Updated 25 January 2019
Normally we don’t buy into the ATO fearmongering each year, saying certain deductions are in their sights. But the attitude of the ATO has changed from just wanting to confirm you are claiming legitimate deductions to actually wanting to find a way to deny a claim for an expense, even when it is obvious you would have incurred it.
The techniques they will use against you include asking for a letter from your employer to say you needed to incur the expense and that you haven’t been reimbursed for it. Receipts are no longer good enough either. They will ask you for copies of bank statements to show that those receipts were paid out of your account not someone else’s so no more paying for these expenses in cash. There is no basis of law in these demands it is all bluff based on the fact the average taxpayer cannot afford to fight the ATO.
The concessions for reasonable travel costs have been effectively removed. They still issue the reasonable amounts each year but the extra rules that are now required to utilise the concession make it much easier to just keep receipts.
Be concerned, very concerned because your employer will not have deducted any tax from your travel allowance so without receipts for everything you could end up with a hefty tax bill.
The following digs deeply into the law to help you defend yourself, giving you the details of what the ATO expect and what the law actually says.
When Your Employer Pays You A Travel Allowance
When you receive a travel allowance from your employer section 900-50 allows a concession to save you having to keep receipts for all your expenses. The relevant section says:
You can deduct a *travel allowance expense for travel within Australia without getting written evidence or keeping travel records if the Commissioner considers reasonable the total of the losses or outgoings you claim for travel covered by the allowance.
As you can see the law does not say anything about justifying the travel beyond receiving an allowance from your employer and that the amount is reasonable. Each year the ATO release a ruling listing what the reasonable amounts are. This ruling is word similarly each year with just the amounts changed. But the ruling for the 2017/2018 year was considerably different. In particular paragraph 3.
In 2016/2017 it said:
“Where the amount claimed is no more than the applicable reasonable amount, substantiation of the claim with written evidence is not required. In appropriate cases, where the substantiation exception is relied on, the employee may still be required to show how they worked out their claim, that the expense was actually incurred.”
Now in 2017/2018 the ruling says:
“If you rely on the reasonable amounts and the ATO checks your income tax return, you will still be required to show:
You spent the money in performing your work duties (for example, in travelling away from home overnight on a work trip)
How you worked out your claim (for example, you kept a diary)
You spent the money yourself (for example, using your credit card statement or other banking records) and were not reimbursed (for example, a letter from your employer)”
Paragraph 20 also requires you to have kept some receipts for some of your expenses as a representative sample.
Further, changes have been made in TD 2017/19 which is the ruling for 2017/2018, in regarding to accommodation expenses. You can no longer use the reasonable amount substantiation concessions if you stay in a caravan park or hostel. It only applies to “commercial establishments like hotels, motels and serviced apartments”. Accordingly, don’t assume they apply if you use Airbnb.
TD 2017/19 at paragraph 15 is also more specific about the time you eat your meals. If your work day is really a night you are not going to be entitled to claim for eating during the night. You are only allowed to claim for breakfast, lunch or dinner when you are away from home during the traditional times those meals are eaten. For example you are only allowed 2 meals in the 19 hours the between 3pm and 10am the next morning. At least the incidental allowance is paid in full for each day you are away even if it is only part of the day. Nevertheless, you are no longer able to just count the days, you need to record the actual hours you were away from home, another reason for a diary. This is all stuff you would not have to do if you simply got a receipt for the meals rather than rely on this substantiation concession. Get a receipt and you can eat as much as you like whenever you like. But you will need to keep a diary of your itinerary if you are away form more than 6 nights in a row.
Judging from the ATO’s behaviour of late (easier to flog taxpayers who can’t afford to fight than the multinationals) you can expect the above to be pushed to the letter. This means you need to keep a diary for all your travel, listing where you where, why, how much you spent on each meal, when you ate it and where. Make sure you pay for it on a credit card and keep the statement so you can prove you did actually spend the money that you have documented in your diary and get a representative sample of receipts. You will also need a letter from your employer saying that you were not reimbursed and best get them to back up you reasons for travelling while you are at it. It is important to get this letter when you get your PAYG summary or earlier because you might not be on as good terms with your employer when the ATO come knocking or your supervisor may have left.
This has got to make you wonder what sort of concession, if any, is being offered under the reasonable amounts ruling. Surely, substantiation (just getting a receipt) is easier than relying on the exception from substantiation. The ATO have taken what was supposed to be a concession and made more red tape out of it than the legislation it was trying to simplify.
If you don’t rely on the reasonable allowance concessions here is what you are required, under the substantiation provisions of the 1997 ITAA, to do to claim an expense:
You must get a document from the supplier of the goods or services the expense is for. The document must set out:
(a) the name or business name of the supplier; and
(b) the amount of the expense, expressed in the currency in which it was incurred; and
(c) the nature of the goods or services; and
(d) the day the expense was incurred; and
(e) the day it is made out.
There are 2 exceptions to these requirements:
(a) if the document does not show the day the expense was incurred, you may use a bank statement or other reasonable, independent evidence that shows when it was paid;
(b) if the document the supplier gave you does not specify the nature of the goods or services, you may write in the missing details yourself before you lodge your *income tax return for the income year.
Further, if that proves to be onerous for small expenses that total under $200 for the year then:
If your expense is small, and you have a small total of small expenses, you can make a record of the expenses instead of getting a document from the supplier.
Each expense must be $10 or less, and the total of all your expenses that:
(a) are each $10 or less; and
(b) you incurred in the income year and wish to deduct; and
(c) you must get written evidence for under this Division;
must be $200 or less. These limits can be increased from time to time by regulations made under section 909-1
If the Commissioner considers it unreasonable to expect you to have got written evidence of an expense in any other way permitted by this Subdivision, you can use the method in section 900-125 to get written evidence of your claim.
The expense may be more than $10 and does not count towards the $200 limit in section 900-125 .
Note that nowhere in the legislation does it require you to produce bank statements to show that you actually paid the money that resulted in the receipt yet on this page and many others on the ATO website that is what they are now saying. A receipt is not enough we want bank statements to back it up. No basis of law just bullying.
The legislation also provides protection from bullying by the ATO. The following section was bought in when they denied a minister of religion a claim for any of his motor vehicle expenses because he had missed signing a few of the entries in his log book.
SECTION 900-200 Reasonable expectation that substantiation would not be required
Not doing something necessary to follow the rules in this Division does not affect your right to deduct an amount if the only reason was that you had a reasonable expectation that you would not need to do it in order to be able to deduct that amount.
Then if all else fails you argue that the ATO can’t deny that you would have eaten food while you were travelling so you still must be allowed a deduction for something and it would seem that as the ATO have set out the reasonable amounts then that would be a good benchmark for what you incurred:
SECTION 900-195 Commissioner’s discretion to review failure to substantiate
Not doing something necessary to follow the rules in this Division does not affect your right to a deduction if the nature and quality of the evidence you have to substantiate your claim satisfies the Commissioner:
(a) that you incurred the expense; and
(b) that you are entitled to deduct the amount you claim
Now in theory the ATO cannot rely on their rulings such as TD 2017/19 to override the legislation quoted above so it would seem keeping receipts and a diary entry for small expenses such as parking, tolls and vending machines is the simplest method of claiming travel expenses. Receipts should be a hands down win in court but can you afford to go there and continue on when the ATO appeal? Probably not, so it would be wise to use a credit card whenever you can and get that letter off your employer. But a receipt has got to be better than writing all that information down in a diary. No matter which method make sure you get something from your employer saying you were required to undertake the travel for work purposes. Surely there has been some email discussions that you can keep.
Meal Allowance For Employee Truck Drivers
At least truck drivers are not locked into eating meals at particular times of the day. They can rely on their log book to document their meal breaks but still their claim cannot be on a daily basis it must be calculated in relation to the number of meals actually consumed. Truck drivers are not entitled to an incidentals amount in their reasonable amount. In particular paragraph 26 says you must obtain a receipt if you claim the cost of having a shower.
It is important that you break down the expense for each meal. New to TD 2017/19 is the requirement that if you are not big on breakfast so don’t spend much you can’t spend the amount saved on your lunch instead. Each individual meal must be under the reasonable amount. I guess this means, bad luck if you miss a meal you can’t eat extra at the next meal.
Truck drivers are also required to keep diary entries of the cost of every meal they have, some receipts to prove those costs ie a representative sample and bank records to prove that they are actually the one that paid for the expense. It is clear in the ruling that all 3 of these requirements must be met as it uses the word “and” not the word “or”. It seems it would be a lot less trouble to just keep receipts for all meals and not have to worry about all these requirements that are supposed to relieve you of the burden of substantiation (keeping receipts).
In another example of the ATO being a law unto themselves, putting stuff on their web site that has no basis in the legislation. This page claims that even if you are utilising the reasonable allowance concessions you still have to have a receipt for every meal anyway. It says half way down the page:
“If we ask you to explain how you worked out amounts you claimed or if you claim more than the reasonable amount per meal when travelling, you need to keep the following records:
- payment summary or payslips to show the travel allowances you received
- work diary, or other fatigue documentation which shows the days you travelled for work including start and finish times, where you travelled to, and when you stopped for meals
- all receipts or invoices for every meal showing the name of the supplier, the amount you spent, the nature of the good or service, the day you spent the money, and the date the receipt or other written evidence was made
- written evidence to show that you were the one who spent the money. If you travel the same route regularly, and have a regular pattern of expenditure, we accept written evidence for a three-month representative period.
When You Receive an Overtime Meal Allowance.
Claiming a tax deduction against an overtime meal allowance has become a thing of the past. Note you are not allowed to claim a meal at all if you have not received an allowance from your employer.
Unfortunately a taxpayer has lost very badly at the Administrative Appeals Tribunal – Mitchell and Commissioner of Taxation 2018 AATA 2507. This means that taxpayers will no longer be able to claim for a meal they buy on the way home after working overtime. Claiming a deduction for an overtime meal is now limited to the very lucky few who have an employer who keeps the work canteen open for them or are allowed time off during their overtime to buy food from a nearby shop. The bottom line is if you don’t go back to work after purchasing that meal you are not entitled to claim in against your overtime meal allowance. Here is a quote from the case:
For expenditure on an overtime meal to satisfy s 8-1(1), the meal must be consumed whilst performing overtime duties or consumed on a break in the course of performing those duties. The evidence was that Mr Mitchell generally finished work at 5.30 pm on Mondays to Thursdays and 3.30 pm on Fridays. He generally consumed dinner after finishing his working day. For these reasons, the expenditure incurred by Mr Mitchell on dinner does not satisfy the requirements of s 8-1(1) of the 1997 Act and is not deductible.
21. Mr Mitchell submitted that this result was “arbitrary”. Whilst it may seem “arbitrary” for a taxpayer who works overtime to be entitled to a deduction for an overtime meal consumed whilst at work but not after leaving work, the result follows from the requirement under s 8-1 that the occasion for the outgoing be found in that which is productive of assessable income. The connection between the meal expense and overtime work is broken if the meal is not consumed whilst performing overtime duties.
Got that? One hand holding the food the other performing overtime duties! This is an extreme outcome considering the legislation says in connection with working overtime:
SECTION 900-60 Exception for reasonable overtime meal allowance
You can deduct a *meal allowance expense without getting written evidence if:
(a) the allowance is to enable you to buy food or drink in connection with overtime that you work; and
(b) the allowance is paid or payable to you under an *industrial instrument; and
(c) the Commissioner considers reasonable the total of the losses or outgoings you claim that are covered by the allowance.
It should be considered that if the legislators wanted the food to be consumed in such a restrictive manner as the Mitchell case, then they would have said while working overtime not in connection with overtime. Surely the choice of a less common phrase suggests something better than the outcome of this case. But the ATO are right on board for this interpretation. On its web site https://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/Other-deductions/Overtime-meals/
Further in TD 2017/19 the ATO made major changes in its stance on overtime meal allowances, stating that you are required to prove that you worked overtime, apparently the fact you have received an overtime allowance is not enough. Another item to put in that letter from your employer, if you want to play it safe. In addition, you have to prove you were paid an overtime meal allowance so keep your payslips. Then if you don’t have a receipt you need to still prove how much your meal cost. This could be done with a menu from the place where you purchased the meal.
None of this removes the reality for most workers of not being able to buy a meal while working overtime and then return to work to eat it with one hand and work with the other. This means if your employer puts the overtime meal allowance on your PAYG summary (group certificate) you have to include it as income with no tax deduction.
The warning here is that your employer does not have to put the overtime meal allowance on your PAYG summary and if they don’t you can ignore the whole issue. Accordingly, now is the time to strike. Make sure your employer reads this. Make sure they do not intend to put the meal allowance on your PAYG summary. If they feel they should refer them to table 5 of https://www.ato.gov.au/Business/PAYG-withholding/Payments-you-need-to-withhold-from/Payments-to-employees/Allowances-and-reimbursements/Withholding-for-allowances/
All in all these changes show that the ATO intends to deny legitimate deductions no matter what records a taxpayer has kept. Further, the lack of publicity about this change of approach shows an intent not to be held accountable but to pick individual taxpayers off one at a time denying all tax deductions and using unlimited taxpayers funds to fight them in the courts if they dare stand up for themselves. Don’t risk relying on anything, keep receipts.