Sanchez and Commissioner of Taxation
Document type: Decision Impact Statement
Venue: Administrative Appeals Tribunal (2007/3667)
Judgment date: 8 October 2008
Date published: 3 August 2009
Decision outcome: Partially Adverse

Summary of decision:
Outlines the Tax Office's response to this case which concerned whether the costs incurred by a travel agent in respect of overseas travel were deductible under section 8-1, and substantiated under Division 900, of the ITAA 1997.

Overview of facts:
The applicant was employed at STA Travel ("STA") as a travel sales consultant for about 31/2 years, commencing January 2004. His duties included the selling of travel related products. During the 2005 year of income, the applicant received a base salary of $23,000, commissions of about $15,000, a productivity bonus of $1,000 for exceeding sales targets in the 2004 calendar year and superannuation. His overall salary increased during the 2006 and 2007 income years. | The applicant travelled overseas on annual leave to the USA, Spain and Germany in August 2004 and to the USA in June to July 2005. The applicant did not receive any allowance from STA in relation to the overseas trips, made all of his own travel arrangements and incurred all the associated travel, accommodation and food expenses. | The applicant claimed a deduction of $9,853 for expenses associated with the overseas travel in his tax return for the 2005 income year. This amount comprised of $8,348 of actual travel expenses and $1,505 for foods and incidental costs calculated at $50.00 per day (30.1 days). | Before the Tribunal, the applicant adjusted his claim for expenditure incurred on the overseas trips to $10,136. | The Commissioner accepted the applicant had incurred at least $8,316 on airfares, accommodation and tours, and had provided written evidence to substantiate the expenses. The Commissioner did not accept that the applicant had substantiated the amended claim of $1,820 for food and incidental costs. | Issues decided by the court or tribunal | Overseas travel expenses | The Tribunal decided that the overseas travel undertaken by the applicant was not private or domestic in nature, but was sufficiently connected and relevant to his income producing activities as a travel sales consultant (paragraphs 37 and 42). | The Tribunal was also satisfied, on the evidence, that the applicant's calling as a travel sales consultant required degrees of knowledge and skill that benefited from personal experience of the travel components he sold to his customers (paragraph 27). | The Tribunal also found, on the evidence, that the overseas travel expenses claimed by the applicant directly contributed to his knowledge and skills as a travel sales consultant, and also contributed (or were likely to contribute) to his earning increased income (paragraph 32). | The Tribunal decided that the expenses incurred by the applicant in the 2005 year of income on overseas airfares, accommodation and tours were allowable deductions under section 8-1. | Substantiation | The Tribunal found, on the evidence, that although the applicant maintained contemporaneous diary notes of his activities on the overseas trips, there were largely no references in the notes to expenditure incurred on food and incidentals, nor were any receipts kept. The Tribunal also noted that when the applicant incorporated details of expenditure in his more detailed notes years later, it became clear that these approximates were largely, if not solely, the result of his recollection (paragraphs 43 and 45). | The Tribunal found that the "food and incidentals" claim made in relation to the overseas trips did not satisfy any direct substantiation provision in Division 900, and that the nature and quality of the applicant's evidence did not warrant the exercise of the discretion available under section 900-195 (paragraphs 43 and 45).

Issues decided:
Overseas travel expenses The Tribunal decided that the overseas travel undertaken by the applicant was not private or domestic in nature, but was sufficiently connected and relevant to his income producing activities as a travel sales consultant (paragraphs 37 and 42). The Tribunal was also satisfied, on the evidence, that the applicant's calling as a travel sales consultant required degrees of knowledge and skill that benefited from personal experience of the travel components he sold to his customers (paragraph 27). The Tribunal also found, on the evidence, that the overseas travel expenses claimed by the applicant directly contributed to his knowledge and skills as a travel sales consultant, and also contributed (or were likely to contribute) to his earning increased income (paragraph 32). The Tribunal decided that the expenses incurred by the applicant in the 2005 year of income on overseas airfares, accommodation and tours were allowable deductions under section 8-1. Substantiation The Tribunal found, on the evidence, that although the applicant maintained contemporaneous diary notes of his activities on the overseas trips, there were largely no references in the notes to expenditure incurred on food and incidentals, nor were any receipts kept. The Tribunal also noted that when the applicant incorporated details of expenditure in his more detailed notes years later, it became clear that these approximates were largely, if not solely, the result of his recollection (paragraphs 43 and 45). The Tribunal found that the "food and incidentals" claim made in relation to the overseas trips did not satisfy any direct substantiation provision in Division 900, and that the nature and quality of the applicant's evidence did not warrant the exercise of the discretion available under section 900-195 (paragraphs 43 and 45).

ATO view of decision:
Based on the facts as found by the Tribunal, the decision is consistent with established general principles of deductibility under section 8-1 of the ITAA 1997 in relation to expenses incurred by employees. | The Tribunal was satisfied that the applicant's calling as a travel sales consultant required degrees of knowledge and skill that would benefit from personal experience of the travel components he sold to his customers, and that the 2005 overseas travel directly contributed to that knowledge and skill, and also contributed (or was likely to contribute) to his earning increased income. | Whether expenses incurred by an employee in relation to an overseas trip taken on unpaid or annual leave are deductible under section 8-1, or are properly characterised as expenses incurred on a private holiday, will depend on whether the facts demonstrate that there is a sufficient connection with the course of the employee's income earning activities. | The Commissioner's Fact Sheet entitled 'Travel agents - what travel expenses can I claim?' has been amended to take account of the decision in this case.

Administrative treatment:
Implications on current Public Rulings & Determinations | None

Legislative references: Income Tax Assessment Act 1997 8-1 900-15 900-20 900-115 900-125 900-130 900-150 900-195
Case references: Commissioner of Taxation v Finn [1961] HCA 61 106 CLR 60 Federal Commissioner of Taxation v Hatchett [1971] HCA 47 125 CLR 494 2 ATR 557 71 ATC 4184 Griffin v Federal Commissioner of Taxation (1986) 87 FLR 86 86 ATC 4838 (1986) 18 ATR 23 Commissioner of Taxation v Studdert (1991) 33 FCR 75 22 ATR 762 91 ATC 5006
Subject references: Income tax Allowable deduction Travel agent Overseas travel