Davy and Commissioner of Taxation (Taxation) - [2017] AATA 376

Davy and Commissioner of Taxation (Taxation) [2017] AATA 376 (27 March 2017)
Division: TAXATION AND COMMERCIAL DIVISION
File Number(s): 2016/0124, 2016/0125
Re:Ross Davy
APPLICANT

Commissioner of TaxationAnd
RESPONDENT

DECISION
Tribunal:Egon Fice, Senior Member
Date:27 March 2017
Place:Melbourne

The Tribunal affirms the decisions under review in proceeding numbers 2016/0124 and 2016/0125. The objection decision made by the Commissioner on 5 June 2015 regarding Mr Davy’s taxable income in the 2011 and 2012 income years was correct. The decision made by the Commissioner regarding the imposition of a 50% of the shortfall amount administrative penalty was also correct.
...........................[sgd].............................................
Senior Member
TAXATION – Income tax and related legislation – work-related travel expense deductions – Income Tax Assessment Act 1997 – exemption from obligation to substantiate work-related travel expenses – liability to administrative penalties – remission of penalties under Taxation Administration Act 1953 – decisions under review affirmed.
Legislation
Administrative Appeals Tribunal Act 1975 (Cth)
Income Tax Assessment Act 1997 (Cth)
Taxation Administration Act 1953 (Cth)
Secondary Materials
ATO Practice Statement, PS LA 2012/15
Practice Statement Law Administration PS LA 2012/5
Taxation Determination, TD 2010/19
Taxation Determination, TD 2011/17
Taxation Ruling TR 2004/6
REASONS FOR DECISION
27 March 2017

Mr Ross Davy was a truck driver. In the 2011 and 2012 income years Mr Davy claimed work-related travel expense deductions in the amount of $24,736 and $17,489 respectively.
On 24 September 2012, following a Commissioner initiated audit amendment, Mr Davy’s income was amended for the 2011 income year by adding travel allowances received from his employer in the amount of $7244. On 5 October 2012 Mr Davy initiated a further amendment increasing his claim for work-related travel expenses to $33,503. In a further amendment initiated by Mr Davy, his claim for work-related travel expenses was reduced to $26,235.
The Commissioner also amended Mr Davy’s income tax return for the 2012 income year on 26 September 2013 by adding to his assessable income travel allowances received from his employer in the amount of $3615.
In a letter dated 14 November 2013 the Commissioner notified Mr Davy that his income tax returns for the 2011 and 2012 income years had been selected for audit in relation to allowances and work-related travel expenses. On completion of the audit, the Commissioner notified Mr Davy that the allowances for the 2011 and 2012 income years had been returned correctly but that the work-related travel expenses claimed for both income years had been reduced to 0. On 10 April 2014 the Commissioner issued notices of amended assessment for those years in accordance with the audit findings. The Commissioner also issued notices of assessment of shortfall penalty in the amount of $4454.25 for the 2011 income year and $3142.30 for the 2012 income year.
Mr John Fumberger, Mr Davy’s tax agent, lodged an objection with the Australian Taxation Office (ATO) on 19 December 2014. The Commissioner issued his objection decision on 5 June 2015. The Commissioner increased Mr Davy’s work-related travel expenses deduction claim for the 2011 income year to $8066 and for the 2012 income year, to $3478. Mr Davy’s objection against the shortfall penalties was disallowed but the amounts were adjusted for the reduced amounts allowed as a result of acceptance of some work-related travel expenses. The Commissioner used Mr Davy’s credit card statements and statements made by him in the course of telephone conversations with officers of the ATO when amending the work-related travel expenses claimed. Mr Davy told the ATO officer, and this was not in dispute, that per overnight trip he typically spent about $12 for breakfast, $15 for lunch, and took a packed evening meal with him which would generally cost around $10 to prepare.
On 15 June 2015 the Commissioner issued notices of amended assessment reflecting the objection decision. Mr Fumberger, on behalf of Mr Davy, lodged an application for review with the Tribunal on 11 January 2016. Because that lodgment took place outside the statutory time limit of 60 days after the person making the application is served with a notice of decision (s. 14ZZC of the Taxation Administration Act 1953 (the Administration Act)), an extension of time to lodge that application was required. In accordance with

s. 29(7) of the Administrative Appeals Tribunal Act 1975, an extension of time was granted on 31 January 2016.
The issues I am required to determine are:
(a)whether the work-related travel expenses claimed by Mr Davy satisfied the requirements found in s. 8-1 of the Income Tax Assessment Act 1997 (ITAA 97);
(b)whether s. 900-50 of ITAA 97 operates to exempt Mr Davy from the obligation to substantiate the work-related travel expenses as claimed;
(c)whether Mr Davy or his tax agent acted recklessly in claiming the work-related travel expenses resulting in Mr Davy being liable to administrative penalties of 50% of the shortfall amount for each of the relevant years pursuant to s. 284-75(1) of Schedule 1 of the Administration Act; and
(d)if I find Mr Davy is liable to the administrative penalties levied by the Commissioner, whether there is any basis for remission, either in part or in full, of those penalties pursuant to s. 298-20 of Schedule 1 of the Administration Act.
GROUNDS OF OBJECTION AND BURDEN OF PROOF
Section 14ZZK of the Administration Act provides:
On an application for review of a reviewable objection decision:
(a)the applicant is, unless the Tribunal orders otherwise, limited to the ground stated in the taxation objection to which the decision relates; and
(b)the applicant has the burden of proving that:
(i)     if the taxation decision concerned is an assessment (other than a franking assessment) – the assessment is excessive; or
(ii)    if the taxation decision concerned is a franking assessment – the assessment is incorrect; or
(iii)    in any other case – the taxation decision concerned should not have been made or should have been made differently.
The Commissioner’s disallowance of Mr Davy’s claimed deductions and the omission of trip allowances paid by his employer as assessable income resulted in an increase in his taxable income. There was no dispute about the travel allowance paid to Mr Davy by his employer. Therefore, in establishing that he is exempt from the substantiation requirements or has met those requirements for the claimed deductions, Mr Davy bears the onus of proving that he was exempt or has met the substantiation requirements and hence the assessments are excessive.
As far as the administrative penalties are concerned, Mr Davy bears the onus of proving that those decisions should not have been made or that they should have been made differently.
WORK-RELATED DEDUCTIONS
Section 8-1 ITAA 97 is the general deductions provision. It provides:
(1)you can deduct from your assessable income any loss or outgoing to the extent that:
(c)it is incurred in gaining or producing your assessable income; or
(d)it is necessarily incurred in carrying on a *business for the purpose of gaining or producing your assessable income.
(2)However, you cannot deduct the loss or outgoing under this section to the extent that:
(a)it is a loss or outgoing of capital, or of a capital nature; or
(b)it is a loss or outgoing of a private or domestic nature; or
(c)it is incurred in relation to gaining or producing your *exempt income or your *non-assessable non-exempt income; or
(d)a provision of this Act prevents you from deducting it.
Section 900-30 of ITAA 97 explains the meaning of the expression work expense. Travel allowance expenses are included in that meaning. Relevantly, it provides:
(1)   A work expense is a loss or outgoing you incur in producing your salary or wages.
(2)   Travel allowance expenses count as *work expenses. A travel allowance expense is a loss or outgoing you incur for travel that is covered by a *travel allowance. The loss or outgoing must:
(a)be for accommodation or for food or drink; or
(b)be incidental to the travel.
(3)   A travel allowance is an allowance your employer pays or is to pay to you to cover losses or outgoings:
(a)that you incur for travel away from your ordinary residence that you undertake in the course of your duties as an employee; and
(b)that are losses or outgoings for accommodation or for food or drink, or are incidental to the travel.
The travel may be within or outside Australia.
(4)   Meal allowance expenses count as *work expenses. A meal allowance expense is a loss or outgoing that you incur for food or drink that is covered by a *meal allowance.
(5)   A meal allowance is an allowance that your employer pays or is to pay to you as an employee to enable you to buy food or drink.
However, an allowance is not a meal allowance if it is a *travel allowance or part of one.
…
SUBSTANTIATION RULES
Under the system of self-assessment which currently operates in Australia, a taxpayer is ordinarily not required to lodge documents which substantiate deduction claims when an income tax return is lodged. However, should the Commissioner audit an income tax return, usually the taxpayer is then required to produce receipts or other documents evidencing the claimed expenditure and its relationship to the work conducted by the taxpayer from which assessable income has been derived.
As is explained under s. 900-30 of the ITAA 97, a work expense is a loss or outgoing incurred in producing salary or wages. In other words, such expenses are deductible from assessable income in the ordinary course. However, there are rules about substantiating, or more simply, proving, that claimed expenses were incurred. Section 900-10 provides that to deduct certain types of loss or outgoings, the taxpayer needs to substantiate them under Division 900 of ITAA 97. Subdivision 900-B deals with deduction claims for work expenses. Section 900-15 relevantly provides:
(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.
Subdivision 900-E deals with written evidence. Section 900-115, which deals with written evidence from a supplier, is relevant in Mr Davy’s case. It provides:
(1) You may use this set of rules for any type of expense except the decline in value of a *depreciating asset.
(2) 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 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.
(3) 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 satisfy 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.
An alternative means of substantiation is provided in respect of a small total of small expenses. Section 900-125 provides:
(1) 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.
(2) 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 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.
There are, however, some exceptions to the general substantiation rule. Section 900-50 deals with the exception for domestic travel allowance expenses. It provides:
(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 the allowance.
(2) In deciding whether the total of 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.
Additionally, s. 900-195 of ITAA 97 deals with Commissioner’s discretion to review failure to substantiate. It provides:
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.
What the Commissioner considers are reasonable amounts for the substantiation exception in Subdivision 900-B of ITAA 97 for the 2011 income year is set out in a Taxation Determination, TD 2010/19. For the 2012 income year, TD 2011/17 applies. A Taxation Determination is a public ruling for the purposes of the Administration Act. If a taxpayer relies on the ruling, the Commissioner must apply the law in the way set out in the ruling unless the Commissioner is satisfied that the ruling is incorrect and disadvantages the taxpayer, in which case the law may be applied to the taxpayer in a way that is more favourable.
Table 6 of TD 2010/19 applies to employee truck drivers for the 2011 income year. The reasonable amount is divided into two blocks, dependent upon the truck driver’s salary range. If the driver’s salary is $97,100 and below, the reasonable allowance for food and drink is $20.65 for breakfast; $23.60 for lunch; $40.65 for dinner; being a maximum of $84.90 per day. If the truck driver’s salary is $97,101 and above, the reasonable allowance for food and drink is $23.10 for breakfast; $23.60 for lunch; $45.95 for dinner; being a maximum of $92.65 per day. Table 6 of TD 2011/17 applies to employee truck drivers for the 2012 income year. If the driver’s salary is $100,840 and below, the food and drink allowance is $21.15 for breakfast; $24.20 for lunch; $41.65 for dinner; being a maximum of $87.00 per day. If the driver’s salary is $100,841 and above, the amount rises to $23.65 for breakfast; $24.20 for lunch; $47.10 for dinner; being a maximum of $94.95 per day.
Ms F Cameron of counsel, who appeared on behalf of the Commissioner, made an important submission regarding the exception for domestic travel allowance expenses which I accept is correct. That is, the exception applies only to the need to substantiate a claimed deduction, and not to the requirement that the claimed deduction qualifies under some provision of ITAA 97 outside Division 900 (s 900-15(1)(a)).
Ms Cameron also directed my attention to Taxation Ruling TR 2004/6. Taxation Rulings are binding on the Commissioner. TR 2004/6 came into effect on 23 June 2004 and was consolidated in June 2006. It remained in force until withdrawn on 27 April 2016. However, it was reinstated on 28 April 2016. It is relevant to Mr Davy’s case. Paragraphs 13 to 15 of TR 2004/6 explain the substantiation exception in the following way:
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 the claim for expenses that are covered by a travel allowance or overtime meal allowance qualifies for exception from substantiation, it is not necessary to keep written evidence as would otherwise be required under Subdivision 900-B of the ITAA 1997.
14. A taxpayer can choose not to use the exception from substantiation. Each taxpayer can decide between maintaining your 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 expenses incurred, which may be higher than the reasonable amount.
15. If a taxpayer relies on the exception from 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 claims subject to the substantiation exception will vary according to individual circumstances and the nature of the expense.
In his submissions, to which I will refer presently, Mr Fumberger placed some emphasis on the fact that Mr Davy had been paid a bona fide travel allowance. TR 2004/6 at paragraph 16 sets out some common situations which may arise. Relevant are the following:
16. Where a taxpayer receives a bona fide travel allowance or a bona fide overtime meal 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, not just the excess over the reasonable amount.
·     Where the allowance received is not shown on the employee’s payment summary and is not greater than the reasonable amount and it is fully expended on deductible expenses, the allowance received is not required to be shown as assessable income in the employee’s tax return. Where it is not shown, a deduction for the expense cannot be claimed in the tax return – refer to paragraph 12.
·     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 claim only the amount of the deductible expenses incurred.
Additionally, Mr Fumberger seemed to be under the impression that because Mr Davy received a bona fide travel allowance, he was automatically entitled to a deduction. That is not correct. As is explained in TR 2004/6 at paragraph 41:
The receipt of a travel allowance or overtime meal allowance does not automatically entitle an employee to a deduction, nor does the amount of an allowance received determine if the claim is reasonable. Only the actual amount incurred on work-related travel expenses or overtime meal allowance expenses can be claimed as a deduction.
Furthermore, Mr Fumberger has overlooked the fact that the reasonable travel allowances referred to in TD 2010/19 and TD 2011/17 are maximum amounts which the Commissioner considers to be reasonable. Furthermore, maximum amounts are stated for breakfast, lunch and dinner resulting in a total maximum daily allowance. As is stated in TR 2004/6 at paragraph 46:
The reasonable amounts reflect accommodation expenses incurred in commercial establishments for short-term daily accommodation and the relevant food and drink expenses incurred during the period of that travel [emphasis added]. The reasonable amount for incidentals applies to deductible incidental travel expenses incurred for each day the employee travels if those expenses are covered by the travel allowance.

If this statement were not sufficiently clear, paragraph 53 of TR 2004/6, which deals with travel allowance expenses, provides:
For domestic or overseas travel allowance expenses to be considered for exception from substantiation, the relevant allowance must qualify as a travel allowance. The allowance must be paid to cover work-related travel expenses incurred or to be incurred for travel away from the employee’s ordinary residence, undertaken in the course of performing duties as an employee (subsection 900-30 (3) of the ITAA 1997). The Commissioner takes the view that the term ‘travel away from the employee’s ordinary residence’ means that the employee must sleep away from their home.
It follows that if the truck driver on the first day of his travel has breakfast and lunch at home before commencing work, and he sleeps away from home overnight before returning on the following day, he cannot claim for his breakfast and lunch on the first day because no expense was incurred for those meals during the period of his travel. It appears that Mr Fumberger, for unexplained reasons, had formed the view that because the reasonable amount determined by the Commissioner was a daily amount, if the truck driver slept away from home on any particular night after having travelled for any portion of the first day, he was entitled to claim all three meals on that first day whether or not they were in fact purchased on the first day while the driver was working. Plainly, that is incorrect.
MR DAVY’S TRAVEL ALLOWANCE EXPENSES CLAIM
The first point to note is that Mr Davy did not show the travel allowances he received from his employer on his income tax returns for the years in question. That is because, as I understood Mr Fumberger, the substantiation exception found in s. 900-50 of ITAA 97 applied to him. There was no issue about the fact that the travel allowance paid to Mr Davy was a bona fide travel allowance which was designed to cover his work-related travel expenses for the time he spent away from his home driving for his employer. Mr Fumberger also submitted that the expenses claimed by Mr Davy were not greater than the reasonable amount determined by the Commissioner and that the allowances were fully expended on deductible expenses.
Assuming for the present purposes that Mr Fumberger’s submission should be accepted, the question which remains is why Mr Davy’s travel allowances were not included in his assessable income. On both original income tax returns, Mr Davy excluded those allowances from both relevant income tax returns. If Mr Davy in fact simply claimed travel expenses to the full extent of the allowances, then those allowances of course need not be entered as income on his income tax return. However, as well as excluding the travel allowances he received ($7244 and $3615 respectively), Mr Davy claimed work-related travel expenses of $24,736 for the 2011 income year and $17,489 in the 2012 income year. His claim for travel expenses was well in excess of the allowances provided by his employer for travel expenses. It is inconceivable that Mr Fumberger, who was a Registered Tax Agent until that registration was terminated in January 2015, and a Certified Practising Accountant until he was made bankrupt in 2011, could have accidentally omitted that income in the nature of travel allowances. Even if he regarded those allowances to have been fully expensed in the income years in question, only the amounts which exceeded those allowances could be claimed as a deduction, assuming of course that they were within the reasonable amount determined by the Commissioner. Those expenses would need to be proved by the substantiation rules.
In his witness statement which was taken into evidence, Mr Fumberger said: I prepared the 2011 and 2012 income tax returns for Mr Ross Bradley Davy, in my capacity as his tax agent. While the 2011 income tax return lists his name as the tax agent, the 2012 income tax return has the name Steven Fumberger as the tax agent. When asked about this, Mr Fumberger explained that Steven was his brother. Mr Fumberger nevertheless said in cross-examination that although he was in partnership with his brother, he would not have had responsibility for preparing the 2012 tax return although he may have signed off on it if it was submitted under his name. Mr Fumberger denied that it was lodged under his brother’s name because he had been made bankrupt and, to have done so, would have breached his obligations as a CPA and the requirements of the Tax Practitioners Board. When Ms Cameron questioned Mr Davy about whether he had dealings with Mr Steven Fumberger, Mr Davy answered: No.
Mr Fumberger said this about the way in which Mr Davy’s income tax returns were prepared:
5. And each appointment, every year, we would go through the details relating specifically to his work, the trips taken, the time and length of the trips, the places, the meals and drinks consumed and discuss whether there was anything ‘out of the ordinary’. In that time we would also review the work diaries/log books that Mr Davy would always bring with him for appointment, which related to the relevant tax year. A cross check of the entries was made in the work diaries/log books would be made against payslips that had been issued and again brought to the appointment by Mr Davy. A further cross check against the allowance declared by the employer, and shown on the PAYG Payment Summary, would also be made. At this point, a representative batch of receipts for food and drink would also be referred to.
6. It should be noted that because the income tax return was prepared on the basis that the taxpayer chose to use the exception from substantiation and therefore fewer records were required. The claims for work-related travel expenses were limited to the Commissioner’s reasonable amount, and accordingly Mr Davy did not keep every single receipt relating to expenditure incurred for food, drinks and incidentals that the incurred whilst travelling for his job.
In cross-examination, Mr Davy gave a different account of the way in which Mr Fumberger prepared his income tax returns. When Ms Cameron asked Mr Davy whether he had an interview or an appointment with Mr Fumberger where he went through and confirmed the numbers on his tax return, his answer was non-responsive and therefore I directed him to answer whether he went through his log books and other relevant documents with Mr Fumberger at any time prior to signing his tax return. Mr Davy answered: I guess not, because I wasn’t home. Mr Davy also confirmed that he did not keep receipts for travel expenses for the years in question.
I had in evidence a witness statement prepared by Mr Robert French, an ATO Officer, who testified that he spoke with Mr Davy by telephone on 6 March 2014 and made a file note of that conversation at the time. That file note relevantly states:
I asked ros [sic] if he new [sic] how this claim was calculated, Ross said his wife took his log books and payslips to the agent and then his wife told him to go and sign the return, I asked ross [sic], so you didnt [sic] have an interview with the agent, ross [sic] said no.
It was clear to me at the outset that Mr Fumberger was likely to have a conflict of interest in acting for his client on the hearing of this matter, having also prepared the income tax returns which are the subject of this dispute between Mr Davy and the Commissioner. Having made that clear to Mr Davy, he nevertheless said he was content to have Mr Fumberger continue to act for him and to give evidence at the hearing.
In cross-examination Ms Cameron asked Mr Davy whether, when interviewed by ATO Officer, he was asked how much he would generally spend when he was out on the road. Mr Davy explained that it varied considerably depending upon what he had to eat or drink. He agreed that he provided the ATO Officer with an average figure. He also agreed that he told the ATO Officer breakfast was usually about $12, lunch about $15 and that he often took a packed dinner with him which would cost about $10 to make. Mr Davy said that he would eat packed dinners approximately three to four nights per week and would buy a ready-made meal approximately two nights per week. In other words, one day’s expenditure would amount to about $37. According to Mr Davy, this figure would vary and he was unable to give a one figure value. Mr Davy explained that on some days he may not have spent any money at all. He would re-heat the frozen meals his wife prepared for him. However, on other days, he would buy a hot meal in the evening.
The Commissioner, presumably giving effect to s. 900-195 of ITAA 97, appears to have accepted Mr Davy’s oral evidence that one day’s expenditure for food and drink would amount to approximately $37. I assume the Commissioner was satisfied that the nature and quality of the oral evidence Mr Davy provided was sufficient to substantiate this claim on the basis that the reported expense incurred of $37 per day fell well short of the reasonable allowance for food and drink that Mr Davy was entitled to claim as per Table 6 of TD 2010/19 and TD 2011/17 (if, of course, he in fact incurred that expenditure). When asked how many nights a week he was on the road, Mr Davy explained that he would leave on a Sunday evening and then come back on Friday afternoon. However, he said it was not the same every week.
In the notice of objection prepared by Mr Fumberger, Mr Fumberger said the following about the number of nights Mr Davy spent away from home in any one year: The taxpayer also keeps a detailed record of the nights he was away from home, and slept in his truck. These records (National Driver Work Diaries) (which were submitted at the audit stage) showed the following:
Nights sleeping away from home 2011 2012
261 206
I had in evidence an email from Ms Jo Bleeser, the office administrator of Mott Bleeser Logistics Pty Ltd, Mr Davy’s employer at the relevant time. Ms Bleeser said in her email that Mr Davy’s nights away from home, calculated from the travel allowance provided to Mr Davy by Mott Bleeser Logistics, were 218 nights away from home in the 2011 year and 94 nights away from home in the 2012 year. When Mr Davy was asked in cross-examination whether the employer’s calculation was more likely to be correct regarding the number of nights he was away, Mr Davy answered: Yes. There being no evidence to the contrary, I find that Mr Davy had 218 nights away from home in the 2011 income year and 94 nights away from home in the 2012 year.
DETERMINATION OF REASONABLE AMOUNT CLAIMED BY MR DAVY
Mr Fumberger’s principal submission was that the expenses claimed by Mr Davy did not exceed reasonable amounts in either year. That was because the only part of Mr Davy’s returns which may have been incorrect were the number of nights he spent away from home in each year. Mr Fumberger maintained that the amount claimed per night was within the reasonable amount determined by the Commissioner. In other words, because Mr Fumberger said that the information he received from Mr Davy was that he spent 261 nights sleeping away from home in 2011, the reasonable amount of the entire claim for travel allowance would be $84.90 X 261 = $22,158.90. In the 2012 income year, the number of nights spent sleeping away from home was claimed to be 206. That results in the reasonable amount claim being $87 X 206 = $17,922. Calculating the amount of a reasonable claim on this basis, without substantiation of the meals which Mr Davy was required to purchase while engaged in his work for his employer, is plainly erroneous.
The income tax returns for the two years in question disclosed work-related travel expense claims in the amounts of $24,736 and $17,489 respectively. Therefore, even if what Mr Fumberger submitted was correct, which I hasten to add I disagree, the claim for the 2011 income would exceed the reasonable amount limit in any event. In that case, the substantiation exemption would only apply to the 2012 income year.
The problem with Mr Fumberger’s submission is that the words used in s. 900-50 refer to the exclusion applying if the Commissioner considers reasonable the total of the losses or outgoings you claim for travel covered by the allowance. While the maximum amount of a reasonable claim in each of those years is calculated on three meals per day, the underlying assumption is that the expenditure was incurred due to the fact that the taxpayer was away from home. As is stated in TD 2010/19 and TD 2011/17:
Amounts claimed up to the food and drink component only of the reasonable domestic daily travel allowance amounts for ‘other country centres’ are considered to be reasonable for meal expenses of employee truck drivers who have received a travel allowance and who are required to sleep away from home.
Therefore, where a taxpayer leaves home on the first day, but has his breakfast at home, if he stays away from home that evening, he is entitled to claim for food and drinks for lunch and dinner on the first day, provided he in fact incurred the expenditure. If the taxpayer then returns to his home on the second day, arriving before normal dinner time, he is entitled to claim for food and drinks for breakfast and lunch on the second day. As I understood Mr Davy’s evidence, his total food and drink expenditure based on one overnight stay was, on average, $37. That was the basis for the Commissioner’s reasonable calculation.
Where a taxpayer claims he was away from home for 261 nights in an income year, but the evidence discloses that figure to be incorrect and that the correct figure is 218, clearly it cannot be said that a claim based on 261 nights away from home is a claim for a reasonable amount. The amount of the reasonable claim is based on a maximum daily allowance for breakfast, lunch and dinner. In order to be eligible to make such a claim, the taxpayer must have been required to sleep away from home and in fact incurred the expenditure claimed. Therefore, if the number of nights the taxpayer claims he was away from home is overstated, clearly, the total claimed allowances will also be overstated. In Mr Davy’s case, that would result in a claim which exceeded the maximum reasonable amount by $3,650.70, assuming of course that he was entitled to 6 meals over the two day period. Similarly, it cannot be said that a claim based on 206 nights away from home at the maximum reasonable rate of $87 per day is nevertheless reasonable when the actual nights spent away from home amounted to 94. The maximum reasonable amount of the claim in those circumstances would be $8,178. In Mr Davy’s case, his claim for the 2012 income year exceeded the maximum reasonable amount of a claim by $9,311.
Given that in both income years in question, Mr Davy’s deduction claim was for more than the maximum reasonable amount, as is stated in TR 2004/6 paragraph 16, the whole claim must be substantiated with written evidence, not just the excess over the reasonable amount.
Where a taxpayer can substantiate expenses which may be higher than the reasonable amount, provided those expenses are an allowable deduction under s. 8-1 of ITAA 97, they may be allowed. However, if a taxpayer relies on the exception from 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.
The evidence I have cited above leads me to find that Mr Davy, in his 2011 and 2012 income tax returns claimed a deduction for work-related expenses in excess of the amount deemed reasonable by the Commissioner for each of those years. Therefore, he was required to substantiate those expenses in order for his claimed deduction to be allowed. Regardless, even if he fell within the substantiation exception, Mr Davy may be required to show the basis for his claim and that the expenses claimed were actually incurred. It is this requirement which led to the Commissioner seeking information from Mr Davy regarding the nature of the claimed expenses and the amounts in which he claimed were expended, on a meal by meal basis.
Following that investigation, the Commissioner determined that Mr Davy’s actual expenditure on overnight stays away from his home amounted to $37 per overnight stay. Relying on the information given by Mr Davy, the Commissioner allowed a deduction for work-related travel expenses of $8066 (218 nights X $37) for the 2011 income year and $3478 (94 nights X $37) for the 2012 income year. Given that Mr Davy was required to substantiate work-related travel expenses and was unable to do so, I find that the Commissioner’s acceptance of Mr Davy’s estimate of $37 in work-related travel expenditure for one overnight stay was reasonable. In fact, it is slightly in excess of the allowances provided to Mr Davy by his employer. Therefore, I find that the objection decision made by the Commissioner on 5 June 2015 regarding allowable deductions for work-related travel expenses in the 2011 and 2012 income years was correct. I affirm that decision.
ADMINISTRATIVE PENALTIES
In his Objection Decision, the Commissioner determined that Mr Davy was liable to an administrative penalty of $4454.25 for making false or misleading statements in relation to material particulars in his income tax return for the 2011 income year. The Commissioner also found that Mr Davy was liable to an administrative penalty of $3142.30 for making false or misleading statements in relation to material particulars in his income tax return for the 2012 income year. The Commissioner exercised his discretion not to remit either of those administrative penalties.
Liability to an administrative penalty is provided for in s. 284-75 of Schedule 1 of the Administration Act. Relevantly, it provides:
(1) You are liable to an administrative penalty if:
(a)you make a statement to the Commissioner or to an entity that is exercising powers or performing functions under a *taxation law (other than the *Excise Acts); and
(b)the statement is false or misleading in a material particular, whether because of things in it or omitted from it.
…
(5) You are not liable to an administrative penalty under subsection (1) or (4) for a statement that is false or misleading in a material particular if you, and your *agent (if relevant), took reasonable care in connection with the making of the statement.
(6) You are not liable to an administrative penalty under subsection (1) or (4) if:
(a)you engage a *registered tax agent or BAS agent; and
(b)you give the registered tax agent or BAS agent all relevant taxation information; and
(c)the registered tax agent or BAS agent makes the statement; and
(d)the false or misleading nature of the statement did not result from:
(i) intentional disregard by the registered tax agent or BAS agent of a *taxation law (other than the *Excise Acts); or
(ii) recklessness by the agent as to the operation of a taxation law (other than the Excise Acts).
(7) If you wish to rely on subsection (6), you bear an evidential burden in relation to paragraph (6) (b).
The base penalty for false or misleading statements is worked out using the table set out in s. 284-90(1) of Schedule 1 of the Administration Act. It is based on there being what is described as a shortfall amount. That expression is explained in s. 284-90(1) as follows:
You have a shortfall amount if an item in this table applies to you. That amount is the amount by which the relevant liability, or the payment or credit, is less than more than it would have otherwise been.
Item 1 in the Table referred to in s. 284-80(1) describes the following situation where a taxpayer will have a shortfall amount:
A *tax-related liability of yours for an accounting period, or for a *taxable importation, or under the Superannuation (Unclaimed Money and Lost Members) Act 1999, worked out on the basis of the statement is less than it would be if the statement were not false or misleading.

Practice Statement Law Administration PS LA 2012/5 explains what a statement is for the purposes of taxation law in the following way:
16. A statement is anything disclosed for a purpose connected with taxation law to the Commissioner or to another person exercising powers or performing functions under a taxation law, including the statement made to:
·     a tax officer in the course of their duties, or
·     …
17. From 4 June 2010, a relevant statement includes a statement which has both of the characteristics below:
·     anything communicated to an entity other than the Commissioner and an entity exercising powers or performing functions under a taxation law, and
·     is, or purports to be, a statement required or permitted by a taxation law.
Paragraph 19 of PS LA 2015/5 states:
A statement will include entering an amount where other information at a label on an application, approved form, business activity statement, instalment activity statement, certificate, declaration, notice, notification, return or other document prepared or given under a taxation law.
Plainly, in light of the guidance provided above, statements made by Mr Davy and Mr Fumberger to an ATO Officer as well as entries made by Mr Fumberger on Mr Davy’s income tax returns are statements for the purposes of the Administration Act.
The claimed deductions for work-related travel expenses entered on Mr Davy’s 2011 and 2012 income tax returns are false and misleading. I have set out above at [30] the sworn statement made by Mr Fumberger regarding how he obtained information from Mr Davy for completing his income tax returns. Mr Fumberger swore that every year and each time Mr Davy would attend an appointment with him, Mr Fumberger would review the work diaries, log books and other documents which Mr Davy brought with him. That statement is plainly false. In cross-examination Mr Davy said he did not attend an appointment with Mr Fumberger because he was not at home. Mr Davy also admitted that he did not keep receipts for work-related travel expenditure for the years in question. Mr Davy said he did not do that on the advice of Mr Fumberger but rather, because this was told to him by another driver. He also admitted that Mr Fumberger was claiming for work-related travel expense deductions of a greater amount than Mr Davy had receipts for, but was told that was within the taxation law.
In the course of further questions which I put to Mr Davy regarding the entries made on his income tax returns and in particular the number of nights he spent away from home in each of those years, Mr Davy said that his wife counted the number of nights away by examining his log books. However, he said his wife did not know how to read a log book. Mr Davy agreed he did not count the number of nights away from home himself because at the time he was not at home. Mr Fumberger said he received a package which was delivered by Mr Davy’s wife and that he spoke to Mr Davy by telephone in the presence of Mrs Davy. Mr Davy said that his wife counted every trip as if a night away from home was involved but that was incorrect.
In his witness statement Mr Davy denied that the told the ATO Officer (Mr French), with whom he spoke by telephone, that he spent $37 per day on meals and drinks and incidentals. He said the amount varied on a daily basis depending upon the trip being undertaken and a whole range of circumstances, which were not stated. However, as I have noted above at [35], when he was taken through the conversation he had with

Mr French in cross-examination, he agreed that his breakfast expense was between $8 and $12 and lunch about $15 up to about $20. He also agreed that the dinner which was packed for him would cost about $10 to make. Furthermore, Mr French made a contemporaneous file note of that conversation. Accordingly, I find that the statements made by Mr Davy regarding the assessment of daily expenditure when away from home for the purposes of his work in his 2011 and 2012 income tax returns are incorrect and therefore must be regarded as false and misleading.
Because the claimed deductions for the 2011 and 2012 income years were greater than Mr Davy’s actual expenditure on food and drink while away from home and were therefore false and misleading, Mr Davy had a shortfall amount for those income years. His tax liability in each year was less than it would have otherwise been. Therefore, I find Mr Davy’s liability to an administrative penalty is enlivened. The only issue is whether the Commissioner’s assessment of base penalty of 50% of the shortfall amount was correct.
The table under s. 284-90(1) of the Administration Act provides for a base penalty amount of 50% of the shortfall amount in the following circumstances:
You have a *shortfall amount as a result of a statement described in subsection 284-75(1) or (4) and the amount, or part of the amount, resulted from recklessness by you or your agent as to the operation of a *taxation law (other than the *Excise Acts)
The ATO Practice Statement, PS LA 2012/15, with which all ATO personnel must comply, describes recklessness at paragraphs 107 and 108 in the following way:
107. Recklessness is behaviour which falls significantly short of the standard of care expected of a reasonable person in the same circumstances as the entity. It is gross carelessness.
108. Recklessness assumes that the behaviour in question shows a disregard of the risk, or indifference to the potential consequences of taking the risk, that are foreseeable by a reasonable person. However, the entity or agent does not need to actually realise the likelihood of the risk for it to be reckless.
In my opinion, reckless behaviour was demonstrated by Mr Fumberger and Mr Davy. To begin with, Mr Davy, relying on what was told to him by another truck driver, decided he would not keep receipts for the purchase of food or drink when away from home for the purposes of conducting his employment. He had done so in the past and therefore, at least in a general sense, must have understood the need to substantiate any work-related expenses which he intended to claim as a deduction from his assessable income.
While it was not expressly stated by either Mr Fumberger or Mr Davy, as will become apparent, it is reasonable to infer that Mr Fumberger advised Mr Davy that he need not substantiate the claimed work-related travel expenses deduction on the basis that, because he was receiving a bona fide travel allowance from his employer, he was entitled to rely on the substantiation exception provided for in s. 900-50 of ITAA 97. All that Mr Fumberger said Mr Davy was required to do was to ensure that the claimed deduction for work-related travel expenses did not exceed the reasonable amounts as determined by the Commissioner in the relevant income year. Therefore, Mr Fumberger suggested that all he was required to do was to accept the number of nights Mr Davy was away from home during the relevant income year and multiply that number by the maximum reasonable daily allowance as determined by the Commissioner. Having done that, and claimed that deduction, no substantiation would be required.
Mr Fumberger’s understanding of the way in which the taxation laws regarding claimed deductions for work expenses function was superficial and he has plainly not paid careful attention to the words used in the relevant legislative provisions or the Tax Rulings made by the Commissioner. Given that Mr Fumberger was a registered tax agent at that time, his behaviour in advising Mr Davy regarding those claims clearly fell short of the standard of care expected of a reasonable tax agent.
First, s. 900-50(1) plainly refers to a deduction for work-related travel expense of the total of the losses or outgoings claimed for travel covered by a bona fide travel allowance. A plain reading of those words should have made it clear to Mr Fumberger that the exception applies only where the extent of the deduction claim matches the amount of the allowance. Furthermore, where the allowances are fully expended on deductible expenses, the allowance need not be shown in the taxpayer’s income tax return. However the taxpayer is not limited by that statutory provision and can decide not to use the exception from substantiation provided of course that the taxpayer keeps written evidence of the claims. If that evidence is provided, then the full amount of the claimed deductions may be allowed even if it exceeds what the Commissioner has determined is a reasonable amount.
Secondly, if a travel allowance is received by the taxpayer and the allowances are not disclosed on the employee’s payment summary, which appears to have been the case in this matter, the received allowance is not required to be entered as assessable income provided it is not greater than the reasonable amount determined by the Commissioner and that it is fully expended on deductible expenses. However, in that case, a deduction for the expense cannot be claimed on the tax return.
Thirdly, regardless of whether a taxpayer relies on s. 900-50 of ITAA 97, they may nevertheless be required to show the basis for determining the amount of the claim, that the expense was actually incurred, and that it was for work-related purposes. In other words, as is stated in s. 900-15 of ITAA 97, the taxpayer may need to produce evidence that the claim qualifies as a deduction under the general provision in s. 8-1 of ITAA 97.
Even if, as Mr Fumberger submitted, he relied on the number of nights Mr Davy spent away from home from the information given to him by Mr Davy’s wife and, presumably examining his log books, the total amount claimed as deductions in the 2011 income year exceeded the maximum reasonable amount determined by the Commissioner. Mr Fumberger attempted to rationalise his error by stating that if the claimed number of nights Mr Davy was away from home was multiplied by the reasonable amount determined by the Commissioner, the reasonable amount had not been exceeded. As I have explained, that is not the correct method for determining a reasonable amount regarding work-related travel expenses.
The substantiation exemption provision makes it plain that it is concerned with the total deduction claimed. If any of the elements making up the claimed deduction are incorrect, that is, either the number of nights the taxpayer claimed to have slept away from home or the maximum daily allowance regarded as reasonable by the Commissioner, that will result in an incorrect assessment against what the Commissioner considers to be reasonable regarding the total of losses or outgoings claimed for travel covered by an allowance.
Having regard to the evidence produced by Mr Davy and Mr Fumberger, I find that

s. 284-75(6) does not apply to either of them. Both persons made false or misleading statements in the course of completing Mr Davy’s income tax returns for the 2011 and 2012 income years. While Mr Davy engaged a registered tax agent to complete his income tax returns, plainly, Mr Fumberger was reckless as to the operation of a taxation law; in particular, those provisions dealing with work-related travel expenses.
The serious problem in this case is that Mr Fumberger represented Mr Davy at the hearing of this matter. It is evident to me from the material I had before me that Mr Fumberger was principally responsible for leading Mr Davy to believe that the deduction claimed for his work-related travel expenses was within the statutory provisions. A responsible registered tax agent would not represent his client in circumstances where the client was in dispute with the ATO. The possibility of there being a conflict of interest is manifest. I cautioned Mr Davy about retaining Mr Fumberger to represent him. However, despite that, he insisted that he was satisfied that Mr Fumberger should represent him.
CONCLUSION
I have found that Mr Davy has not discharged the onus of proving that the amended assessments made by the Commissioner in the 2011 and 2012 income years were excessive. That is because, essentially, Mr Davy did not keep records of his work-related travel expenditure when away from home overnight when engaged in driving a truck for his employer. Also, I have found that the substantiation exemptions in s. 900-50 of ITAA 97 did not apply to Mr Davy. Mr Davy failed to show the basis for determining the amount of his claims, that the expenses were actually incurred and that those expenses were for a work-related purpose. I have accepted the amount allowed by the Commissioner as being reasonable in the circumstances where the taxpayer has not retained evidence of his expenditure.
I have also found that Mr Davy is liable to an administrative penalty at the rate of 50% of the shortfall amount. That is because both Mr Davy and Mr Fumberger were reckless when making deduction claims for work-related travel expenses. Mr Fumberger’s behaviour fell significantly short of the standard of care expected of a reasonable registered tax agent. Mr Fumberger displayed a disregard of the risk in making the claims he did without careful substantiation or indifference to the potential consequences of that risk. That risk was plainly foreseeable.
It follows that I find the objection decision made by the Commissioner 5 June 2015 regarding Mr Davy’s taxable income in the 2011 and 2012 income years was correct. I also find that the decision made by the Commissioner regarding the imposition of a 50% of the shortfall amount administrative penalty was correct. I affirm both decisions.

74. I certify that the preceding seventy-three (73) paragraphs are a true copy of the reasons for the written reasons herein of Egon Fice, Senior Member

…................[sgd]........................
Associate
Dated 27 March 2017

Date of hearing 27 September 2016

Advocate for the Applicant

Counsel for the Respondent

Mr J Fumberger, Resolution Finance

Ms F Cameron

Solicitors for the Respondent

ATO Review and Dispute Resolution