Claiming tax deductions for work-related expenses is one of the ATO’s target areas this year.
It’s a very basic tax issue, but not always well understood. This has been highlighted by a recent Administrative Appeals Tribunal (AAT) decision.
The AAT affirmed the Tax Commissioner’s decision disallowing a taxpayer’s deduction claim for work-related expenses, mainly for travel expenses. The Tribunal did, however, find the 25% administrative penalty imposed should be remitted to nil.
The taxpayer was a truck driver who worked for Linfox. He worked long shifts (i.e. a roster of five days on and two days off, with five nights on and three nights off). Using his own vehicle, he drove from his home in Adelaide to where he worked in Port Augusta. He was not reimbursed for fuel to commute from Adelaide and he needed to carry enough supplies for five days work, as well as his work bag.
While he was in Port Augusta, he lived in a motel. For the 2009-10 tax year, the taxpayer’s tax agent filed a tax return disclosing wages of $73,154 and deduction claims for work-related car expenses of $4,710 and other work-related expenses of $28,354 (it is understood this amount included $28,000 for travel expenses, $300 for mobile phone expenses and $54 for work diaries). According to the taxpayer’s tax agent, the claim for $28,000 had been calculated as per Taxation Determination TD 2009/15 by multiplying 125 days by $264 per day less $5,000 reimbursement by the employer.
After an audit, the Tax Commissioner issued an amended assessment reducing the claims for work-related car expenses to $3,750 and other work-related expenses to $6,603. (The Commissioner would later, before the AAT, submit these reduced claims were wrongly allowed.) The Commissioner also imposed an administrative penalty of 25% for “lack of reasonable care”. The taxpayer objected and the Commissioner allowed, in part, work-related car expenses and travel expenses, but disallowed the objection in relation to the mobile phone expenses. The taxpayer’s objection in relation to the administrative penalty was also disallowed.
Before the Tribunal, the taxpayer said he did not wish to pursue the remaining claim of $960 for work-related car expenses. The taxpayer also no longer wanted to pursue his claim for mobile phone expenses of $300. However, the taxpayer maintained he had received a travel allowance of $4,960 (rounded up to $5,000) and, in the circumstances, he was entitled to a deduction for the remaining work-related expenses totalling $21,751. The Commissioner argued the remaining work-related expenses comprised private and domestic expenditure which was not incurred by the taxpayer in gaining or producing his assessable income.
The AAT found the remaining work-related travel expenses of $21,751 in dispute were not deductible under the tax law. It was of the view the expenses were private and domestic in nature and not incurred for the purposes of earning assessable income. They were incurred in the same way as the costs in travelling to and from work, which are generally not deductible. The truck driver elected to live in Adelaide, where his home was, and not in Port Augusta, where his income-earning activities were carried out.
The AAT also found the taxpayer did not receive a bona fide travel allowance within the meaning of “travel allowance” as defined in the tax law. The Tribunal noted the taxpayer’s employer had indicated that the sum of $4,960 was paid either as a “rental allowance” or as an incentive to attract drivers to Port Augusta to work. As it had found that no travel allowance was provided to the taxpayer, the AAT said TD 2009/15 did not apply.
In relation to the administrative penalty, the AAT found there was no shortcoming in the level of care taken by the taxpayer in relation to his tax return. The Tribunal said the truck driver did not embellish his answers and adopted a straightforward approach to giving his evidence. It said the imposition of the 25% penalty was correct but found it was “harsh” in the circumstances, so it reduced it to nil.
Taxpayers can often have a misguided view of their tax deduction claims. Their logic not unreasonably says “I incurred this expense in gaining my income which is subject to tax, so the expense should be deductible”. Sounds simple enough, but the tax law contains many provisions limiting the kinds of expenses that are tax deductible … and logic does not necessarily play a large part in the tax law!
Terry Hayes is the Editor-in-Chief of tax news reporting at Thomson Reuters, a leading Australian provider of tax, accounting and legal information solutions.