Private ruling: Travel allowance substantiation
Published: May 2012
Ruling period: Year ended 30 June 2009 | Year ended 30 June 2010 | Year ended 30 June 2011 | Year ended 30 June 2012 | Year ended 30 June 2013 | Year ended 30 June 2014
Date scheme commenced: 1 July 2008

Ruling: Q1: Where you include 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 amount? | A1: Yes. | Q2: Are you entitled to a deduction for the gym expenses you incur? | A2: No.

Relevant facts and circumstances: You are an employee. You are an Australian resident for tax purposes. You are paid a travel allowance by your employer for the nights you are away from home to cover meals and incidentals. The travel allowance you receive is less than the Commissioner's reasonable amounts. The travel allowance is not included on your PAYG certificate. The travel allowance is paid for specific work-related travel. You receive your travel allowance in an envelope when you check into the hotel. You are able to obtain full details of all payments. You incur expenses in relation to this allowance. These expenses vary and can be above or below the Commissioner's reasonable amounts. You have kept a travel diary. You also incur gym expenses to help you keep fit to maintain your annual licence and to alleviate the effects of fatigue.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1, | Income Tax Assessment Act 1997 Section 900-50, | Income Tax Assessment Act 1997 Section 900-65 and | Income Tax Assessment Act 1997 Section 900-150.

Reasons for decision: Summary: You are entitled to a deduction without substantiation for the travel expenses you have incurred provided that you include the allowance as part of your income, the related expenses are deductible and they are below the reasonable amounts. | Detailed Reasoning - 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 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 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. 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. However if you travel away from your ordinary place of residence for more than 6 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, the allowance is considered an amount which can be reasonably be expected to cover the expense for which it is being paid, and your entitlement is accepted as an allowance which is paid for specific instances of work related travel. Therefore the entitlement you receive is considered a bona fide travel allowance. 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. | Detailed Reasoning - Question 2: Generally, fitness expenses such as the cost of a gym membership are considered to be private in nature and no deduction is allowed. However, a deduction is allowable for these costs if strenuous physical activity is an essential and regular element of the taxpayer's income-earning activities, such as a Police Academy physical training instructor or a member of the Special Air Services Regiment. Their costs would be incurred to maintain a level of fitness well above the general standard. In your case, we acknowledge that your duties as a pilot require you to maintain a certain level of fitness. However, we do not consider the level of fitness required in your case to be at the highest level nor at a level which makes it an essential and regular element of your employment. Accordingly, the cost of your gym membership is considered to be a private expense and not allowable under section 8-1 of the ITAA 1997.

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