Clark and Commissioner of Taxation (Taxation)
[2021] AATA 2446
•22 July 2021
Clark and Commissioner of Taxation (Taxation) [2021] AATA 2446 (22 July 2021)
Division:TAXATION AND COMMERCIAL DIVISION
File Numbers:2021/0420-0430
Re:Bruce James Clark
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Senior Member R Olding
Date:22 July 2021
Place:Brisbane
The decisions under review are affirmed.
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Senior Member R Olding
CATCHWORDS
TAXATION – income tax – requests for extensions of time to object – travel allowance expenses – where submissions indicate taxpayer unable to prove expenses exceeded travel allowances received – where prospects of objections being allowed poor – decision refusing requests for extensions affirmed
LEGISLATION
Income Tax Assessment Act 1997 (Cth), s 8-1; div 900
Taxation Administration Act 1953 (Cth), ss 14ZX, 14ZW, 14ZZK
CASES
Evans and Commissioner of Taxation [2016] AATA 80
Gleeson and Commissioner of Taxation [2013] AATA 920
McIntosh and Commissioner of Taxation [2001] AATA 702
Minister for Aboriginal Affairs v Peko Wallsend Ltd (1968) 62 CLR 24
SECONDARY MATERIALS
Taxation Ruling TR 2004/6 – Income tax: substantiation exception for reasonable travel and overtime allowance expenses
REASONS FOR DECISION
Senior Member R Olding
22 July 2021
Section 14ZW of the Taxation Administration Act 1953 (Cth) (“TAA”) imposes time limits for taxpayers who wish to object to a taxation assessment. For individuals objecting against their income tax assessment, the time limit is two years after they are given the relevant notice of assessment.
However, the Commissioner may agree to a request to treat a late objection as if it had been lodged within the prescribed time.[1] To avoid unnecessary repetition, I refer to this as a request for extension of time to object. If the Commissioner decides to refuse a request for an extension, the taxpayer may apply to the Tribunal for review of that decision: TAA, s 14ZX(4).
[1] TAA, s 14ZW(2).
On 22 October 2020, objections against income tax assessments were lodged on behalf of the Applicant, Mr Clark, accompanied by a request to extend the time for objection.
The objections related to the income years 2007/8 through to 2017/18 inclusive. They sought to have included, in the calculation of the assessments of taxable income for these income years, travel allowances and corresponding travel allowance expense deductions calculated on the basis of the Commissioner’s published “reasonable amounts”, as follows:[2]
[2] Notice of Objection dated 22 October 2019, section 10.
Income year Date assessment issued Omitted travel allowance Omitted travel deduction claims 2017/18 27 July 2018 $5,901 $9,387 2016/17 27 July 2017 $6,436 $9,864 2015/16 29 May 2019 $7,695 $12,021 2014/15 12 August 2015 $7,437 $12,128 2013/14 4 August 2014 $3,951 $8,087 2012/13 19 August 2013 $14,104 $23,590 2011/12 6 August 2012 $2,954 $12,034 2010/11 15 August 2011 $4,172 $9,144 2009/10 22 May 2012 $3,867 $7,778 2008/9 24 July 2009 $329 $448 2007/8 24 July 2008 $5,244 $6,476
The Commissioner refused the request to extend the time for objection against these assessments. Mr Clark applied to the Tribunal for review of that decision.
I have decided the decision to refuse the request should be affirmed. My reasons follow.
BACKGROUND
At all relevant times, Mr Clark was employed by Aurizon (formerly Queensland Rail). His duties required him to travel to and stay overnight at various locations in rural Queensland.
Aurizon arranged accommodation for Mr Clark, but the accommodation did not have cooking facilities. Mr Clark therefore purchased his meals while he was away from home. Aurizon paid Mr Clark a travel allowance to cover these expenses.
When he lodged his income tax returns for the years in question, which he prepared without professional assistance, Mr Clark did not disclose the allowances nor claim any deductions relating to meals. Through his objections, Mr Clark now seeks to disclose the allowances received each year and claim deductions for meal expenses. He seeks to calculate his deductions according to the “reasonable amounts” for travel allowance expenses published by the Commissioner, as explained further below.
WHETHER TO GRANT AN EXTENSION OF TIME TO OBJECT – PRINCIPLES TO BE APPLIED
The discretion under s14ZW of the TAA to extend the time for an objection is unconstrained by any express statement of factors required to be considered. Any such requirement must be inferred as a matter of statutory interpretation from the subject matter, scope and purpose of the discretion.[3]
[3] Minister for Aboriginal Affairs v Peko-Wallsend Ltd (1968) 162 CLR 24 per Mason J, [13].
Section 14ZW(3) states in relation to a request for an extension of time to object that:
The request must state fully and in detail the circumstances concerning, and the reasons for, the person’s failure to lodge the objection with the Commissioner within the required period.
I therefore take as a mandatory consideration the Applicant’s explanation of the circumstances concerning and reasons for the late objections.
Other factors that have been considered in earlier cases are whether the Applicant has a good case at objection and prejudice to the Commissioner or the Applicant if the request is granted or refused.[4]
[4] Evans and Commissioner of Taxation (Taxation) [2016] AATA 80.
This should not be taken as an exhaustive list of potentially relevant considerations. I take the overarching principle to be that time limits imposed by the legislature should not be departed from without good reason but ultimately the Commissioner, and the Tribunal on review, must determine whether it is appropriate in all the circumstances to grant the extension.
Before turning to discuss these considerations, and because it is relevant to the Applicant’s prospects of success at objection, it may be helpful to set out the legislative framework for claiming travel expense deductions.
LEGISLATIVE FRAMEWORK – TRAVEL ALLOWANCE EXPENSES
In this part of these reasons, all legislative references are to the Income Tax Assessment Act 1997 (Cth) (“ITAA 1997”).
Division 900 imposes “substantiation” requirements for certain expenses including travel allowance expenses. These require documents containing specific information, such as the name of the supplier, the nature of the goods or services supplied and the date the document is made out, to be retained.
However, s 900-50 provides an exception from these specific substantiation requirements. Section 900-50 provides:
Exception for domestic travel allowance expenses
(1) 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 that allowance.
(2) In deciding whether the total of the losses or outgoings you claim is reasonable, the Commissioner must take into account the total of the losses or outgoings of the following kinds that it would be reasonable for you to incur for the travel:
(a) accommodation;
(b) food or drink;
(c) losses or outgoings incidental to the travel.
Each year, the Commissioner publishes in a Taxation Determination amounts he considers to be reasonable for each of these categories of travel allowance expenses. It is the “reasonable amounts” for food and drink that Mr Clark now seeks to deduct for each occasion when he was required to purchase meals while away from home.
It is not in dispute that each year Mr Clark received a travel allowance as relevantly defined and the amounts now sought be deducted by Mr Clark, if incurred, would be “travel allowance expenses”, such that the s 900-50 exception to the substantiation requirements applies.
However, s 900-50 does not confer an entitlement to deduct an expense. It merely provides an exception to the specific substantiation requirements imposed by Division 900.
This is clear from s 900-15(1) which states:
Getting written evidence
(1) To deduct a *work expense:
(a) it must qualify as a deduction under some provision of this Act outside this Division; and
(b) you need to substantiate it by getting written evidence.
Section 900-50 provides an exception to the requirement in s 900-15(1)(b) to substantiate a work expense by getting written evidence. It does not exempt taxpayers from the first requirement; that is, that the expense must qualify as a deduction. As s 900-15(1)(a) makes clear, to deduct a work expense, it must qualify as a deduction under a provision outside Division 900, most commonly s 8-1 as a loss or outgoing incurred in gaining or producing assessable income.
It follows that a work expense is not deductible unless it was actually incurred. Section 900-50 does not render deductible a loss or outgoing that was not in fact incurred, even if it does not exceed the reasonable amounts published by the Commissioner.
This is consistent with the Commissioner’s public Taxation Ruling – TR 2004/6 – Income tax: substantiation exception for reasonable travel and overtime meal allowance expenses – which states:
Substantiation exception
13. The objective of the substantiation exception for travel and overtime meal allowance expenses provided for in Subdivision 900-B of the ITAA 1997 is to relieve taxpayers covered by the exception from the requirement to substantiate claims for deductible expenses by using detailed calculations, records or receipts. If a claim for expenses that are covered by a travel allowance or overall meal allowance qualifies for exception from substantiation, it is not necessary to keep written evidence as would otherwise be required under Subdivision 900-E of the ITAA 1997.
14. A taxpayer can choose not to use the exception from substantiation. Each taxpayer can decide between maintaining fewer records and limiting a claim to the reasonable amount, which in some circumstances may be lower than the amount actually incurred, or keeping written evidence and claiming the full amount of deductible expenditure incurred, which may be higher than the reasonable amount.
15. If a taxpayer relies on the exception for substantiation, they may still be required to show the basis for determining the amount of their claim, that the expense was actually incurred, 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.
(Emphasis added.)
It is also consistent with the approach adopted by the Tribunal in other cases of determining whether expenditure covered by the substantiation exception had been incurred.[5]
[5] Gleeson and Commissioner of Taxation [2013] AATA 920, [45]; McIntosh and Commissioner of Taxation [2001] AATA 702, [10].
SHOULD THE EXTENSIONS BE GRANTED?
I turn now to the factors I consider relevant to whether the extensions of time to object should be granted.
Circumstances concerning and reasons for delay
The reason for the delay in objecting is that the Applicant, who had previously prepared his own tax returns, was not aware that he could disclose the allowances and claim deductions. It was only when Mr Clark engaged a tax agent to prepare his return that he became aware of this.
I accept and take into account in his favour that Mr Clark was unaware that he could disclose the allowances and claim deductions. It is, of course, the responsibility of taxpayers who chose to prepare their own returns to ensure they are correct. On the other hand, it is, perhaps, unsurprising that Mr Clark did not focus on the food and drink expenses when he received an allowance from Aurizon to cover these costs and the allowance was not disclosed on his annual income summaries.
The long delay in lodging the objections, especially in respect of the earlier years, weighs against granting the extensions. This is not a case where the taxpayer missed a deadline by a short period. The objections are sought to be treated as lodged within time in some cases some years after the statutory time limits had expired. That does not automatically disqualify an applicant from obtaining an extension of time, but the longer the delay the more, depending on the circumstances, this weighs against granting an extension.
Prejudice
Clearly, if there is to be any financial advantage to Mr Clark in pursuing the objections – about which I have more to say below – it must follow that he will be prejudiced if he is not able to pursue the objections. The potential for prejudice if an application for an extension is denied will always be present, as it will invariably be the case that a taxpayer seeks to improve their financial position by pursuing an objection.
It may be that the greater the potential benefit the greater the potential for prejudice to an applicant. The additional amounts sought to be claimed in this case are not insignificant in the context of Mr Clark’s income. I would ordinarily give this factor some weight in favour of granting an extension where the potential benefit is, in relative terms, not insignificant. The issue is complicated in this case because, for the reasons discussed below in relation to prospects of success, it is not clear that there is in fact potential for any actual benefit to Mr Clark if the extensions were granted.
If the extension were to be allowed, the Commissioner may well be prejudiced, especially in respect of earlier years, by no longer being able to obtain or appropriately test relevant evidence. Of course, the taxpayer bears the onus of proof if an objection results in an application for review of an objection decision before the Tribunal.[6] Nevertheless, the Commissioner may and commonly does adduce his own evidence in tax cases.
[6] TAA, s 14ZZK.
Overall, I consider the potential for prejudice to the Commissioner weighs against granting the extension, especially in respect of the earlier years.
Strength of objection
When considering the parties’ written submissions, it appeared to me that the Applicant’s representative, Ms McCallum, may have been approaching the matter on the basis that Mr Clark was entitled to claim the Commissioner’s published “reasonable amounts” as deductions, without proving that the amounts claimed had been incurred. In other words, that the exception from substantiation meant the deductions could be claimed without proof that Mr Clark had in fact expended the amounts claimed.
I therefore arranged a short oral hearing to discuss this aspect. As a consequence, it was agreed and directed that the Applicant could file copies of bank or credit card statements indicating the amounts expended by Mr Clark. Ms McCallum duly did so, and the Commissioner responded with supplementary written submissions.
Analysis of bank statements
Ms McCallum provided copies of bank statements for the 2016, 2017 and 2018 income years, along with incomplete statements for other years.
Additionally, Ms McCallum provided analyses of the statements, listing amounts identified as spent by Mr Clark against amounts in the spreadsheet she filed called “Ruling Reasonable Amount Claiming”. The analyses highlighted expenditure for particular meals where the expenditure exceeded the Commissioner’s approved “reasonable amounts” for meals in the year in question.
However, these were the exception. In most cases, the amounts identified as actually expended were less than the “reasonable amounts” that Mr Clark now seeks to claim. This is illustrated by the following table constructed by the Commissioner in respect of the income years for which complete bank statements were provided:[7]
[7] Respondent’s Supplementary Submissions dated 8 July 2021, [25]. At a directions hearing on 16 July 2021, as I had my associate foreshadow before the hearing, I gave Ms McCallum the opportunity to make further submissions in response to the Commissioner’s Supplementary Submissions and indicated I was prepared to allow time for written submissions to be filed or to have a further oral hearing. Ms McCallum advised she did not wish to make further submissions and relied on the submissions and materials that had been filed on behalf of Mr Clark.
Income year Amounts actually incurred as identified from bank statements Travel allowance received “Reasonable amounts” calculated by the Applicant 2016 $4,424.06 $6,972.00 $12,021.00 2017 $4,128.50 $7,160.41 $9,864.25 2018 $2,265.49 $5,901.19 $9,387.80
For Mr Clark to establish that the assessments are excessive, he would need to prove that his travel allowance expenditure for each year exceeded the travel allowance he received for that year. As the table above indicates, the amounts identified from the bank statements as incurred by Mr Clark do not even approach the amount of travel allowance received, let alone the “reasonable amounts” he seeks to claim. It was not suggested Mr Clark would give evidence that he spent other amounts in those years such that the proven expenditure would exceed the allowances he received.
Indeed, unless further evidence were to be forthcoming, and Ms McCallum did not indicate that would occur, the material filed to date indicates the assessments may in fact have been for less than the true amount of taxable income. This is because Mr Clark appears to have omitted the travel allowances from his returns in circumstances where the amounts he actually incurred may have been less than the allowances. As already indicated, the substantiation exception does not create an entitlement to a deduction for travel allowance expenses not actually incurred.
Accordingly, I conclude on the basis of the material and submissions before the Tribunal that Mr Clark would have little prospect of succeeding with the objections if the extensions were allowed. This weighs heavily against granting the extensions.
Other factors
Ms McCallum’s submissions on Mr Clark’s behalf raised the following further factors:
Apart from this omission, Mr Clark’s tax returns have always been lodged on time, he has never exceeded or inflated his deductions and has always completed his returns in good faith and to the best of his abilities. As you are aware, this particular deduction is not well known, and Mr Clark is not the first client to be surprised by this tax ruling. We have had multiple persons amend their tax returns to include this tax determination.[8]
[8] Applicant’s Outline of Submissions dated 6 April 2021, [5].
None of these assertions are supported by evidence at this stage. However, assuming in favour of Mr Clark that they could be made out, I consider that these matters do not assist Mr Clark.
So far as Mr Clark’s tax returns being lodged on time, in good faith and to the best of his abilities, that is undoubtedly commendable. However, it amounts to asking the Tribunal to favour granting an extension because Mr Clark has done what he should do in any case and is required by law to do. Discharging these statutory obligations is a neutral consideration in my view.
That a deduction and associated tax ruling are not well known, if indeed that is the case here, might favour allowing an extension in particular cases. But here it has not been established that the relevant tax ruling assists Mr Clark because, as already indicated, the evidence suggests that he did not incur expenditure in the order of the “reasonable amounts” that he seeks to claim. It is not clear from the submission extracted above whether the “multiple persons” for whom returns were amended had incurred the reasonable amounts claimed, and thus were entitled to claim the deductions, if that is what that part of the submission is intended to convey.
CONCLUSION – EXTENSIONS SHOULD NOT BE GRANTED
In determining whether to allow the extensions of time, I am conscious that, although presented in a single document, each year must be considered independently as the subject of a separate application for extension and have taken that approach to my consideration of the matter.
Adopting that approach, it might be thought that the case for an extension is stronger in the later years than in the earlier years when the objections would be up to around 10 years out of time. However, there are a number of common factors that apply for each of the years in question and which weigh against granting the extensions.
Foremost of those is that, on the material provided and as discussed above, the objections would have little prospect of leading to a reduction in Mr Clark’s tax liability. It would be futile to extend the time for an objection with little prospect of the objections being allowed. Taking this into account, along with the other factors discussed above, it is my view that the correct or preferable decision is to refuse the applications for extensions of time to object.
It follows that the decisions under review, by which the Commissioner refused the application for extensions of time to object, must be affirmed.
I certify that the preceding 50 (fifty) paragraphs are a true copy of the reasons for the decision herein of Senior Member R Olding
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Associate
Dated: 22 July 2021
Date(s) of hearing: 9 June 2021, 16 July 2021 Advocate for the Applicant: S. A. McCallum, All Things Accounting & Business Services
Advocate for the Respondent: C. Katerelos Solicitors for the Respondent: ATO Review & Dispute Resolution
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