meals up to the Commissioner's reasonable travel amounts, without substantiation, where you include the allowance as assessable income and the expenses are actually incurred, based on the number of nights you are in each country?

Answer

No.

Question 2

Are you entitled to claim a deduction for meals up to the Commissioner's reasonable travel amounts, without substantiation, where you include the allowance as assessable income and the expenses are actually incurred, based on the number of occasions you receive a meal allowance?

Answer

Yes.

Question 3

Are you entitled to claim a deduction for incidentals up to the Commissioner's reasonable travel amounts, without substantiation, where you include the allowance as assessable income and the expenses are actually incurred, based on the number of nights you are in each country?

Answer

No.

Question 4

Are you entitled to claim a deduction for incidentals up to the Commissioner's reasonable travel amounts, without substantiation, where you include the allowance as assessable income and the expenses are actually incurred, based on the number of occasions you receive an incidental allowance?

Answer

Yes.

This ruling applies for the following periods:

v Year ended 30 June 2011

v Year ended 30 June 2012

v Year ended 30 June 2013

v Year ending 30 June 2014

v Year ending 30 June 2015

The scheme commences on:

1 July 2010

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are an international pilot.

You are paid a travel allowance by your employer to cover meal and incidental expenses. These expenses are incurred on a regular basis as part of your employment.

The allowance is not recorded on your PAYG Certificate.

The allowance is less than the Commissioner's reasonable travel allowance.

The allowance that you receive could reasonably be expected to cover meals or expenses incidental to the travel.

You state that you spend more than the Commissioner's reasonable amount on meals and incidentals when you travel.

You may receive three different allowances, meal, overnight and laundry allowance. The allowance is based on the country, your arrival and departure times and the amount of time spent in the port.

You receive the meal allowance if the stopover is greater than two hours and any part of the stopover falls into a 'meal period'.

Overnight allowances are paid if the stopover is greater than six hours. If it's greater than 30 hours then an extra allowance is paid, if it's greater than 54 then another allowance is paid.

The laundry allowance is paid if you are away from home base for longer than two local nights (2200 - 0600), you receive the allowance on the third night. Two laundry allowances are paid for the fourth night and then one extra allowance is paid for each subsequent additional night.

You have provided a spread sheet showing your travel for the 2011-12 financial year. It shows the date, arrival and departure times, duration of time spent, the amount of the allowance that you received (converted to $A), the number of nights, etcetera.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Income Tax Assessment Act 1997 Section 900-55.

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 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 is considered to have been necessarily incurred in the performance of your duties and a deduction is allowable.

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 overseas 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.

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.

In your case, you are paid an amount that is a bona fide travel allowance.

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.

However if you travel away from your ordinary place of residence for more than six nights in a row, you must keep a travel diary. The travel diary must be kept for both domestic and international travel. Section 900-150 of the ITAA 1997 states that a travel diary must contain the following information:

• The nature of the activity

• The day and approximate time it began

• How long it lasted; and

• Where you engaged in it.

In your case, you are paid a travel allowance based on the arrival and departure time, and the amount of time spent in each port. The meal allowance that you receive is based on the number of meals that you will consume while in port. It follows then that the reasonable amount that you can deduct should also be based on the number of meals.

The spread sheet that you provided shows that the number of nights spent in the port may not be reflective of the number of meals.

For example, if you are in port for an amount of time and you receive a meal allowance covering three meals, you are entitled to claim the full reasonable amount because it covers three meals. However, if you only receive a meal allowance that covers two meals, you are entitled to claim a portion of the reasonable amount.

If you are in port for an amount of time for which you do not receive an incidental allowance (that is, a laundry or overnight allowance), you are not entitled to claim a deduction for the reasonable amount of incidentals.

Subsequently, where you include the travel allowance in your tax return as income and incur deductible expenses in relation to the allowance, you are entitled to a deduction for the expenses incurred without substantiation provided that the expenses are below the Commissioner's reasonable amounts.