Hussain and Commissioner of Taxation (Taxation)
[2018] AATA 1111
•3 May 2018
Hussain and Commissioner of Taxation (Taxation) [2018] AATA 1111 (3 May 2018)
Division:TAXATION & COMMERCIAL DIVISION
File Number: 2016/0085
2016/0086
Re:Safdar Hussain
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Mrs J C Kelly, Senior Member
Date:3 May 2018
Place:Sydney
The Tribunal varies the Objection Decision made by the Respondent on 14 November 2015, by allowing the following deductions in the 2014 income year:
·Car expenses - $226.85; and
·Travel expenses - $298.89.
.........................[sgd]...............................................
Mrs J C Kelly, Senior Member
CATCHWORDS
TAXATION AND REVENUE – income tax – deductions – work-related expenses –whether Applicant is entitled to claim deductions for work-related expenses for the financial years of 2013 and 2014 – whether there is written evidence to substantiate deductions claimed – work-related travel expenses – work-related car expenses – other work-related expenses – objection decision varied
LEGISLATION
Income Tax Assessment Act 1997 (Cth), ss 8-1, 28-12, 28-70, 28-75, 900-15, 900-20, 900-110, 900-115, 900-205
Taxation Administration Act 1953 (Cth), ss 14ZZK
CASES
Bhatti and Commissioner of Taxation (Taxation) [2016] AATA 24
Federal Commissioner of Taxation v Faichney [1972] 129 CLR 38
Federal Commissioner of Taxation v Forsyth [1981] HCA 15; 1981) 148 CLR 203Handley v Federal Commissioner of Taxation [1981] HCA 16; (1981) 148 CLR 182
REASONS FOR DECISION
Mrs J C Kelly, Senior Member
3 May 2018
The decision under review
The Applicant, Mr Hussain, has asked the Tribunal to review a decision made by the Commissioner of Taxation on 14 November 2015 (the Objection Decision) which disallowed the Applicant’s objection (the Objection) to amended income tax assessments for the income years ending 30 June 2013 (file number 2016/0085) and 30 June 2014 (file number 2016/0086). The amended income tax assessments were made after the Commissioner conducted an audit of the Applicant’s income tax returns for those years at the beginning of 2015. The amended assessments were issued on 4 May 2015. The Objection was dated 29 July 2015.
The amended assessment for the year ending 30 June 2013 (the 2013 income year) disallowed deductions for work-related expenses in the sum of $27,180.
The amended assessment for the year ending 30 June 2014 (the 2014 income year) disallowed deductions for work-related expenses in the sum of $51,172.
The burden of proof
The Applicant has the burden of proving that the amended assessments are excessive or otherwise incorrect and what the assessments should have been, pursuant to s 14ZZK(b)(i) of the Taxation Administration Act 1953 (the TAA).
The issues
The issues in this case are:
(a)Is the Applicant entitled to claim deductions for the work-related expenses set out in paragraphs 2 and 3 above, or for some lesser amounts?
(b)If so, has he provided written evidence to substantiate all or some of the deductions to which he is entitled?
(c)If the Applicant has not substantiated all or some of the deductions to which he is entitled, should he otherwise be relieved from having to substantiate his claims?
The relevant legislation
Following is a summary of the relevant legislation.
Subsection 81(1) of the Income Tax Assessment Act 1997 (ITAA 1997), provides that a taxpayer can deduct from assessable income any loss or outgoing to the extent that it is:
(a)incurred in gaining or producing assessable income; or
(b)necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income.
Subsection 8-1(2) provides that certain losses and outgoings that cannot be deducted, 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.
In general, expenses which relate to the use or ownership of a home (such as rent), have a private or domestic character and therefore are not allowable deductions under section 8-1.[1] Where a taxpayer has demonstrated that the taxpayer actually conducts their employment activities from home, a taxpayer may be able to deduct a portion of the costs of use (including rent). On the other hand, running expenses for a home office (such as for electricity) may be deductible under section 8-1 but only for those expenses that are additional to what would have been incurred in any event.
[1] See for example, Bhatti and Commissioner of Taxation (Taxation) [2016] AATA 24, [26] (Senior Member Lazanas) and cases cited there.
Division 900 of the ITAA 1997 sets out substantiation rules. Subsection 900-15(1) provides that to deduct a work expense, it must qualify as a deduction under some provision of the ITAA 1997 outside division 900 and it must be substantiated by getting written evidence. To deduct work-related car expenses, the amounts must be substantiated under subdivision 900-C of the ITAA 1997.
Division 28 of the ITAA 1997 sets out the rules for working out work-related deductions for car expenses. Division 28 provides four different methods by which work-related car expenses may be claimed, but only if the taxpayer “owned or leased” the car (see section 28-12). One of those methods is the “one third of actual expenses” method, the rules of which are set out in Subdivision 28-E of the ITAA 1997, which requires that the expenses must be substantiated under subdivision 900-C. The purchase price of a car cannot be deducted under this sub-division because it is a capital expense.
Subdivision 900-E of the ITAA 1997 sets out the written evidence that is required to support a deduction. Section 900-110 provides that there is no time limit for getting written evidence of an expense (except in some specified situations) but a taxpayer is not entitled to a deduction for that expense until written evidence of an expense has been obtained. Section 900-110(2) provides that if when a taxpayer lodges their income tax return they “have good reason to expect to get written evidence of the expense within a reasonable time”, they can deduct the expense without actually obtaining the evidence, however, if the taxpayer does not get the evidence within a reasonable time, their entitlement to the deduction ceases.
Section 900-115 of the ITAA 1997 sets out a number of rules for written evidence from a supplier.
Subdivision 900-F of ITAA 1997 tells a taxpayer how to keep travel records to show which activities were undertaken in the course of producing assessable income.
Subdivision 900-H of the ITAA 1997 sets out the rules applying to a taxpayer where there is a failure to substantiate. Notwithstanding any non-compliance with the rules in division 900, the Commissioner may allow a deduction under section 900-195 of the ITAA 1997, if the nature and quality of the evidence satisfies the Commissioner that the taxpayer incurred the expense and a deduction is allowable. The Commissioner has set out his guidance as to the situations where he will apply subdivision 900-H, in Taxation Ruling TR 97/24.
Factual background
The Applicant works as an interpreter. During the relevant years, he provided interpreting services to the Translating and Interpreting Service (TIS) for the then Department of Immigration and Citizenship. He claimed that his work involved providing on-demand telephone interpreting services, primarily conducted from his home, onsite visits to clients, and interstate and overseas deployments to immigration detention centres.
During the 2013 income year, the Applicant resided near Hervey Bay in Queensland, which is about three and a half hours drive north of Brisbane. He moved to Melbourne around October 2013, following the breakdown of his marriage, and lived at Melton, approximately 50 kilometres from the Melbourne CBD, until moving to Travancore in February 2014.
Summary of the history of this matter
Following is a summary of the history of the Applicant’s claimed deductions, communications with officers of the Respondent, and his provision of evidence to support his claims.
In his income tax return for the 2013 income year, the Applicant declared his gross income of $101,169 and claimed the following work related expenses:
Car $11,000 Travel $5,732 Clothing $1,543 Self-education $3,037 Other $5,868 Total: $27,180
A notice of assessment for that year was issued on 5 August 2013.
In his income tax return for the 2014 tax year, the Applicant declared his gross income of $88,484 and included the following work related expenses:
Car $9,913 Travel $17,704 Clothing $1,500 Other $22,055 Total: $51,172
A notice of assessment for that year was issued on 14 August 2014.
A notice of income tax audit dated 24 February 2015 was sent to the Applicant. It listed the above work related expenditure claims and advised him what he needed to do:
·Review his claims for the 2013 and 2014 income years;
·Send copies of supporting documents as well as a written explanation about how his claims relate to his job, and referred him to an ATO website “to determine what supporting documents you need to provide”;
·Send his reply by 24 March 2015; and
·If he had made any errors or omissions, to complete and send the attached voluntary disclosure form by 10 March 2015, and information stating that “You need to provide us with sufficient information to correctly determine the shortfall amount. If you do this, any penalty that would apply to the shortfall amount may be reduced by 80%.” After that date, a 20% reduction “may be” given for voluntary disclosure.
The letter advised that the audit was expected to be completed by 22 May 2015 “however this will depend on the specific details of your case” and to provide a contact name and number if he had “any questions, including what information you need to provide”.
In the voluntary disclosure form dated 9 March 2015, the Applicant advised that he had made two typing mistakes in relation to the “Other work related expenses” of $22,055 in the 2014 income tax year, and the amount claimed was $2,843.
In the accompanying letter, the Applicant stated that he was unable to access files and documents for the year ending 2013 and many documents for the year ending 2014 “because I had a relationship break down and I left my ex-wife and moved from Queensland in October 2014” (emphasis added). He claimed that he found the notice of audit “on my arrival from Nauru in February 2015”. He claimed that he did not have access to the file because he used his ex-wife’s computer for online lodgement. He attached document/receipts and invoices that he could for the 2014 income year. He did not have documentary evidence for some items purchased on-line from individuals to whom he paid cash and could not obtain receipts from them.
The Applicant provided the following breakdown of the 2014 work-related expenses:
Car (Method 3 – third of actual expenses) $9,913 comprising:
Fuel $1,740 Car purchased (Private Seller cash)
$28,000
Travel expenses – comprising $17,704
Travel and accommodation $2,200 Fuel for working on site jobs $28,000 Phone and internet @ 60% $826 Mobile @ 60% $540 Union fees $624 Rent for house office @ 40% $6,658 Electricity @ 40% $154 Furniture and cost of moving house office $4,755 Clothing expenses – comprising $1,500
Other - $22,055, comprising:
Printer $69 Ink $75 Paper $45 Telephone $65 Office lamp $47 Laptop $380 Charger $25 Stamps and envelopes $25 Mobile charger $30 Mobile and accessories $470.40 (mistakenly typed $4,704) Over time meal allowances $1,659 (mistakenly typed $16,590)
The Applicant provided the following copies of documentation in support of his claims:
·A letter dated 4 February 2014 advising him that he had been recorded on the Department of Human Services Register of Interpreters for specified NAATI accredited languages and the revalidation dates for each.
·A letter of appointment as a Casual Interpreter/Translator dated 12 November 2014 from All Graduates Interpreting & Translating.
·Signed tenancy agreements for an apartment in Travancore for the period 1 February 2014 to 31 July 2015; rental $1,387 per month.
·Documents dated 13 May 2014 relating to a Telstra Entertainer Super Bundle-M costing $120 per month for 24 months including home phone and Foxtel.
·A Telstra receipt for an Iphone for $984 dated “2/14”.
·Receipts for the 2014 income year – many of which are illegible – for petrol, parking, Skybus, Cabcharge and an umbrella.
·Electricity accounts for the 2015 income year.
·Some diary entries for the 2013, 2014 and 2015 years.
A letter dated 24 April 2015 advised the Applicant of the result of the audit. The audit held that the Applicant was not an employee and was not entitled to work-related expenses. Consequently, the Applicant’s claims were reduced to nil. Notices of amended assessment for both the 2013 and 2014 tax years were issued on 4 May 2015. The tax shortfall for the 2013 tax year was $9,481.11 and for the 2104 tax year $18,334.58.
The base rate administrative penalty of 25% for lack of reasonable care was remitted to 0 for both years.
On 30 July 2015, the Applicant lodged an objection to the disallowance of his claims.
Following the receipt of the Applicant’s objection, an officer spoke to the Applicant on the telephone on 15 October 2015. The following exchanges occurred:
·The officer agreed with the Applicant that he was an employee and could claim work related expenses should he be able to substantiate the claims.
·The officer advised the Applicant of the four methods for claiming work related car expenses.
·The Applicant said that he has a diary and can evidence the number of kilometres for both the 2013 and 2014 income years.
·The Applicant queried which method was the best for his situation. The officer advised him that it would depend on the receipts he was able to provide to support his claims and that he should go through them, work out which was the best method and “provide evidence accordingly”.
·The Applicant said that he incurred expenses to attend on-site assignments. The officer advised that such expenses appeared claimable but that the bus and taxi fares were substantially less than the amounts claimed. The applicant advised that he was required to travel overseas to maintain his accreditation.
·The officer advised the Applicant to provide invoices and documents to support that expenditure.
·The Applicant said that no uniform was required during the 2013 and 2014 income tax years.
·The Applicant said that he had to attend a number of courses to maintain accreditation and would seek “replacement invoices” for those costs.
·The office advised the Applicant to provide a four week diary for phone and internet and invoices for all expenses.
·In relation to home office, the officer advised the Applicant that it would be more appropriate to claim under the per hour method rather than rent and electricity. The Applicant said that he would look at the website and provide calculation consistent with his work diary.
·The officer advised, and the Applicant accepted, that the cost of moving house was not claimable.
·The Applicant said that he would provide his work diaries for both years to show his work related kilometres and to evidence travel expenses.
·The Applicant advised that he was leaving for Nauru the next week for two months and in response to his inquiry about how he could provide the information, the officer provided an email address “and he accepted risks associated with emails”.
·The officer noted “Due date of 12 November 2015 agreed upon”.
The Applicant made no further contact with the Respondent and provided no additional information or documents before 12 November 2015.
The objection decision was made on 14 November 2015. It provided detailed reasons for disallowing his objections and provided information about substantiating work related expenses, the Commissioner’s discretion to review failure to substantiate, the requirement to maintain records for five years, including advice about faded receipts, and the principles applicable to each category of work related expense.
The Tribunal received the application for review on 6 January 2016. The Applicant provided over 100 pages of copies of various documents, many of which related to the 2015 income year.
Following a Tribunal conference on 29 February 2016, the Commissioner provided the Applicant with copies of TR2004/6, “Income tax: substantiation exception for reasonable travel and overtime meal allowance expenses”, TR98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business, and prepared a table which showed the types of expense in dispute, the information/documents required to demonstrate that the Applicant had incurred the expense, and comments about what had been provided.
The Applicant provided copies of his bank statements for the 2014 income year but stated that he was unable to provide them for the 2013 income year. Those records were then summonsed by the Respondent.
The Applicant provided a written statement before the hearing. After the hearing, in response to a direction to provide information in relation to meal allowance and diary entries, he provided the following:
·on 29 June 2017, copies of a diary entry, a summary of overtime meal allowances for deployments at immigration detention centres in Australia and overseas (IMA deployments), and what appear to be four schedules to an employment contract (the Schedules).
·On 13 July 2017, selected pages from a Deed of Standing Offer from the Commonwealth of Australia to the Applicant for the provision of interpreting and translating services dated 10 May 2015, and lists of “Day Charges” from TIS relating to his IMA deployments (the TIS records).
The TIS records show that the Applicant received the following payments:
2013 income year
Day charges $91,492.40 Travel allowance $25,899.90
2014 income year
Day charges $73,753.93 Travel allowance $17,340
An email from TIS to the Applicant dated 7 March 2016 and provided to the Commissioner on 16 March 2016 sets out “the information you have requested”. The “request” is not before the Tribunal. The email sets out the dates of the Applicant’s IMA deployments and also records:
·1 July 2012 to 31 December 2012 (76 job (sic));
·1 January 2013 to 31 December 2013 (392 jobs);
·1 January 2014 to 30 June 2014 (268 jobs 78 onsite jobs).
The Commissioner provided lengthy written submissions dated 21 July 2017 in reply. The Applicant did not wish to respond.
Consideration and findings
The Applicant conceded during the hearing that he had not included the travel allowance he was paid for his IMA deployments in his tax returns for 2013 and 2014.
His evidence at the hearing demonstrated that IMA deployments were very important to him because of the higher income he could earn. Rates of pay for phone interpreting services, on-site assignments, IMA deployments, and video at a video conference, are set out in the Schedules the Applicant provided. Although undated, the Tribunal finds that they reflect the relative remuneration for the different services during the 2013 and 2014 income years.
Taking into account the Schedules, the TIS records, and the email from TIS to the Applicant dated 7 March 2016 (the TIS email), the Tribunal finds that the TIS email uses the term “job” to refer to phone interpreting, “on-site jobs” to refer to on-site assignments, and “IMA work” to refer to IMA deployments.
2013 income year
At audit, the Applicant claimed that he was unable to provide a breakdown of the work-related expenses claimed during the 2013 income year because of the collapse of his marriage and his move to Victoria. He provided one document to support his claimed expenditure. During the hearing he claimed that he kept a folder in a filing cabinet in which he kept all his receipts and which was not available to him after his marriage breakdown. He claimed that when he prepared his 2013 tax return, he added up on a calculator the various amounts from the receipts, and recorded the results in a word document on the computer he was using which is unavailable to him.
The Applicant’s 2013 IMA deployment dates are as follows:
IMA 2013 deployment dates IMA
deployment
IMA day charges received IMA travel allowance 26 July 2012 to 21 September 2012 Curtin, WA $26,320.85 $6,446.70 3 October 2012 to 29 November 2012 Leonora, WA $21,554.77 $6,446.70 26 December 2012 to 22 February 2013 Curtin, WA $22,165.38 $6,559.80 8 April 2013 to 4 June 2013 Yongah Hill, WA $21,451.40 $6,446.70 Total $91,492.40 $25,899.90
Taking into account the Applicant’s 2013 tax return, the TIS records and the TIS email dated 7 March 2016, the Tribunal infers that the Applicant earned $9,676.60 from his non-deployment jobs during the 2013 income year.
For the reasons given above, it finds that the TIS email shows that the Applicant did no “on-site” assignments until the 2014 calendar year, after he had moved to Melbourne.
Car related expenses
During the objection phase, the Applicant told an officer of the Commissioner that he had a diary for the financial year ended 30 June 2013 and could evidence the kilometres travelled. That evidence was never provided.
During the hearing, the Applicant gave the following evidence about the purchase of his wife’s car. The amount of $11,000 was one third of the $33,200 purchase price of his wife’s car. It was purchased after June, using finance and $14,000 cash transferred from her business bank account. He supported the business financially. He later said that he was compensated for fuel at 60 cents per kilometres when he travelled to Brisbane because the distance was more than 110 kilometres.
The purchase price of a car cannot be deducted as a work expense because it is of a capital nature. It was his wife’s car. The Tribunal does not accept that he had any on-site jobs in Brisbane while he lived in Queensland during the 2013 income year because the TIS email does not support that claim. On his evidence, he was compensated for fuel for work-related travel. The Applicant has not satisfied the Tribunal that he has incurred work-related car expenses. It does not accept his claims for a deduction for car expenses.
Travel expenses
The Applicant told the Tribunal initially that his claimed travel expenses of $5,732 were in relation to air tickets and a few receipts. Later he said that they were based on fuel receipts, maintenance, parking tickets, and insurance for travel to Brisbane. He then said that he was compensated per kilometre for petrol and accepted that he may have been over-claiming because he did not know the ATO’s rules. He said that he went to Brisbane more than 20 times and parking in Brisbane costs $40 or $50 for three hours. For the reasons given above, the Tribunal does not accept that he travelled to Brisbane for on-site jobs while he lived in Queensland. That finding is reinforced by the Applicant’s evidence that in 2013 he was too busy, mostly doing deployments.
Before the hearing, he provided one taxi receipt for $55.01 for a trip from his home location to another suburb in Hervey Bay. He gave no explanation for that trip. It is not apparent that it was related to his work. That is the only supporting document he provided.
The Tribunal does not accept that the Applicant incurred the work related travel expenses he claimed in the 2013 income year in the course of gaining his assessable income.
Clothing expenses
The Applicant conceded during the hearing that no uniform was necessary for his work. His claim for work related clothing expenses of $1,543 is not made out.
Education expenses
The Applicant claimed a deduction of $3,037 for work-related self-education expenses. During the objection phase, the Applicant said that he had to attend a number of courses to maintain accreditation and “would seek replacement invoices”.
At the hearing, the Applicant said that he had provided a receipt for a short course. The receipt was dated September 2013, that is in the 2014 income years, and was for a course held in Pakistan.
Later, the Applicant claimed $3,037 was for travel, meals and accommodation costs of $200 to $250 or $260 a night when he attended three free (emphasis added) two-day NAATI affiliated TIS courses in Brisbane to maintain his accreditation. He provided no documents substantiating either the expenses claimed or that the courses were held. When asked why he had not sought records of his attendance, the Applicant’s various explanations were not convincing, particularly when there have been ongoing communications from the Commissioner since the audit advising him what he had to provide to support his claims. Further, he had previously said that he would seek replacement invoices, which suggested that he had paid a fee for the courses, which was inconsistent with his evidence that they were free.
The Tribunal does not accept that the applicant incurred the work-related self-education expenses claimed.
Other work related expenses
The Applicant claimed $5,868 for other work related expenses in his 2013 tax return.
During the hearing, the Applicant said that he did not recall what the expenses were for, but normally he claimed meal allowance expenses and expenses relevant to work. He said both that the allowances were shown in the group certificates and that he did not recall if they were. He claimed that the ATO had never asked him about those matters. That claim is clearly incorrect. He was put on notice in correspondence dated 24 March 2016 and 12 May 2016.
By the time of writing this decision, the TIS evidence showed that he had received travel allowance, including for meals, totalling $25,899.90 for his four IMA deployments. During a directions hearing on 17 July 2017 he conceded that they had not been included in his income tax return for the 2013 income year.
The receipt of a travel allowance does not entitle the Applicant to claim a deduction for the travel allowance expense. The Applicant is entitled to a deduction to the extent he has incurred the expense for work-related purposes. There is no evidence that he incurred such expenses.
For the expense to be deductible, the allowance received must have been recorded as assessable income in the tax return.[2] It was not. The Applicant is not entitled to claim deductions for travel allowance expenses, including meals.
[2] Taxation Ruling TR 2004/6 at [12].
Given those findings, it is unnecessary to consider other arguments put forward by the Commissioner on the issue.
During the hearing, the Applicant claimed expenses for a computer, stationery, a printer, a computer desk and chair. First, he said the computer was a laptop, and then that it was a desktop. He said that the computer was used at home “jointly” for personal use, apart from checking emails. He then said that it was mostly for his use and he claimed the whole amount. At first he did not recall how payment was made for the computer. He then said he used a card on his wife’s account because he was putting his wages into her account. He could not point to any relevant transactions in the bank statements in evidence before the Tribunal.
The Applicant was not persuaded by the Applicant’s evidence summarised in the previous paragraph and there is no other evidence to corroborate his claims.
The Tribunal does not accept that the applicant is entitled to the deduction he claimed for “other work-related expenses”.
2014 income year
The Applicant had the following IMA deployments during the 2014 income year:
IMA 2014 deployment dates IMA
deployment
IMA day charges received IMA travel allowance 3 July 2013 to 15 August 2013 Darwin, NT $16,863.63 $4,970.80 22 October 2013 to 19 December 2013 Nauru $34,794.38 $6,704.80 16 February 2014 to 17 March 2014 Manus Island, PNG $13,493.10 $3,352.40 8 April 2014 to 4 June 2014 Manus Island, PNG $8,602.82 $2,312.00 Total $73,753.93 $17,340.00
The Tribunal has summarised the documentation the Applicant has provided at various times in support of the work related expenses he claims. The Tribunal accepts that of the 392 jobs that he did for TIS between 1 January 2013 and 31 December 2013, he did a proportion during the 2014 income year, as well as the 268 jobs and 78 onsite jobs those records show he did between 1 January 2014 and 30 June 2014. The Tribunal infers that the Applicant earned income of $14,730.07 from TIS for that work.
The Tribunal does not accept that the diary records the Applicant provided in support of his claims for the 2014 income years are reliable records. He provided only selected pages. He told the Tribunal that he used a calendar year diary. He claimed that he did not have access to his 2013 diary because of his marriage breakdown and move to Melbourne. Diary entries the Applicant provided for January and February 2014, except one provided after the hearing, have been made on pages from a 2013 diary on which the day of the week and the date has been amended in handwriting, to reflect what the day was in 2014. Some entries are not recorded in chronological order. For example, the first entry on Wednesday 12 February 2014 records an on-site job from 14:15pm to 15:45pm and then jobs from 10:00am to 10:53am and 11:13am to 11:42am. The entry for 11 February 2014 has four entries for obvious phone interpreting jobs, the last one ending at 17:03pm. Following that entry is an entry for an on-site job from 14:00pm to 15:30pm.
Other pages from the 2013 diary have not been amended to reflect 2014 dates, for example in June and September. At the top of the printed page for Saturday 29 June 2013, are handwritten details of a job on “27/6/13”. The following printed page dated Sunday 3 June 2013, has the handwritten date “28/6/13” at the top. Printed diary pages for 3 and 4 September 2013 have not been amended. The Tribunal concludes that those pages are from the Applicant’s 2013 diary. The records for June and September include no on-site jobs, which is consistent with the Tribunal’s finding that the Applicant did no on-site jobs until he moved to Melbourne.
The printed date on the diary page provided after the hearing was Tuesday 11 February 2014. “Tuesday” had been crossed out and “Wednesday” added in handwriting. There was no satisfactory explanation for the use of a 2013 diary to make entries in January and February 2014 and no explanation why an entry during the period covered by the 2013 diary pages, was made in a 2014 diary. Further, why the day of the week in 2014 would be amended to show an incorrect day, was not explained.
The Tribunal finds that the Applicant did have access to his 2013 diary and amended pages in January and February to show 2014 dates but some of the entries at least were from 2013.
The Applicant’s evidence about how he dealt with receipts when he moved to Melbourne in the 2014 income year is inconsistent. He said that he had every receipt, but he was only there for three months because of his IMA deployments. He said that he had lost the receipts for 2014, although towards the end of the hearing he said that he had all the receipts when he did the tax return on 5 August 2014. He said that he goes through all his receipts when he does his tax and throws out what is not work related. He conceded during cross-examination that some of the receipts he had provided were not work related and said that just because they had been provided does not mean he had claimed them. He said that he sometimes throws out the deductible receipts but now takes photos and keeps the original.
When asked about the figures in the document “2014 Deduction break down” that he provided in response to the audit, the Applicant said that he had receipts then but he has moved in Melbourne three times.
The Tribunal has concluded that the Applicant does not know which receipts are work-related and which are not.
Car related expenses
The Applicant claimed a deduction of $9,913 for work related car expenses in his tax return was based on the “one-third of actual expenses” method.
His explanation at audit was that he claimed one third of his fuel expenses of $1,740 and $28,000 for the car purchase of $28,000 which he had paid to a private seller in “cash”.
In order to claim car expenses using the “one third of actual expenses” method under Subdivision 28-E of the ITAA 1997, the Applicant has to show that his business use of the car exceeded 5,000 kilometres and the expenses must qualify as a deduction under some provision of the ITAA 1997 outside that subdivision, such as s 8-1.[3]
[3] Sections 28-70 and 28-75 of the ITAA 1997.
At the hearing, the Applicant’s evidence about his car use was inconsistent. He said the following. The expense was for his wife’s car. During cross-examination, he said that he purchased a Hyundai and used his brother’s Ford Territory too. He gave the Hyundai to his brother and used the Territory and they swapped cars back in 2015. He said that he paid $570 a month which came to $6,840 for 12 months and that in late 2013 he used the Territory and in 2014 the Hyundai.
The Tribunal accepts the Commissioner’s submission that there is insufficient evidence that the Applicant’s business use of any car exceeded 5,000 kilometres or that he incurred the claimed car expenses in the course of producing assessable income. He has not produced written evidence to substantiate the expenses in accordance with Subdivision 900-C.
The Applicant said that he was claiming the actual fuel cost based on receipts.
The Applicant claimed to have travelled between 10,000 and 15,000 kilometres in the income year 2014. He justified that claim to a large extent by reference to the distance from Melton to Melbourne CBD and Dandenong, and to the many trips he did. He said that he could travel up to 1,000 kilometres a week, a total of roughly 8,000 kilometres while he was at Melton. For the reasons already given, based on the TIS evidence, the Tribunal does not accept that he did any on-site jobs between 1 July 2013 and 31 December 2013. For the reasons already given, the Tribunal also does not accept his evidence that he did not have diary entries for his trips from Melton because they would have been in his 2013 diary. The Tribunal does not accept that he did not have access to his 2013 diary. Further, he conceded during cross-examination that, taking into account his IMA deployments, he only lived at Melton for six weeks. The amended entries he provided for 14, 15, 20, 21, 28, 29 and 31 January 2014, and 3, 4, 5, 6, 11 and 12 February 2014 include only nine entries for on-site jobs, including five when the Applicant was living at Melton. The Tribunal does not accept that the Applicant’s evidence about his travel is reliable. It does not accept that his claim for actual fuel used is reliable.
The Commissioner has conceded that the Applicant was entitled to claim car expenses based on the “cents per kilometre” method and accepted travel evidenced in his work diaries as 349 kilometres and allowed a car expense deduction of $226.85, based on the use of a Hyundai i30 engine of 1.6 litre (1,600cc) or less at 65 cent per kilometre.
The Tribunal accepts that the Applicant did on-site jobs in the 2014 income year based on the TIS evidence and accepts the Commissioner’s calculation, which was based on the rules set out in Subdivision 28-C of the ITAA 1997. It therefore finds that the Applicant is entitled to claim a car expense deduction of $226.85.
Travel
In his 2014 tax return, the Applicant claimed a deduction of $17,704 for work-related expenses. He provided the breakdown for those expenses at audit as set out at paragraph 27 above.Few related to travel.
The Applicant provided some electricity bills relating to the 2015 income year. He could not explain why had had not sent the bills for the 2014 income year if he had kept them.
At the hearing, the Applicant accepted that there was no basis for claiming for moving house.
The Applicant could not explain why he claimed two different figures for fuel, $1,947 and $1,740. He accepted that it was a mistake to claim the fuel expense when he had claimed it under car related expenses.
The Tribunal accepts the Commissioner’s submission that expenses for telephones, rent, union fees and electricity are not travel expenses and does not consider them further under this category.
During the hearing, the Applicant claimed that $2,200 was for travel and accommodation when he went to Pakistan to undertake a language course to keep up to date with terminology and developments in the language, which he is required to do every three years. He said that $1,750 was for his airfare and the balance for the cost of the course and accommodation. He said that Emirates airline could not give him a receipt. He used a credit card. If there was no record on his Suncorp Metway card, he would have used one of his wife’s.
On 16 March 2016, the Applicant provided to the Respondent a receipt dated 6 September 2013 for Rs27,000 from an “Educational & Social Welfare Organization” in Quetta, Pakistan. The Tribunal accepts the Commissioner’s figure of $280 as the relevant conversion. The only other relevant information on the receipt is:
Address: Australia
(Hazargi language course)
Time: 9.00 am to 2.00 pm
The receipt does not support his claim to have spent eight or nine days doing the course. The only documentary information before the Tribunal about his obligation to keep up to date with the languages he interprets is one page from a NAATI Revalidation Catalogue. It does not support his claim that he must go to his home country and local community every three years. Undertaking the course he said he did may be relevant to his obligation to keep up to date. He did not provide any receipts for accommodation.
Section 900-20 of the ITAA 1997 requires a taxpayer to keep travel records for expenses that require travel exceeding 6 nights in a row. Subdivision 900-F of the ITAA 1997 tells a taxpayer how to keep travel records, being the record of activities undertaken to show which activities were in the course of producing assessable income.
The Applicant has provided no travel records to support his claimed travel to Pakistan.
The Applicant provided receipts for parking charges, taxi, and Skybus fares, which the Commissioner helpfully summarised in an annexure to its submissions.
The Tribunal accepts the Commissioner’s concession that one of the parking fee receipts for $3.60 appeared to relate to an on-site job and was deductible.
The Commissioner conceded that nine of the taxi fare receipts coincided with the start and finish dates for the Applicant’s deployments to Manus Island or Nauru, totalling $295.29 “and therefore were prima facie incurred by the Applicant in the course of earning his assessable income”. The Commissioner accepted the Applicant’s claim that TIS does not reimburse him for taxi fares when he travels for IMA deployments.
The Schedule relating to such deployments states that the Department will reimburse the Service Provider for the items specified in the Operations Manual. That document is not before the Tribunal. However, the Tribunal will accept the Commissioner’s concession that the Applicant is entitled to $295.29 for travel expenses.
The Applicant has not given evidence that explains the other receipts.
Other than for travel expenses in the amount of $298.89, the Applicant has not met the substantiation requirements in Subdivision 900-E.
For the above reasons, the Applicant is therefore not entitled to a deduction for work related travel expenses in an amount exceeding $298.89.
Clothing
For the reasons given above, the Applicant is not entitled to a deduction for clothing.
Other
The Applicant provided no receipts or invoices for the other expenses he claimed in the amount of $22,055 in his tax return or the $2,890 he claimed at audit, as summarised above in paragraph 27.
The Applicant gave unconvincing responses to questions about the order requiring him to put on all reports and records he would rely on by November 2016, the written reminders the Commissioner sent to him on 24 March 2016 and on 12 May 2016, and multiple conversations and meetings where he had been given guidance by officers of the Commissioner. The Applicant said that he was not asked to provide specific evidence, just evidence, the Commissioner had not asked him the questions it was asking at the hearing, and he did not recall reading the letter dated 12 May 2016 but remembers seeing it. That letter included a four page four column table setting out the categories of expense, sub-categories, for example union fees and overtime meal expenses, “the information/documents we require to demonstrate that you incurred the expense” in detail, and then “Comments” which included notes about what he had provided or claimed.
When challenged about the errors he made, including writing $16,000 instead of $1,600, The Applicant denied being careless and said that his life had been upside down.
The Commissioner addressed the categories of expenses wrongly claimed in respect of travel expenses, that is, telephone and internet, union fees, rent for house office, and electricity, under this heading.
The Applicant did not provide a receipt for his Union fees. He said that he paid for membership of the Association of Professional Engineers and Managers (APESMA). When asked why he had not produced any documentation about the payment, the Applicant said that it was with APESMA, and that he thought it was in his bank statement “but I never called them”.
The Tribunal accepts the Commissioner’s submission that the Applicant was not entitled to a deduction for the rent of his “home office”. He was renting a one-bedroom apartment with an open-plan kitchen/living area. The Applicant said that he worked in the lounge-room, and the only furniture he had was a brown sofa, a computer chair, a computer table and a television.
Typically, expenses for rent are incurred for private or domestic purposes and are not deductible. The Applicant made no allowance for the fact that during the 2014 income years he was only physically at home for about three months. His only explanation for apportioning the rent on the basis of 40% was that most of the time he was at home, he was working.
This is not a case like Swinford v Federal Commissioner of Taxation [1984] 3 NSWLR 118, where a separate room was used for the purpose of producing assessable income. The Tribunal has taken into account the principles set out in in Handley v Federal Commissioner of Taxation [1981] HCA 16; (1981) 148 CLR 182 (Handley) and Federal Commissioner of Taxation v Forsyth [1981] HCA 15; 1981) 148 CLR 203. Both cases were heard by the same High Court bench and concerned barristers carrying on businesses and claiming deductions in respect of home offices. Both also worked in chambers in the relevant city. The fact that the Applicant had no other place of business does not distinguish his case. The relevant principle was succinctly stated by Wilson J in Handley at 201-202:
The payments for mortgage interest, rates and insurance premiums were of a kind which in the circumstances in this case cannot be apportioned between home and other expenses. They related to the building and/or land as a whole, and are not affected in any way by reason of the fact that the taxpayer performs professional work on the premises. They would remain the same whether or not he worked at home.
In respect of the Applicant’s claim for the costs of electricity, the Commissioner asserted in written closing submissions that “Similarly, the Applicant is not entitled to the costs of running his “home office”” because “His office was not physically separate from the rest of his apartment, so his electricity expenses were not additional to what he would have incurred in any event for personal use”.
The Commissioner referred to Mason J’s findings in Federal Commissioner of Taxation v Faichney [1972] 129 CLR 38 at 44 (Faichney). His Honour found that expenditure of the provision of light and heating for the taxpayer at home while he was pursuing activities from which he derived income, was an allowable deduction. His Honour held that the expense was an “outgoing” within the terms of the relevant provision, and was not an outgoing of a private or domestic nature. However, if the light and heating were provided “not exclusively for the taxpayer’s benefit whilst he is working, but also for the members of his family the expenditure continues to have a private or domestic character”.
In Faichney, the provision of lighting and heating was for a separate purpose-built room in the taxpayer’s home and there was no issue as to the correctness of the amount of each deduction claimed.
The Tribunal does not accept the Commissioner’s submission that a deduction would not be available because the work space is not in a separate room and so the Applicant’s electricity expenses were not additional to what he would have incurred in any event for personal use. The Tribunal does not accept that that approach is consistent with his Honour’s reasoning in Faichney. The difficulty for the Applicant is that he has not provided information to substantiate his claim. He provided no paid invoices, and did not provide comprehensive reliable diary records of the jobs he did at home and how long they took, or that only he was present at the time.
The Applicant claimed deduction of $826 for phone and internet expenses and $540 for mobile expenses in relation to travel expenses. He also claimed under “Other” worked related expenses $65 for telephone, $25 for charger, $30 for mobile charger and $470.40 for mobile and accessories. It is convenient to deal with them together. He said that it was preferable to use a home phone rather than a mobile for interpreting. He said that he had his receipts for his telephone and internet when he filled out his tax return and claimed 60% of actual cost, which was conservative. He provided some Telstra bills for the 2015 income year for a mobile telephone and a “Telstra Max Bundle”. He provided the following for the 2014 income year:
·Three bills for a mobile telephone “Every Day Connect Plan $60” issued on:
o21 April 2014 for $94 (which shows a credit for a previous bill of $38);
oon 20 June 2014 for $139.02.
·Two Telstra bills for “Bundle” relevant to the 2014 income year, issued on:
o26 June 2014 for $657.57 which included “additional charges of $448.75”; and
o26 July 2014 for $1,226.29 which shows that only $138.75 had been paid for the previous bill, $657.78 was outstanding and an additional charge of $99.52 was included. The billing period was 21 June to 20 July 2014.
·One Telstra receipt for an Iphone costing $984, showing only part of the date, “2/14”.
The Applicant’s evidence about the bills was unclear. He first said that his phone and internet were $129 per month, and then $139 a month; and that he bought a phone as part of the plan.
He said that he sometimes has two mobile telephones and two SIM cards because if he is overseas he can lose it, or it can be stolen. He said that when he is on Manus or Nauru, he uses a local number and he was only claiming one. He said that his phone is always used for work.
In relation to the receipt, he said that he bought the Iphone just before going to Manus because some friends said to get another one because they had had theirs stolen. There was no suggestion that he used a phone for interpreting during his IMA deployments
At audit he provided a signed application form for Telstra “Entertainment Super Bundle” at a monthly cost of $120 dated 13 May 2014. He told the Tribunal that he had not proceeded with the purchase.
When asked why he had not produced all his receipts, he said that he could easily obtain them from Telstra.
The evidence is insufficient to satisfy the Tribunal that the claimed expenses for telephone and internet related expenses were incurred in the course of gaining or producing the Applicant’s assessable income.
The evidence does not support a finding that any deduction is available for the other items claimed: printer, ink, paper, office lamp, laptop, stamps and envelopes.
For the reasons set out at paragraphs 88 to 104 above in relation to travel allowance expenses, the Applicant is not entitled to claim deductions for “meal allowance” expenses.
Should the Tribunal exercise the discretion in subdivision 900-H of the ITAA 1997?
The Applicant’s reason for not providing information to substantiate his claims is that his world was turned up-side down when his marriage failed in mid-2013 and he was unable to access his 2013 diary, the computer records and file that he had kept until that time. The Tribunal infers that he was claiming that that upset continued for some time. He also claimed that he lost receipts for the 2014 income year because he moved three times.
That he continued to work diligently doing jobs, on-site jobs and IMA deployments is not consistent with any incapacity to organise his affairs, including tax matters, following his marriage break down.
For the reasons already given, the Tribunal does not accept that he did not have access to his 2013 diary. He has provided selected pages and amended some to show the 2014 calendar year for reasons that have not been explained. The Tribunal found the Applicant’s evidence unreliable. He has provided some documents for irrelevant income years, some that are faded or illegible in part, and others such as an uncompleted contract, that are clearly irrelevant.
The Applicant has not provided a satisfactory explanation for his failure to keep records for the 2014 income year. His evidence was inconsistent. He claimed that he had them when he prepared his tax return and when he prepared the breakdown of deduction for the March 2015 audit.
The Tribunal finds that the Commissioner has advised the Applicant on many occasions what he had to provide to support his claimed deductions but he has simply not put in the effort to obtain the material. While doing so is time-consuming and perhaps tedious, if a taxpayer wants to claim deductions, they have to make the effort.
His evidence about keeping or throwing out receipts when he prepared his tax returns was inconsistent.
The evidence before the Tribunal does not satisfy the Tribunal that the Applicant incurred the expenses in the amounts claimed or that he is entitled to the amounts claimed, other than those specified in the above reasons.
There is no suggestion that it would have been reasonable for the Applicant to expect that substantiation would not be required at the time of lodging his tax returns.
The Tribunal is not satisfied that the Applicant took reasonable precautions to prevent the loss or destruction of the written records or has provided a credible explanation for not being able to provide supporting documentation or made any reasonable efforts to obtain substitute documents to support his claim that he had paid them.
For the above reasons, the Tribunal is not satisfied that for the purposes of section 900-205(6) that it was not reasonably possible for the Applicant to obtain a document in substitution for the original evidence supporting his claim for a deduction.
Decision
The Tribunal varies the Objection Decision made by the Respondent on 14 November 2015, by allowing the following deductions in the 2014 income year:
·Car expenses - $226.85; and
·Travel expenses - $298.89.
I certify that the preceding 137 (one hundred and thirty three) paragraphs are a true copy of the reasons for the decision herein of Mrs J C Kelly, Senior Member
............................[sgd]............................................
Associate
Dated: 3 May 2018
Date of hearing: 15 June 2017 Date final submissions received: 26 June 2017 Applicant: In person Counsel for the Respondent: Ms F Shand Solicitors for the Respondent: Ms K Grossi, Australian Taxation Office
Key Legal Topics
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Tax Law
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Administrative Law
Legal Concepts
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Statutory Construction
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Remedies
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Appeal
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