Hancox and Commissioner of Taxation
[2012] AATA 836
•27 November 2012
[2012] AATA 836
Division Taxation Appeals Division File Number
2011/3484
Re
Andrew Hancox
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Senior Member R W Dunne
Date 27 November 2012 Place Adelaide The Tribunal affirms the objection decision under review.
..........................[Sgd]..............................................
Senior Member R W Dunne
CATCHWORDS
TAXATION - income tax - living-away-from-home allowance - travel allowance - fly-in fly-out worker - claims for work-related travel expenses - substantiation - whether assessment excessive - administrative penalty - recklessness - objection decision under review affirmed.
LEGISLATION
Income Tax Assessment Act 1936 (Cth) s 23L(1)
Income Tax Assessment Act 1997 (Cth) ss 8-1, 15-2, Division 900
Fringe Benefits Tax Assessment Act 1986 (Cth) ss 30(1), 136(1)Taxation Administration Act 1953 (Cth) s 14ZZK(b), Schedule 1, ss 284-25, 284-75(1), 284-80(1), 284-90(1), 298-20(1)
CASES
Atwood Oceanics Australia Pty Ltd v FC of T 89 ATC 4808
FC of T v Cooper 90 ATC 4396
BRK (Bris) Pty Ltd v Commissioner of Taxation [2001] FCA 164Roads and Traffic Authority of New South Wales v Commissioner of Taxation (1993) 43 FCR 223
SECONDARY MATERIALS
Miscellaneous Taxation Ruling MT 2030
Downer EDI Engineering Power Pty Ltd Industrial Sector Collective Agreement 2009
REASONS FOR DECISION
Senior Member R W Dunne
27 November 2012
INTRODUCTION
Mr Andrew Hancox is the applicant in this case. The objection decision under review is dated 28 June 2011, in terms of which the respondent disallowed, in part, an objection by the applicant against an amended assessment in respect of the 2009/2010 tax year.
According to a statement made by Mr Hancox dated 8 May 2012, from July 2009 to June 2010 he was employed by Port Hedland BHP Ironore to leave his home and stay at a work camp for 16 weeks and temporary accommodation for 36 weeks. His employer flew him out of Port Hedland, every four weeks, mainly to Perth, and Port Hedland was never his home. For the 2009/2010 tax year, he filed a taxation return disclosing wages of $129,930 plus allowances of $21,785 paid to him by his employer.
At the hearing, Mr Hancox was represented by Mr N Birdseye and the respondent was represented by Mr S Cole (of counsel). I received into evidence the T documents (Exhibit R1), the supplementary T documents (Exhibit R2) and the further supplementary T documents (Exhibit R3) lodged pursuant to s 37 of the Administrative Appeals Tribunal Act 1975, together with the following exhibits:
·applicant’s further supplementary documents (Exhibit A1); and
·email from Mr S McCormack, Group Taxation Manager at Downer EDI, dated 3 September 2012 (Exhibit A2).
ISSUES FOR THE TRIBUNAL
The following are the issues before me:
(a)Whether the applicant was in receipt of a living-away-from-home allowance pursuant to s 30(1) of the Fringe Benefits Tax Assessment Act 1986 (“FBTAA”) in the 2009/2010 tax year?
(b)Whether the applicant was in receipt of a bone fide travel allowance of $18,000 which is to be included as assessable income pursuant to s 15-2 of the Income Tax Assessment Act 1997 (“ITAA 1997”) in the 2009/2010 tax year?
(c)Whether the applicant is entitled to claim work related travel expenses of $36,124 and other work related expenses of $1,965, pursuant to s 8-1 of the ITAA 1997, in the 2009/2010 tax year?
(d)Whether the applicant has substantiated the work related expenses he has claimed in accordance with Division 900 of the ITAA 1997?
(e)Whether the applicant is entitled to rely on the exception from substantiation in s 900-50 of the ITAA 1997?
(f)Whether the applicant is liable for an administrative penalty pursuant to s 284‑75(1) of Schedule 1 to the Taxation Administration Act 1953 (“TAA”)?
(g)Whether the tax shortfall amount or part thereof resulted from recklessness by the applicant and/or his tax agent as to the operation of the law?
(h)Whether the respondent should exercise his discretion in accordance with s 298‑20 of Schedule 1 to the TAA to remit the penalty in whole or in part?
LEGISLATION
The provisions of the Income Tax Assessment Act 1936 (“ITAA 1936”), the ITAA 1997, the FBTAA and the TAA that are presently relevant are as follows:
ITAA 1936
“23L Certain benefits in the nature of income not assessable
(1) Income derived by a taxpayer by way of the provision of a fringe benefit is not assessable income and is not exempt income of the taxpayer.
…”
ITAA 1997
“Section 8 - General deductions
(1) You can deduct from your assessable income any loss or outgoing to the extent that:
(a) it is incurred in gaining or producing your assessable income; or
(b) it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income.
Note: Division 35 prevents losses from non-commercial business activities that may contribute to a tax loss being offset against other assessable income.
(2) However, you cannot deduct a 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.
…”
“15-2 Allowances and other things provided in respect of employment or services
(1) Your assessable income includes the value to you of all allowances, gratuities, compensation, benefits, bonuses and premiums provided to you in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by you (including any service as a member of the Defence Force).
…”
Division 900 – Substantiation rules
Under Division 900 (ss 900-1 to 900-50) the key principle is that, to deduct work related expenses, the taxpayer needs to substantiate them by obtaining written evidence of the expenses. “Work expenses” are expenses that are incurred by a taxpayer in producing salary, wages or certain PAYG withholding payments. Work expenses include travel allowance expenses and meal allowance expenses.
FTBAA
“30 Living-away-from-home allowance benefits
(1) Where:
(a) at a particular time, in respect of the employment of an employee of an employer, the employer pays an allowance to the employee; and
(b)it would be concluded that the whole or part of the allowance is in the nature of compensation to the employee for;
(i) additional expenses (not being deductible expenses) incurred by the employee during a period; or
(ii) additional expenses (not being deductible expenses) incurred by the employee, and other additional disadvantages to which the employee is subject, during a period;
by reason that the employee is required to live away from his or her usual place of residence in order to perform the duties of that employment;
the payment of the whole, or of the part, as the case may be, of the allowance constitutes a benefit provided by the employer to the employee at that time.
…”
“136 Interpretation
(1) In this Act, unless the contrary intention appears:
…
deductible expenses, in relation to an allowance paid to an employee, means expenses incurred by the employee in respect of which a deduction is allowable to the employee under section 8-1 of the Income Tax Assessment Act 1997 (ignoring Divisions 28, 32 and 900 of that Act).
…
fringe benefit, in relation to an employee, in relation to the employer of the employee, in relation to a year of tax, means a benefit:
(a) provided at any time during the year of tax; or
(b) provided in respect of the year of tax;
being a benefit provided to the employee or to an associate of the employee by:
(c) the employer; or
(d) an associate of the employer; or
(e) a person (in this paragraph referred to as the arranger) other than the employer or an associate of the employer under an arrangement covered by paragraph (a) of the definition of arrangement between:
(i) the employer or an associate of the employer; and
(ii) the arranger or another person; or
…
and the employer or associate knows, or ought reasonably to know, that the employer or associate is doing so;
in respect of the employment of the employee, but does not include:
(f) a payment of salary or wages or a payment that would be salary or wages if salary or wages included exempt income for the purposes of the Income Tax Assessment Act 1936; or
(g) a benefit that is an exempt benefit in relation to the year of tax; or
…”
TAA
“284-25 Statements by agents
This Division applies to a statement made by your agent as if it had been made by you.”
“284-75 Liability to penalty
(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.
Note: This section applies to a statement made by your agent as if it had been made by you: see section 284-25.
…”
“284‑80 Shortfall amounts
(1) 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 or more than it would otherwise have been.
Shortfall amounts
Item
You have a shortfall amount in this situation:
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
…”
“284‑90 Base penalty amount
(1) The base penalty amount under this Subdivision is worked out using this table and section 284‑224 if relevant:
Base penalty amount
Item
In this situation:
The base penalty amount is:
1
…
2
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
50% of your *shortfall amount or part
3
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 a failure by you or your agent to take reasonable care to comply with a *taxation law
25% of your *shortfall amount or part
…”
“298‑20 Remission of penalty
(1) The Commissioner may remit all or a part of the penalty.
…”
BACKGROUND
The material facts in this case are largely not in dispute. During the 2009/2010 tax year, Mr Hancox was employed by Downer EDI Engineering Power Pty Ltd (“Downer EDI”). He was employed as an electrician on a permanent full-time basis at Port Hedland, Western Australia on a fly-in fly-out basis. His PAYG payment summary for the 2009/2010 tax year showed an allowance of $38 and reportable fringe benefits of $6,197 (Exhibit R2, page 237). During the 2009/2010 tax year, he received a living-away-from-home allowance of $21,785.71 and was reimbursed for travel of $3,261.70. The reimbursement of $3,261.70 was included in the applicant’s reportable fringe benefits of $6,197 (Exhibit R1, page 59). In his 2009/2010 taxation return the applicant included an allowance of $18,038 (Exhibit R1, page 27), a deduction for work related travel expenses of $36,124 (Exhibit R1, page 28) and a deduction for other work related expenses of $4,260 (Exhibit R1, page 28). On 9 September 2010, the respondent issued to the applicant a notice of assessment for the 2009/2010 tax year.
On 26 October 2010, the respondent issued to the applicant a notice of a tax audit advising that allowances, work related travel expenses and other work related expenses included in the applicants 2009/2010 taxation return would be under examination. On 2 March 2011, the respondent notified the applicant of the completion of the tax audit. The following adjustments were made in relation to the 2009/2010 tax year:
·the allowance was reduced from $18,038 to $38;
·the deduction for work related travel expenses was reduced from $36,124 to nil; and
·the deduction for other work related expenses was reduced from $4,260 to $2,540 (Exhibit R1, page 211).
On 10 March 2011, the respondent issued to the applicant a notice of amended assessment for the 2009/2010 tax year reflecting the adjustments made at audit. The applicant’s taxable income was increased by $19,844. On the same day, the respondent issued to the applicant a notice of assessment of shortfall penalty of $4,703 for recklessness (Exhibit R1, page 226). The respondent requested further information from Downer EDI in relation to the applicant. In an undated letter to the respondent, Downer EDI provided the following answers to the questions raised (in bold):
“1 Please confirm how Downer EDI Engineering treated the allowance received by Mr Andrew Hancox in the income year ended 30 June 2010. Specifically, was Mr Hancox in receipt of a taxable or non taxable allowance, and did Downer EDI Engineering pay any Fringe Benefits Tax in relation to the amount paid to him?
Downer EDI Engineering treated the allowance received by Andrew as a LAFHA under section 30 of FBTAA 1986. The LAFHA had a taxable component and a non taxable component in line with section 31 of FBTAA 1986. Downer EDI Engineering Power Pty Limited paid FBT tax on the taxable component. The taxable portion relates to the statutory food component of the allowance.
2 Can you please provide a job description for the work carried out by Mr Hancox during the 2010 year?
Andrew was employed as a Leading Hand Maintenance Electrician in 2010 which included supervising work groups in the absence of his Foreman or in association with his Foreman if the work load required multiple work groups.
3 Would there be any need for Mr Hancox to use a computer and the internet for work purposes?
Yes, there is a need for Mr Hancox to use a computer and internet for work purposes. The company does provide its employees with access to computers on work premises to undertake their job activities.
4 If the answer to question 2 is yes, please describe the work purpose.
The work purpose involves accessing time sheet information and work place documents on the Downer intranet.
5 Does Downer EDI Engineering provide its employees with a mobile phone and computer to use for work purposes?
Downer EDI Engineering does provide some employees with mobiles and computers where it is clear the employee will need to use these devices for work purposes.
6 If Downer EDI Engineering did not provide Mr Hancox with a mobile phone, please advise whether he was required to use his own mobile phone for work purposes. Please describe the work purpose of using a mobile phone.
Andrew Hancox has been provided with a company mobile phone as he was employed as a Leading Hand. The work purpose of the mobile phone use is to communicate with various work groups to manage and co-ordinate work activities.
It is understood there is no dispute between the respondent and Downer EDI regarding the classification of the allowance paid to the applicant as a living-away-from-home allowance.
EVIDENCE
Evidence of Mr Hancox
It was Mr Hancox’s evidence that he started working for Downer EDI in April 2008. He was a fly-in fly-out worker working in Port Hedland. He was in a camp for a majority of the time in the 2009/2010 tax year and for 9 months he shared a house and paid for one bedroom. Food and accommodation was provided. He was paid $500 a week by Downer EDI. He said the $500 a week was paid for accommodation and food while he was living away from home, a living-away-from-home allowance. Mr Hancox was referred to pages 2 and 3 of his 2009/2010 taxation return (Exhibit R1, pages 27-28). He confirmed that his return showed allowances of $18,038, deductions for work related travel expenses of $36,124 and deductions for other work related expenses of $4,260. He was also referred to Exhibit R1, page 67 which showed work related travel deductions claimed of $36,124 and total receipts for four work related travel deductions of $39,099.47. He confirmed that he only claimed deductions for $36,124, but had receipts for the deductions totalling $39,099.47. He said he did not increase his claim for deduction for the total of the receipts he held.
When asked about his additional travel expenses, Mr Hancox said that these expenses related to his travel between Adelaide and Perth. Downer EDI paid for flights from Perth to Port Hedland, but he had to pay for the flights from Perth the Adelaide and return. When questioned further about the travel between Adelaide and Perth, Mr Hancox said that, when he made this travel, he was carrying his laptop and sometimes his work tools.
In cross-examination by Mr Cole, Mr Hancox was referred to the document in Exhibit R1, page 64, which he acknowledged was a copy of his pay slip dated 13 May 2010. When referred to a line in the pay slip which showed “LAFHA $500, Year to Date $19,785.71”, he accepted that these amounts represented his weekly living-away-from-home allowance of $500 and the amount of the allowance he had received to 13 May 2010. He accepted that the amount of $19,785.71 included an overpayment of living-away-from-home allowance which he had to repay. When asked about the total receipts for work related travel deductions of $39,099.47, Mr Hancox acknowledged that he had some receipts for flights undertaken. However, he said he did not have all the receipts for food, but had some receipts for the accommodation. In relation to his claim for stationery purchases, he said he had a diary that recorded the purchases and when they were made. However, he was unable to produce the diary to the Tribunal.
Evidence of Mr McCormack
Mr McCormack stated that he had been Group Taxation Manager at Downer EDI since January 2006. He acknowledged that the allowances paid to Mr Hancox during the 2009/2010 tax year were living-away-from-home allowance payments. He said Mr Hancox was employed by Downer EDI under Enterprise Bargaining Agreements, both of which refer to distant work employees. Under the agreements, employees were entitled to be provided with board and lodging at no cost to the employee. He said he had prepared a spread sheet showing the payments that had been made to Mr Hancox during the 2009/2010 tax year. He confirmed that the spread sheet had a taxable value column totalling $1,956 and that Downer EDI had paid tax on that component of the allowance.
In cross-examination by Mr Birdseye, Mr McCormack confirmed that the taxable value referred to the taxable food component, and that the $500 paid weekly was made up of accommodation and food. When asked by Mr Birdseye how Downer EDI determined whether to pay an employee a travel allowance or a living-away-from-home allowance under the FBTAA, Mr McCormack said Downer EDI made the decisions by reference to ATO guidance. Under this guidance, which was found in Miscellaneous Taxation Ruling MT 2030 at paragraph 41, where an employee is away from his or her home base for a period not exceeding 21 days, the amount of the allowance paid was treated as a travel allowance, rather than a living-away-from-home allowance. In relation to the $500 paid weekly, he said this was specifically referred to under the Downer EDI Collective Agreement 2009 (“Collective Agreement”) for distant travellers to cover the food and lodging in relation to those travellers. In the case of a travel allowance, this would be paid to an employee and it would effectively be subject to PAYG withholding. A living-away-from-home allowance was effectively a tax-free allowance to the individual, whereas a travel allowance would be taxable in the individual’s hands.
SUBMISSIONS FOR THE APPLICANT
The following submissions, in brief terms, where made by Mr Birdseye:
(a)The weekly amount received by the applicant was incorrectly regarded by Downer EDI as living-away-from-home allowance under the FBTAA. It should have been treated as a travel allowance in accordance with Taxation Determination TD 2009/15.
(b)The weekly amount should more appropriately be treated as a travel allowance in accordance with Miscellaneous Taxation Ruling MT 2030. The period spent by the applicant away from his home base was very close to the 21 days referred to in paragraph 41 of the Ruling and the weekly amount paid should be treated as a travel allowance.
(c)The decision of Hill J in Roads and Traffic Authority of New South Wales v Commissioner of Taxation (1993) 43 FCR 223 supported the argument that the weekly amount paid to the applicant should be treated as a travel allowance and the expenses incurred should be allowable as deductions.
(d)There is evidence to show that the substantiation rules in Division 900 of the ITAA 1997 have been complied with.
(e)The travel expenses between Perth and Adelaide, where a laptop and work tools were carried, are allowable as deductions.
(f)As to penalty, the applicant did not try to be careless or reckless. If there is to be a penalty, it should only relate to the other work related expenses.
SUBMISSIONS FOR THE RESPONDENT
The following submissions, in brief terms, were made by Mr Cole:
(a)On all the evidence, the weekly payment of $500 made to the applicant was properly characterised as a living-away-from-home allowance, both in terms of how the employer characterised it and paid it and having regard to the circumstances of the applicant (see Exhibit R2, p 238-239 and Exhibit R3, p 263).
(b)Once characterised as a living-away-from-home allowance, the deductions claimed by the applicant for work related travel expenses are not allowable under s 8-1 of the ITAA 1997.
(c)Taxation Determination TD 2009/15 does not assist the applicant because it applies to a travel allowance and deductions for travel expenses.
(d)The decision in Roads and Traffic Authority (supra) is distinguishable and is not mirrored in the applicant’s case.
(e)On the evidence that the air fares between Perth and Port Hedland were reimbursed by Downer EDI in accordance with the Collective Agreement, the expenditure related to private travel and the applicant has been properly reimbursed for that expenditure.
(f)In relation to the carriage of his laptop and work tools, there is no evidence as to the nature of the tools or their use in relation to the applicant’s employment. The carriage of the tools and the laptop was incidental to his private travel and the airline expenses are hence private in nature.
(g)As to the issue of penalty, the material put before the respondent by the applicant in his 2009/2010 taxation return was misleading. Evidence was available to show that the $500 weekly payment was a living-away-from-home allowance. To ignore the evidence that was available to the applicant’s tax agent was a reckless approach to the preparation of the applicant’s 2009/2010 taxation return. Recklessness is a proper approach to penalty in the applicant’s case and there is no basis to remit it in the circumstances.
CONSIDERATION
Was the applicant in receipt of a living-away-from-home allowance pursuant to s 30(1) of the FBTAA in the 2009/2010 tax year?
Mr Birdseye submitted that the weekly amount of $500 received by the applicant should have been treated as a travel allowance in accordance with Taxation Determination TD 2009/15 (see Exhibit R1, p 86-95). In my view Taxation Determination TD 2009/15 is not relevant in the applicant’s case. The Determination only deals with what are reasonable travel and meal allowance expenses. As I have found that the weekly allowance received by the applicant is properly characterised as a living-away-from-home allowance (see paragraph 22 below), the issue relating to reasonable travel and meal allowance expenses does not arise.
Mr Birdseye also submitted that, under Miscellaneous Taxation Ruling MT 2030, the weekly amount of $500 should more appropriately be treated as a travel allowance. He said that the period spent by the applicant away from his home base was “very close” to the 21 days referred to in paragraph 41 of the Ruling, and that the weekly allowance should be treated as a travel allowance, rather than a living-away-from-home allowance. On the evidence before me, I am unable to accept Mr Birdseye’s submission. The period spent by the applicant away from his home base and the circumstances in which he was away do not allow for the application of MT 2030 in his case.
The applicant worked on a fly-in fly-out basis at Port Hedland. His home base was in Adelaide. His employment agreement was governed under the Downer EDI Engineering Power Pty Ltd Industrial Sector Collective Agreement 2009 (“Collective Agreement”). Under clause 39 of the Collective Agreement, the applicant was regarded as a “distant work employee” and the clause relevantly reads:
“39) DISTANT WORK EMPLOYEE
a) For the purpose of this Agreement a distant work employee is an employee who is engaged or selected and advised by the Company to proceed to a place of work to perform duties under their contract of employment and the employee does so such that the employee cannot return to their usual place of residence each night.
b) The Company shall obtain and the employee or job applicant shall provide the Company with a statement in writing of their usual place of residence and their current place of residence at the time the employee is engaged and no subsequent change of address shall entitle an employee to the provisions of this clause unless the Company agrees.
c) Provided that documentary proof of address such as long service leave registration card or drivers license may be accepted by the Company as proof of the employees usual place of residence on engagement in lieu of the statement in writing referred to above.
The employee shall inform the Company in writing of any subsequent change in their usual place of residence.
d) Where an employee is a distant work employee under the terms of this Agreement the employee shall be entitled to the following in addition to any other wage rates, allowances and conditions provided elsewhere in this Agreement.
e) Full board and lodging will be provided by the Company for distant employees at no cost to the employee while the employee continues to work in conformity with this Agreement.
i)Effective 1 January 2009 a distant employee may with the approval of the Company be paid a Living Away from Home Allowance (LAFHA) of $500.00 per week in lieu of being provided with board and lodging.
ii)The Company will deduct on a pro rata basis at the rate of one seventh of the LAFHA for each day an employee is not ready, willing and available for work in accordance with this Agreement or because of industrial action.
…”
Pursuant to clause 39(e)(i) of the Collective Agreement, Downer EDI paid the applicant a living-away-from-home allowance of $500 per week in lieu of providing him with board and lodging. In an undated letter to the respondent (Exhibit R2, page 238), Downer EDI stated:
“Downer EDI Engineering treated the allowance received by Andrew as a LAFHA under section 30 of FBTAA 1986. The LAFHA had a taxable component and a non taxable component in line with section 31 of FBTAA 1986. Downer EDI Engineering Power Pty Limited paid FBT tax on the taxable component. The taxable portion relates to the statutory food component of the allowance.”
Section 30(1) of the FBTAA appears at pages 5-6 of these reasons. The expression “deductible expenses” referred to in s 30(1)(b)(i) and (ii) is defined in s 136(1) of the FBTAA. The definition reads:
“deductible expenses, in relation to an allowance paid to an employee, means expenses incurred by the employee in respect of which a deduction is allowable to the employee under section 8-1 of the Income Tax Assessment Act 1997 (ignoring Divisions 28, 32 and 900 of that Act).”
In my view, the $500 weekly allowance paid to the applicant was properly characterised by Downer EDI as a living-away-from-home allowance and this is clearly appropriate on the evidence available. Mr Birdseye submitted that Downer EDI had incorrectly described the weekly payment as a living-away-from-home allowance and that it should have been treated as a travel allowance. He referred to the decision of Hill J in Roads and Traffic Authority of New South Wales v Commissioner of Taxation (1993) 43 FCR 223, which he submitted applied in the applicant’s case, and to what Hill J said (at 43 FCR 240), which reads:
“… Where a taxpayer is required by his employer, and for the purposes of his employer, to reside, for periods at a time, away from home and at the work site, and that employee incurs expenditure for the cost of sustenance, or indeed other necessary expenditure which, if the taxpayer had been living at home, would clearly be private expenditure, in the circumstances in which the expenditure is incurred, that is to say, the occasion of the outgoing operates to stamp that outgoing as having a business or employment related character.”
However, s 30(1)(b) of the FBTAA was the subject of detailed consideration by Lee J in Atwood Oceanics Australia Pty Ltd v Commissioner of Taxation (Cth) (1989) 89 ATC 4808. Lee J said that that case established the following propositions:
“(1) The circumstances of payment of the allowance must be such that a reasonable person would conclude, applying an objective view thereto, that the allowance bore the character described in s. 30(1)(b) (at 4816)
(2) The required character of the allowance was that it must be a payment in the nature of compensation for additional expenses incurred by the employee either without any other component (s. 30(1)(b)(i)) or with another component being additional disadvantages to which the employee is subject. A payment which is compensation only for additional disadvantages will fall, as was the case in Atwood Oceanics, outside s. 30.
(3) The allowance need not be paid as compensation, it is sufficient that in the eyes of an objective observer the allowance would be seen to be in the nature of compensation to the employee (at 4816). There must be demonstrated some causal connection between the likelihood of the additional expenses and disadvantages of which s. 30(1)(b)(ii) speaks and the requirement to live away from home for a period.
(4) An example of the additional expenses to which the section speaks would be extra costs for food and accommodation which would not be incurred if the employee were not required to live away from home (at 4816).
(5) To the extent that the allowance relates to additional expenses, there must be a clear connection with likely additional expenditure (at 4817).
(6) What must be determined is the underlying purpose of the allowance (at 4817). In determining this purpose regard can be had to any award, pursuant to which the allowance is paid and the history of that award.[emphasis added]”
Hill J (at 43 FCR 238) then found that the allowance in question was a living-away-from-home allowance when he said:
“It follows that the allowance in question is a living-away-from-home allowance within the meaning of s. 30 of the Act, unless, in respect of additional expenses for which the allowance is intended to compensate, those expenses would, if incurred by the employee, have been within the meaning of the definition in s. 136(1), deductible expenses.” [emphasis added]
In the applicant’s case, the additional expenses incurred by him for which the allowance is intended to compensate would not have been within the meaning of “deductible expenses” within the meaning of that expression in s 136(1) of the FBTAA.
In my view, the facts in Roads and Traffic Authority are distinguishable from the applicant’s case. As was said by Lee J in Atwood Oceanics, in determining the underlying purpose of an allowance, regard can be had to any award, pursuant to which the allowance is paid, and the history of that award. Under clause 39 of the Collective Agreement, the applicant was employed as a distant work employee, and the weekly payment of $500 was described and properly treated as a living-away-from-home allowance.
On the evidence available, the applicant was in receipt of a living-away-from-home allowance from Downer EDI pursuant to s 30(1) of the FBTAA in the 2009/2010 tax year. As was said in paragraph 20 above, the living-away-from-home allowance had a taxable component and a non-taxable component in line with s 31 of the FBTAA. Downer EDI paid fringe benefits tax on the taxable component. The taxable component related to the statutory food component of the allowance.
Was the applicant in receipt of a bona fide travel allowance of $18,000 which is to be included as assessable income pursuant to section 15-2 of the ITAA 1997 in the 2009/2010 tax year?
As I have found that the applicant was in receipt of a living-away-from-home allowance pursuant to s 30(1) of the FBTAA and hence a fringe benefit, it follows that the weekly payment of $500 (or $18,000 in total) is not to be included as assessable income pursuant to s 15-2 of the ITAA 1997 in the 2009/2010 tax year. This also follows from s 23L(1) of the ITAA 1936, which reads:
“Income derived by a taxpayer by way of the provision of a fringe benefit is not assessable income and is not exempt income of the taxpayer.”
The respondent contends that the applicant is not required to include the living-away-from-home allowance he received, as a weekly payment of $500, as assessable income pursuant to s 15-2 of the ITAA 1997 in the 2009/2010 tax year. I agree with this contention.
Is the applicant entitled to claim work related travel expenses of $36,124 and other work related expenses, pursuant to section 8-1 of the ITAA 1997, in the 2009/2010 tax year?
The applicant has sought to claim a deduction for work related travel expenses of $36,124 and other work related expenses in his 2009/2010 taxation return. During the course of the hearing, Mr Birdseye indicated that the applicant did not wish to proceed with his claim for other work related expenses. In the 2009/2010 amended assessment the deduction for other work related expenses was allowed by the respondent to the extent of $2,540, leaving a disallowed amount of $1,720 (Exhibit R1, p 224). Mr Birdseye submitted that the applicant only wished to proceed with the argument that the travel allowance of $18,000 appearing in the 2009/2010 taxation return (Exhibit R1, p 27) was correctly included as assessable income, and that the deduction for work related travel expenses of $36,124 appearing in his taxation return (Exhibit R 1, p 28) was properly deductible against the travel allowance. In the circumstances, these are the only issues before me. In my view, Mr Birdseye’s submissions cannot be accepted. Once the allowance paid to the applicant is characterised as a living-away-from-home allowance, then what purports to be the deductions for work related travel expenses are no longer available. This is clear from s 8-1(2)(c) of the ITAA 1997, when read with s 23L(1) of the ITAA 1936. Moreover, once the allowance is characterised as a living-away-from-home allowance, the amount of $18,000 is not assessable under 15-2 of the ITAA 1997. Again, this also follows from the provisions of s 23L(1) which provides that fringe benefits are non-assessable non-exempt income.
It is unclear from the concession made by Mr Birdseye whether the applicant was still intending to pursue his claim for the air travel expenses between Perth and Adelaide where he carried his lap top and his work tools. Notwithstanding the applicant’s intention, I am not satisfied that the air travel expenses are deductible under s 8-1(2)(b) or (c) of the ITAA 1997. In my view, the air travel expenses are outgoings of a private or domestic nature or are incurred in relation to gaining or producing the applicant’s non-assessable non-exempt income (see also s 23L(1) of the ITAA 1936).
Has the applicant substantiated the work related expenses he has claimed in accordance with Division 900 of the ITAA 1997?
Based on my findings in paragraph 29 above, the issue of substantiation in relation to work related expenses and work related travel expenses does not arise.
Is the applicant liable for an administrative penalty pursuant to section 284-75(1) of Schedule 1 to the TAA? Did the tax shortfall amount or part thereof result from recklessness by the applicant and/or tax agent as to the operation of the law?
The administrative penalty regime was succinctly described by Mr S E Frost, Member (now Deputy President) in Re Peco Necovski and Commissioner of Taxation [2009] AATA 195 where, at paragraphs 4-6, he said:
“4.The Parliament has established a ‘self assessment’ income tax system under which an assessment may issue based solely on information contained in the income tax return of the taxpayer.
5.This self assessment system depends on the accuracy of the information contained in a taxpayer’s tax return. This is because, as a general rule, the Commissioner will accept a taxpayer’s return at face value. As part of the self assessment system, taxpayers are exposed to penalties when their returns contain statements that turn out to be incorrect.
6.A taxpayer is liable to an administrative penalty if the taxpayer or the taxpayer’s agent makes a statement to the Commissioner which is false or misleading in a material particular and the taxpayer has a ‘shortfall amount’ as a result of the statement: s 284-75(1) in Schedule 1 to the Taxation Administration Act 1953 (‘TAA’).”
In the present case, the applicant or his tax agent made a statement to the respondent that the applicant received a travel allowance from his employer (and claimed work related travel expenses against that allowance), rather than a living-away-from-home allowance as had been clearly characterised by his employer, and this statement was false or misleading. As a result, a shortfall amount of tax arose as a result of the statement and the applicant is liable to an administrative penalty in accordance with s 284-75(1) of Schedule 1 to the TAA. The base penalty amount is determined in accordance with the table in s 284-90(1) of Schedule 1 to the TAA and, as the respondent determined that the shortfall amount (or part of it) resulted from recklessness by the applicant or his tax agent as to the operation of a taxation law, the base penalty amount was 50 % of the shortfall amount. The provisions in Item 2 of the table in s 284-90(1) could hardly be expressed more clearly. If the shortfall amount (or part of it) results from recklessness by either the taxpayer or the tax agent as to the operation of a taxation law, then the 50 % penalty is automatic. That position is not altered if, for example, the agent was reckless while the taxpayer was not. Nor is it altered if the taxpayer was reckless while the agent was not. If either one of them is reckless, then the taxpayer becomes liable to the administrative penalty.
What does “recklessness” mean? Miscellaneous Taxation Ruling MT 2008/1 sets out the respondent’s interpretation of the concept of “recklessness” used in Subdivision 284-B of the TAA. Paragraph 102 of the Ruling suggests that recklessness assumes that the behaviour in question shows disregard of, or indifference to, a risk that is foreseeable by a reasonable person. Paragraph 102 also refers to the comments of Cooper J in BRK (Bris) Pty Ltd v Commissioner of Taxation [2001] FCA 164, where the learned Judge said (at paragraph 77):
“…
Recklessness in this context means to include in a tax statement material upon which the Act or regulations are to operate, knowing that there is a real, as opposed to a fanciful, risk that the material may be incorrect, or be grossly indifferent as to whether or not the material is true and correct, and that a reasonable person in the position of the statement-maker would see there was a real risk that the Act and regulations may not operate correctly to lead to the assessment of the proper tax payable because of the content of the tax statement. So understood, the proscribed conduct is more than mere negligence and must amount to gross carelessness.”
In my view, what is said in paragraph 102 of Ruling MT 2008/1 represents an accurate description of the concept of “recklessness” as it is referred to in Item 2 of the Table in s 284-90(1) of Schedule 1 to the TAA. Moreover, it follows that, where a taxpayer uses a tax agent to help prepare and lodge a taxation return, the taxpayer will be vicariously liable for any penalties caused by the agent providing information that results in a shortfall amount.
Mr Birdseye submitted that the applicant was not trying to be reckless or careless. As I have said, this matters not. Mr Birdseye is an experienced tax agent who, based on all the material available (particularly the material received from the applicant’s employer), should have realised that the $500 weekly payment made to the applicant by Downer EDI was a living-away-from-home allowance and not a travel allowance. As such, the weekly payments did not constitute assessable income and the deductions for work related travel and other expenses were not allowable as deductions against the allowance.
In the circumstances, I am satisfied that the applicant’s tax agent was reckless as to the operation of a taxation law in making a statement which was false or misleading in a material particular by including an amount that was not assessable as income to the applicant, and for claiming deductions against that amount which were properly not allowable in the applicant’s 2009/2010 taxation return.
I am satisfied that the applicant is liable for an administrative penalty under s 284-75(1) and Item 2 of the table in s 284-90(1) of Schedule 1 to the TAA.
Should the respondent exercise his discretion under the TAA to remit the administrative penalty in whole or in part?
In the present case, the base penalty amount of 50 % was applied, correctly in my view, to the shortfall amount for the 2009/2010 tax year pursuant to Item 2 of the table in s 284-90(1) of Schedule 1 to the TAA. Under s 298-20(1) of Schedule 1 to the TAA, the respondent (and the Tribunal, upon review) has the discretion to remit all or part of the administrative penalty that has been imposed in the applicant’s case. Having regard to what occurred and the fact that the shortfall amount resulted from the disregard of, or the indifference to, a risk that was foreseeable by the applicant’s tax agent as a reasonable person, it is appropriate that an administrative penalty should be imposed and no remission is warranted. In the applicant’s Statement of Facts, Issues and Contentions, it was asserted that the respondent imposed the tax shortfall penalty of 50 % because the applicant had Mr Birdseye as his tax agent. I do not accept this proposition. In my view and for the reasons already given, the tax shortfall penalty of 50 % was clearly appropriate.
DECISION
For the reasons outlined above, the Tribunal affirms the objection decision under review.
I certify that the preceding 39 (thirty -nine) paragraphs are a true copy of the reasons for the decision herein of ...........................[Sgd].............................................
Administrative Assistant
Dated 27 November 2012
Date of hearing 4 September 2012 Advocate for the Applicant Mr N Birdseye Solicitors for the Applicant Nicholas Birdseye & Associates Counsel for the Respondent Mr S Cole Advocate for the Respondent Ms C Basilicata Solicitors for the Respondent ATO Legal Practice
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