Mfula and Commissioner of Taxation (Taxation) [2021] AATA 3067 (30 August 2021)
Division:TAXATION AND COMMERCIAL DIVISION
File Number: 2019/6286
Re:Nkandu Mfula
APPLICANT
AndCommissioner of Taxation
RESPONDENT
DECISION
Tribunal:Senior Member Linda Kirk
Date:30 August 2021
Place:Sydney
The Reviewable Decision dated 21 August 2019 is affirmed.
... ................SGD.....................................................
Senior Member Linda Kirk
CATCHWORDS
TAXATION – Applicant’s income and deductions claimed as locum medical doctor and assistant surgeon - whether claims for work-related car expenses are deductable -whether other work-related expenses are deductable – whether shortfall interest charge be remitted in whole or part – whether section 8-1 applicable to car expenses incurred by Applicant - car expenses incurred by Applicant not incurred for gaining or producing assessable income – car expenses incurred by Applicant not necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income – section 25-100 not applicable for any travel undertaken – Applicant has not substantiated claims for other work-related expenses - Tribunal unable to review Respondent’s decision not to remit shortfall interest charge - decision affirmed
LEGISLATION
Income Tax Assessment Act 1997 (Cth)
Taxation Administration Act 1953 (Cth)
CASES
Commissioner of Taxation v Cooper, R.J. [1991] FCA 190
Commissioner of Taxation v Day (2008) 236 CLR 163; [2008] HCA 53
Commissioner of Taxation v Forsyth (Cth) [1981] HCA 15
Commissioner of Taxation v Payne (2001) 202 CLR 93; [2001] HCA 3
Commissioner of Taxation v Toms, A.J. [1989] FCA 153
Federal Commissioner of Taxation v Charlton 84 ATC 4415
Federal Commissioner of Taxation v Smith (1981) 147 CLR 578
Hancox v Commissioner of Taxation [2013] FCA 735
Handley v Commissioner of Taxation (Cth) [1981] HCA 16
Healy v Federal Commissioner of Taxation [2013] AATA 281; (2013) 96 ATR 123
John Holland Group Pty Ltd v Commissioner of Taxation [2015] FCAFC 82
Lunney v Commissioner of Taxation (1958) 100 CLR 478
Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634
Ricketts v Colquhoun [1926] AC 1
Ronpibon Tin NL v Federal Commission of Taxation (1949) 8 ATD 431; 78 CLR 47
Ronpibon Tin NL & Tong Kah Compound NL v Federal Commissioner of Taxation (Cth) (1949) 78 CLR 47; [1949] HCA 15
Spriggs v Federal Commissioner of Taxation (2009) 239 CLR 1; [2009] HCA 22
The Roads and Traffic Authority of New South Wales v Commissioner of Taxation [1993] FCA 445
Walker and Federal Commissioner of Taxation [2017] AATA 324; 2017 ATC 10-449; (2017) 105 ATR 186
SECONDARY MATERIALS
TR 93/309 Income tax: deductions for home office expenses
TR 2004/6 Income tax: substantiation exception for reasonable travel and overtime meal allowance expenses
TD 2015/14 Income tax: what are the reasonable travel and overtime meal allowance expense amounts for the 2015-16 income year
TR 2021/1 Income tax: when are deductions allowed for employees' transport expenses?
TR2021/D1 - Income tax and fringe benefits tax: employees: accommodation and food and drink expenses, travel allowances, and living-away-from-home allowances
REASONS FOR DECISION
Senior Member Linda Kirk
30 August 2021
INTRODUCTION
Mr Nkandu Mfula (‘the Applicant’) worked as a medical doctor in Victoria and New South Wales during the income year ended 30 June 2016 (‘the relevant income year’). He declared in his income tax return (‘ITR’) for the relevant income year a taxable income of $275,264.[1]
[1] Exhibit R2, ST1, p. 381.
On 24 October 2016, the Commissioner of Taxation (‘the Respondent’) issued the Applicant with a Notice of Assessment (‘NOA’) showing taxable income of $275,264.[2]
[2] Exhibit R1, T3, pp. 37-38.
On 16 November 2016, the Respondent issued the Applicant an amended Notice of Assessment, increasing his taxable income by $1,141 from $275,264 to $276,405.[3]
[3] Exhibit R1, T4, p 39, to correct an arithmetic error or an error in calculation. The Applicant did not lodge any objection against this amendment.
On 6 July 2018 the Respondent advised the Applicant by Notice that he would audit his work-related expense claims for the relevant income year.[4]
[4] Exhibit R1, T5, pp. 43-46.
On or about 4 September 2018, the Respondent issued a letter advising the Applicant that he had finalised the audit.[5] The Respondent disallowed:
· Work-related car expenses deduction of $6,600;[6] and
· $42,701 of the deduction claimed for Other work-related expenses (the claim of $43,366 was allowed only to the extent of $665).[7]
[5] Exhibit R1, T15, pp. 144-147.
[6] Exhibit R1, T15, p. 146; ST1, p. 381, Item D1, label A.
[7] Exhibit R1, T15, p. 146; ST1, p. 381, Item D5, label E.
On 10 September 2018, the Respondent amended the Applicant’s Notice of Amended Assessment (‘NOAA’) and increased his taxable income by $49,301 from $276,405 to $325,706.[8]
[8] Exhibit R1, T16, pp. 148-153.
The NOAA imposed shortfall interest charge (‘SIC’) of $1,183.90.[9] The shortfall between the previous amended assessment and this amended assessment (the shortfall amount) was $24,157.49.
[9] Exhibit R1, T16, pp. 148-153.
On 21 January 2019 the Applicant lodged an objection to his amended assessment and SIC.[10] In his objection, the Applicant requested that he be allowed to claim reasonable amounts based on the Respondent’s reasonable rate for meals and incidentals for travel in relation to his employment during the relevant income year. He also requested that he be allowed to claim motor vehicle expenses under business expenses for the relevant income year.
[10] Exhibit R1, T17, pp, 154-180.
On 1 August 2019 the Respondent notified the Applicant that his objection has been disallowed (‘the Reviewable Decision’).[11]
[11] Exhibit R1, T32, p. 344.
On 30 September 2019, the Applicant lodged with the Tribunal an application for review of the Reviewable Decision.[12]
[12] Exhibit R1, T1, pp.1- 23.
The matter was heard by the Tribunal on 30 March 2021. The Applicant attended the hearing by videoconference and was represented. He gave evidence and was cross-examined at the hearing.
The material before the Tribunal consists of:
·Exhibit A1 – Witness Statement of Dr Nkandu Mfula dated 11 March 2021
·Exhibit R1 – T-Documents filed 29 April 2021
·Exhibit R2 – Supplementary T-Documents filed 5 October 2021
The Tribunal has reviewed all the evidence before it and refers to all relevant materials below.
LEGISLATIVE FRAMEWORK
Claims for work-related car expenses
Section 8-1 of the Income Tax Assessment Act 1997 (Cth) (‘ITAA’) states:
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.
…
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.
Section 25-100 of the ITAA allows a deduction for a transport expense to the extent that it is incurred for travel between workplaces provided one of the places to which the taxpayer is travelling between is not a place at which he or she resides. It provides:
Travel between workplaces
When a deduction is allowed
1)If you are an individual, you can deduct a * transport expense to the extent that it is incurred in your * travel between workplaces.
Travel between workplaces
2)Your travel between workplaces is travel directly between 2 places, to the extent that:
a) while you were at the first place, you were:
(i)engaged in activities to gain or produce your assessable income; or
(ii)engaged in activities in the course of carrying on a *business for the purpose of gaining or producing your assessable income; and
(b) the purpose of your travel to the second place was to:
(i) engage in activities to gain or produce your assessable income;
(ii) engage in activities in the course of carrying on a business for the purpose of gaining or producing your assessable income;
and you engaged in those activities while you were at the second place.
3)Travel between 2 places is not travel between workplaces if one of the places you are travelling between is a place at which you reside.
4)Travel between 2 places is not travel between workplaces if, at the time of your travel to the second place:
a) the arrangement under which you gained or produced assessable income at the first place has ceased; or
b) the *business in respect of which you engaged in activities at the first place has ceased.
No deduction for capital expenditure
5)You cannot deduct expenditure under subsection (1) to the extent that the expenditure is capital, or of a capital nature.
A ‘transport expense’ is defined by subsection 995-1(1) as having the meaning given by subsection 900-220(3):
A transport expense is a loss or outgoing to do with transport, including the decline in value of a *depreciating asset used in connection with transport, but not including a loss or outgoing for accommodation or for food or drink, or expenditure incidental to transport.
Division 28 of the ITAA, sets out the rules for working out deductions for car expenses if an individual[13] owns or leases a car or hires a car under a hire purchase agreement.[14] An individual can deduct an amount or amounts for ‘car expenses’[15] worked out using one of two methods,[16] if the individual owned or leased a ‘car’.[17]
[13] Subdivision 28-A, subsection 28-10(1).
[14] Section 28-1.
[15] Defined in section 995-1 as having the meaning given by section 28-13.
[16] Subsection 28-12(2) provides that you must use one of the 2 methods unless an exception applies. If you can’t use either methods, you can’t deduct anything for car expense.
[17] Defined in section 995-1 to mean a *motor vehicle (except a motor cycle or similar vehicle) designed to carry a load of less than 1 tonne and fewer than 9 passengers. Motor vehicle is defined in section 995-1 as meaning any motor-powered road vehicle (including a 4 wheel drive vehicle).
A ‘car expense’ is a loss or outgoing to do with a car.[18] In addition, it includes:
a)a loss or outgoing to do with operating a *car
b)the decline in value of a car.[19]
[18] Defined by subsection 28-13(1). Section 995-1 refers back to this meaning in the subsection
[19] Subsection 28-13(2).
Section 28-14 of subdivision 28-B sets out the rules about choosing a method which best suits a taxpayer’s situation and needs of calculating car expense deductions.[20] The two available methods are:
·the ‘cents per km’ method;[21]
·the ‘log book’ method’.[22]
[20] The subdivision was modernised with effect from the 2016 income year: Tax and Superannuation Laws Amendment (2015 Measures No. 5) Act 2015.
[21] Section 28-25.
[22] Section 28-90.
Choosing one method for all the ‘car expenses’ for the ‘car’ for the income year precludes using the other method for the income year.[23] However, a taxpayer can change their choice for the income year.[24]
[23] Subsection 28-20(1).
[24] Subsection 28-20(2).
Subdivision 28-C sets out how to calculate a taxpayer’s deduction using the ‘cents per kilometre’ method. The taxpayer uses the formula:[25]
Number of *business kilometres x Rate of cents/kilometre determined under
travelled by the *car in the income year subsection (4) for the car for the income year
[25] Subsection 28-25(1).
The taxpayer uses this method for the first 5,000 ‘business kilometres’[26] and discards the kilometres in excess of 5,000.[27]
[26] Defined in section 995-1 as having the meanings given in sections 28-25 and 28-90.
[27] Subsection 28-25(2).
‘Business kilometres’ are kilometres the ‘car’ travelled in the course of:
a)producing a taxpayer’s assessable income; or
b)the taxpayer’s *travel between workplaces.[28]
[28] Subsection 28-25(3).
‘Business’ is defined in section 995-1 to include any profession, trade, employment, vocation or calling, but does not include occupation as an employee.
A taxpayer calculates the number of business kilometres by making a reasonable estimate.[29]
[29] Subsection 28-25(3).
‘Travel between workplaces’ is a term defined in section 995-1 to have the meaning given by section 25-100.[30]
[30] Division 25 was introduced by Act 121 of 1997. By amendment under the Tax Laws Amendment (2004 Measures No. 1) Act 2004, Act 95 of 2004, subsection 25-100(1), provides that if you are an individual you can deduct a *transport expense to the extent that it is incurred in your *travel between workplaces. *Transport expense is defined in section 995-1 to have the meaning given by subsection 900-220(3). It is a loss or outgoing to do with transport, including the decline in value of a *depreciating asset used in connection with transport, but not including a loss or outgoing for accommodation or for food or drink, or expenditure incidental to transport.
The Respondent may by legislative instrument determine rates of cents per kilometre for cars for an income year.[31] In determining a rate, the Respondent must have regard to the average operating costs for the car to be covered by the rate.[32] To use the cents per kilometre method a taxpayer does not need to substantiate the car expenses for the car.[33]
[31] Subsection 28-25(4).
[32] Subsection 28-25(5). The note to the subsection sets out that the examples of operating costs include fixed costs such as registration, insurance and depreciation, and variable costs such as fuel and maintenance.
[33] Ssection 28-35.
Claims for other work-related expenses
Division 900 sets out the substantiation rules for claiming work-related expenses. Subsection 900-30(1) defines ‘work expense’:
A work expense is a loss or outgoing you incur in producing your salary or wages.
To deduct a work expense, it must qualify as a deduction under some provision of the ITAA outside Division 900 and written evidence is required for substantiation.[34]
[34] Subsection 900-15(1).
Subsection 900-115(2) provides that a document must be obtained from the supplier of the goods or services detailing the nature of the expense (or describing the expense), which must set out:
a)the name or business name of the supplier; and
b)the amount of the expense, expressed in the currency in which it was incurred; and
c)the nature of the goods and services; and
d)the day the expense was incurred; and
e)the day it is made out.
Subsection 900-115(3) provides two exceptions to these requirements:
a)If the document does not provide the date on which the expense was incurred, a bank statement or other confirmatory evidence can be used to substantiate when the expense was incurred.[35]
b)If the document does not state the nature of the goods and services, it is permissible for the taxpayer to write this on the document before the tax return is lodged.[36]
[35] Subsection 900-115(3)(a).
[36] Subsection 900-115(3)(b).
The Respondent has the discretion to grant relief from substantiation in certain circumstances,[37] but only if the nature and quality of the evidence substantiating the expense satisfies him that the expense was properly incurred and the taxpayer is entitled to deduct the amount claimed.
[37] Section 900-195.
A taxpayer must also keep travel records if the taxpayer’s expense is for travel that involves the taxpayer being away from their ordinary residence for six or more nights in a row. The travel may be within or outside Australia. Subdivision 900-F details the requirements in relation to travel records.[38]
[38] Section 900-20. Section 900-145 provides that the purpose of a travel record is to show which of the taxpayer’s activities were undertaken in the course of producing a taxpayer’s assessable income, so that the taxpayer’s losses or outgoings, or portions of them, can be attributed to income-producing purposes. Subsection 900-150(1) provides that the taxpayer records an activity by specifying in a diary or similar document (a) the nature of the activity (b) the day and approximate time when it began; (c) how long it lasted; and (d) where the taxpayer engaged in it. Subsection 900-150(2) provides that an activity must be recorded before it ends, or as soon as possible afterwards. Each entry must be in English. Subsection 900-155(1) provides that the taxpayer needs to record an income-producing activity. But if the taxpayer doesn’t, the activity cannot be taken into account in working out the extent to which the taxpayer can deduct an expense the taxpayer incurs for the travel. Subsection-155(2) provides that the taxpayer doesn’t need to record any other kind of activity, although the taxpayer may do so.
Subdivision 900-B sets out that a travel allowance expense amounts to a work expense and is a loss or outgoing a taxpayer incurs for travel that is covered by a ‘travel allowance’. Section 900-30 provides:
Travel allowance expenses included
2)Travel allowance expenses count as * work expenses. A travel allowance expense is a loss or outgoing you incur for travel that is covered by a * travel allowance. The loss or outgoing must:
(a)be for accommodation or for food or drink; or
(b)be incidental to the travel.
3) A travel allowance is an allowance your employer pays or is to pay to you to cover losses or outgoings:
a) that you incur for travel away from your ordinary residence that you undertake in the course of your duties as an employee; and
b) that are losses or outgoings for accommodation or for food or drink, or are incidental to the travel.
The travel may be within or outside Australia.
Subsections 900-30(4) and (5) provide for ‘meal allowance’ expenses.
Meal allowance expenses included
4)Meal allowance expenses count as * work expenses. A meal allowance expense is a loss or outgoing that you incur for food or drink that is covered by a *meal allowance.
(5)A meal allowance is an allowance that your employer pays or is to pay to you as an employee to enable you to buy food or drink. However, an allowance is not a meal allowance if it is a * travel allowance or part of one.
Subsection 900-30(6) excludes a loss or outgoing to do with a motor vehicle from ‘work expense’.
Motor vehicle expenses excluded
6)A loss or outgoing to do with a * motor vehicle is not treated as a * work expense unless it is:
a) a loss or outgoing incurred, or a payment made, in respect of travel outside Australia; or
b) a taxi fare or similar loss or outgoing.
Section 900-35 provides that written evidence of work-related expenses is not required if the total expenses to be deducted do not exceed $300. If the claimed work-related expenses exceed $300, then the taxpayer must be able to substantiate these expenses, and the substantiating evidence must be retained for five years[39].
[39] Section 900-125.
ISSUES FOR DETERMINATION
The issues for determination are:
Whether the Applicant should be allowed deductions in the relevant income year for:
1)Work-related car expenses of $6,600;
2)Other work-related expenses of $41,793, being meal expenses of $34,249 and incidental expenses of $7,544; and
3)Whether the SIC be remitted in whole or in part.
EVIDENCE BEFORE THE TRIBUNAL
Income and deductions claimed
In his ITR for the relevant income year, the Applicant described his main salary and wage occupation as ‘Medical Officer Resident’ and declared income from that source totalling $325,208 from:
·NSW Health Service - Far West Local Health District of $24,220;[40]
·NSW Health Service - Murrumbidgee Local Health District of $232,031;[41]
·NSW Health Service - Southern NSW Local Health District of $33,277;[42]
·NSW Health Service - Western NSW Local Health District of $19,857;[43] and
·NSW Health Service - Hunter New England Local Health District of $15,823.[44]
[40] Exhibit R2, ST1, p. 381, ABN: 60189669937.
[41] Exhibit R2, ST1, p. 381, ABN: 69569988484.
[42] Exhibit R2, ST1, pdf p. 381, ABN: 39210579280; T8, p. 58.
[43] Exhibit R2, ST1, pdf p. 381, ABN: 98455351944.
[44] Exhibit R2, ST1, pdf p. 381, ABN: 27645237701; T9, p. 80.
The Applicant claimed deductions of:
·$6,600[45] for Work-related car expenses on a cents per kilometre basis; and
·$43,366[46] for Other work-related expenses
[45] Exhibit R2, ST1, p. 381, Item D1, label A.
[46] Exhibit R2, ST1, p. 381, Item D5, label E.
Taking into consideration the deductions and expenses, the Applicant reported a taxable income of $275,264 in the relevant income year.[47]
[47] That is total salary and wage income of $325,230, plus bank interest of $22, less total work-related expenses of $49,966. Dr Mfula declared a deduction for a loss carried forward of $30,261 in non-primary production losses, from earlier years, which he also deferred, see ST1, p. 381 at Label R. It is not in dispute in this proceeding.
The Applicant returned other non-primary production business income of $13,769 as a Medical Service Specialist sole trader.[48] He claimed against that income, depreciation expenses of $32,945 and other business expenses of $11,199, totalling $44,144,[49] giving a net business loss of $30,375[50]. He deferred claiming that loss to a later year.[51]
[48] Exhibit R2, ST1, p. 383.
[49] Exhibit R2, ST1, p. 383. In response to a Question from the Commissioner’s objection officer Dr Mfula advised the amounts included $3,698 for ‘Airport [car] parking costs when going for locum from 27 July…’ see T27, p. 280, at question 2.
[50] Exhibit R2, ST1, p 384.
[51] Exhibit R2, ST1, p. 383.
Locum Medical Doctor Assignments
In his statement dated 11 March 2021, the Applicant wrote:
‘In 2016 I worked as a Locum medical under the remit and employ of Global Medics. Global Medics as a registered agent under a remit and employ program. They engage medical professionals for locum work as required by different hospitals across Australia. The need for medical doctors is increasing in Australia. Global Medics finds work wherever the need for local medical doctors arises.
Under this arrangement, I would travel from Melbourne where my family and I reside. Locum jobs can be difficult to arrange and thus I worked at various hospitals in New South Wales. One of the main hospitals I worked at during the year was Wagga Wagga Base Hospital.
…
I do not understand why using my cars for business is not tax deductible. During locum duties, my accommodation and travel were mostly paid for but food was covered by myself with the advice from my locum employer to not spend more than the ATO threshold on food. I have kept a diary of each locum assignment and on this basis submitted to my tax accountant a tax rebate in my income tax for the financial year 2016. I believe I am entitled to the motor vehicle expenses deduction and working away from home food deduction as completed on my 2016 income tax.
…’
Global Medics (‘the agency’) negotiates the pay rate, allowances and conditions of work with the locum doctor who is posted out for locum medical assignments.[52] The agency and the doctor must comply with policies of NSW Medical Locum Agency Requirements and the Policy Directive Employment and Management of Local Medical Officers by NSW Public Health Organisations.[53] The Policy Directive provides the following:
‘Locum Medical Officer: a non-specialist medical practitioner introduced to a Public Health Organisation by a Medical Locum Agency. A Locum Medical Officer is employed by the Public Health Organisation in a temporary capacity to provide cover for an absent member of the permanent non-specialist medical staff or when shifts are unable to be filled by overtime or casual medical employees, and is not a current member of the Public Health Organisation’s Casual Medical Pool.
Medical Locum Agency: a medical recruitment agency listed on the NSW Register of Medical Locum Agencies, having been certified against the standards and conditions set out in the Medical Locum Agency Requirements.
Medical Workforce Unit: the unit with responsibility for the employment of the medical workforce within a Public Health Organisation. The Medical Workforce Unit’s role includes liaison between Clinical Departments and Medical Locum Agencies in the employment and management of Locum Medical Officer
Placement: the temporary role in which a Locum Medical Officer is placed by a Medical Locum Agency in a Clinical Department for up to 13 weeks.
Public Health Organisation: as defined by Section 7 of the Health Services Act 1997 (NSW), “a local health network, a statutory health corporation or an affiliated health organisation in respect of its recognised establishments and services”. LHDs, Specialty Networks and Public Hospitals are Public Health Organisations of most relevance to this policy.’
[52] Applicant’s Summary of Submissions dated 8 April 2021, [3].
[53] Applicant’s Summary of Submissions dated 8 April 2021, [2].
The Locum Medical Officer is enrolled through the Public Health Organisation’s (PHO) payroll. The Medical Workforce Unit must verify the hours worked and ensure that remuneration as well as costs such as the Medical Locum Agency fees, travel and accommodation are met:[54]
‘Administrative arrangements for medical workforce engagement vary among Public Health Organisations. However, responsibility for the employment and management of Locum Medical Officers lies with a Medical Workforce/Locum Manager, in a unit central to a facility, LHD or Specialty Network, most commonly titled the Medical Workforce Unit.[55]
The Medical Workforce Unit is responsible for obtaining information from the Locum Medical Officer or Medical Locum Agency for the remuneration of the Locum Medical Officer through the Public Health Organisation’s payroll.[56]
The Medical Workforce Unit must verify the hours worked and ensure that remuneration, as well as costs such as Medical Locum Agency fees, travel and accommodation are met.’[57]
[54] Applicant’s Summary of Submissions dated 8 April 2021,[5].
[55] Applicant’s Employment Arrangement filed 23 February 2021, para 3.
[56] Applicant’s Employment Arrangement filed 23 February 2021, para 3.7.
[57] Applicant’s Employment Arrangement filed 23 February 2021, para 3.8.
As part of the audit process, the Respondent wrote to the Local Health Districts (LHD) listed above in paragraph [40] to obtain further information about the Applicant’s work for them. The following relevant information was supplied by each LHD.
Southern NSW Local Health District
The Applicant was booked by Global Medics for locum work with the Southern NSW LHD at the following hospitals on the following dates:
·Bega District Hospital for the period 28 to 29 September 2015;[58]
·Moruya District Hospital for the period 7 to 11 January 2016;[59]
·South East Regional Hospital for the period from 27 to 30 March 2016;[60] and
·Moruya District Hospital for 14 to 16 May 2016.[61]
[58] From Jade Parsons to Sue Closter, presumably of NSW Government, Health Southern NSW Local Health District; Exhibit R1, T8, pp. 60-61.
[59] From Sarah Hunter to Jody Lindquist, presumably of NSW Government, Health Southern NSW Local Health District; Exhibit R1, T8, p. 64.
[60] From Jade Parsons to Sue Closter, presumably of NSW Government, Health Southern NSW Local Health District; Exhibit R1, T8, p. 67.
[61] From Sarah Hunter to Jody Lindquist, presumably of NSW Government, Health Southern NSW Local Health District; Exhibit R1, T8, p. 70.
The Applicant was offered by the Southern NSW LHD the position of Locum Medical Officer at the following hospitals on the following dates:
·Bega Hospital for the period from 28 September to 20 December 2016;[62]
·Batemans Bay and Moruya Hospital for the period from 7 to 28 January 2016;[63]
·South East Regional Hospital for the period from 27 to 17 June 2016;[64] and
·Moruya and Batemans Bay Hospitals for the period from 14 May to 30 July 2016.[65]
[62] Exhibit R1, T8, p. 59 employee number 40046785 at hourly rate of $145- no entitlement to annual leave, sick leave or other leave payments.
[63] Exhibit R1, T8, pp. 62-63 employee number 40046785, at hourly rate of $145- no entitlement to annual leave, sick leave or other leave payments.
[64] Exhibit R1, T8, pp. 65-66. -employee number 40046785 at hourly rate of $145- no entitlement to annual leave, sick leave or other leave payments.
[65] Exhibit R1, T8, pp. 68-69 employee number 40046785 at hourly rate of $145- no entitlement to annual leave, sick leave or other leave payments.
The NSW Health Service – Southern NSW LHD, provided a PAYG statement for the Applicant for the relevant year with gross payments of $33,277.[66]
[66] Exhibit R1, T8, p. 58, ABN: 39210579280. Showing the Applicant was employed for the relevant year with gross payments of $33,277.
NSW Government’s Health Southern NSW LHD confirmed that the Applicant’s salary did not include meal allowances, and if any meal allowances were provided, payment was not made through the payroll and separate advice would need to be obtained from its finance unit.[67]
[67] Exhibit R1, T13, p. 137.
Hunter New England Local Health District
Hunter New England LHD supplied the Respondent with a copy of PAYG statement for the Applicant for the period 31 August 2015 to 30 June 2016 with gross payments of $15,823.[68] Also supplied was a copy of the Local Medical Officer Engagement Agreement for the period from 31 August 2015, signed by the Applicant on 20 August 2015.[69]
[68] Exhibit R1, T9, p. 80.
[69] Exhibit R1, T9, pp. 81-84.
Hunter New England LHD confirmed that the Applicant was not paid any allowances nor was a motor vehicle required, and he was not reimbursed for any expenses. His accommodation was provided at no expense to him.[70]
[70] Exhibit R1, T9, pp. 71- 84 from Ms Jessica Moore on behalf of NSW Health, Hunter New England Local Health District.
Murrumbidgee Local Health District
Murrumbidgee LHD informed the Respondent that the Applicant was contracted as follows[71]:
[71] Exhibit R1, T 10, p 85.
Name of Hospital
Period/s employed
Wagga Wagga Base Hospital 4 July to 3 October 2015 Griffith Base Hospital 10 July to 9 October 2015 Wagga Wagga Base Hospital 4 October 2015 to 3 January 2015 Wagga Wagga Base Hospital 5 January to 4 April 2016 Griffith Base Hospital 1 February to 30 April 2016 Wagga Wagga Base Hospital 6 April to 5 July 2016
It provided Medical Workforce Unit letters to the Applicant with offers of employment at
·Griffith Base Hospital from 10 July to 9 October 2015;[72]
·Wagga Wagga Base Hospital from 4 July to 3 October 2015;[73]
·Wagga Wagga Base Hospital from 4 October 2015 to 3 January 2016;[74]
·Wagga Wagga Base Hospital from 5 January to 4 April 2016;[75]
·Griffith Base Hospital from 1 February to 30 April 2016;[76] and
·Wagga Wagga Base Hospital from 6 April to 5 July 2016.[77]
[72] Exhibit R1, T10, pp. 91-92.
[73] Exhibit R1, T10, pp. 89-90.
[74] Exhibit R1, T10, pp. 93-94.
[75] Exhibit R1, T10, pp. 99-100.
[76] Exhibit R1, T10, pp. 95-96.
[77] Exhibit R1, T10, pp. 97-98.
It also provided details of flights booked for the Applicant and confirmed that these were paid for by the travel office.[78] It further informed the Respondent that no allowances were paid to him, he was not required to use his vehicle for work purposes, and that he was required to pay for his own meals.[79]
[78] Exhibit R2, ST8, p. 433.
[79] Exhibit R1, T10, p. 101.
The Applicant’s flight details booked by the FCM Travel Solutions for flights from Melbourne to Wagga Wagga on 6 May 2016 and returning on 9 May 2016 notes the following conditions in relation to the Applicant’s accommodation expenses:[80]
‘Murrumbidgee Local Health District advises ALL CHARGES except alcohol, minibar, phone calls, in house movies and laundry will be charged back to FCM.
Meal limits do apply and cannot exceed the following daily allowances set by the Australian Taxation Office (ATO):
Breakfast $25.90 - Lunch $29.15 - Dinner $49.65
Anything over this amount you must settle direct with the hotel.
Accommodation and meals will only be covered for the name on the accommodation booking and not for additional guests or family.
FCM on behalf of NSW Health may at any time request the hotel to forward signed dockets to support any charges appearing on the invoice and being paid by FCM. Any Traveller not permitting disclosure of this information must pay the hotel directly. FCM will not accept unsupported charges.’[81]
[80] Exhibit R2, ST7, 419.
[81] Exhibit R2, ST7, 416-417.
Western NSW Local Health District
Western NSW LHD provided a copy of its payment summary for the Applicant for the relevant period.[82] It also provided various emails confirming locum bookings through Global Medics for the following periods:
·25 to 26 July 2015;[83]
·10 to 12 February 2016;[84] and
·15 to 16 June 2016.[85]
[82] Exhibit R1, T11, p 108. Showing gross payments of $19,857.
[83] From Jade Parsons to Robyn Taylor, presumably of NSW Health, (Western NSW LHD); Exhibit R1, T11, pp. 117-118.
[84] From Jade Parsons to Robyn Taylor, presumably of NSW Health, (Western NSW LHD); Exhibit R1, T11, pp. 115-116.
[85] From Sarah Hunter to Robyn Taylor, presumably of NSW Health, (Western NSW LHD); Exhibit R1, T11, p. 111-112.
It further provided various letters setting out Temporary Offers of Employment from Western NSW LHD to the Applicant as follows:
·an offer of the position of ED Locum at Dubbo Health Service for the period 8 to 9 August 2015;[86] and
·an offer of the position of ED Locum at Dubbo Health Service for the period 15 to 16 June 2016.[87]
[86] Exhibit R1, T11, pp. 109-110.
[87] Exhibit R1, T11, pp.113-114.
Assistant Surgeon
The Applicant worked as a sole trader as an assistant surgeon in the relevant income year. The Surgeon would book the surgery work for the Applicant and he would charge the Surgeon. The Applicant provided a computer printout from ‘surgeononline’ showing 49 invoices had been submitted in the months of July to October 2015 totalling $13,769.[88]
[88] Exhibit R1, T20, p. 187.
Month Service Provided
Number of Invoices Submitted
$ Amount Submitted
July 2015
17
4,200.95
August 2015
18
6,188.30
September 2015
7
2,002.45
October 2015
7
1,377.70
2015-2016 total invoice submissions
49
13,769.40
The Applicant’s evidence to the Tribunal was that he did some work from home when he used his computer to search for more businesses, medical contracts from Global Medics, and sent emails to the contractors to get more contracts. His home was his primary place of business. After he finished his work as a sole trader, he drove home to prepare his hours and send bills to the contractor. The Applicant used his motor vehicles to run the business of surgical assistance.[89]
[89] Transcript, p. 83.
Work-related car expenses
In his objection and further information, the Applicant relevantly stated:
·he worked on ABN as an assistant surgeon in the relevant year.[90] The Applicant would travel in his own car to the surgery or from the surgery to another workplace;[91]
·he also drove his car from work in Victoria straight to the airport to take on Locum jobs. He said the kilometres varied and that he had estimated [using] the ATO approved cents per kilometre [method] in preparing the claim for car usage due to the numbers of kilometres travelled [while] on business and Locum duties;[92]
·he used two vehicles which both were registered in his name;[93]
·because he also used the cars during and in between the other jobs; the motor vehicle was claimed in [Item] D1 instead of claiming two lots of Motor vehicle expenses on business and on D1;[94] and
·the expenses of $6,600 are genuine and should be allowed and transferred to business expenses.[95]
[90] Exhibit R1, T17, p. 158 at point i.
[91] Exhibit R1, T20, p 185.
[92] Exhibit R1, T20, pp. 185-186.
[93] Exhibit R1, T17, p. 158 at point ii.
[94] Exhibit R1, T17, p. 158 at point iii.
[95] Exhibit R1, T17, p. 158 at point v.
The Applicant supplied with his objection a copy of a Consumer Loan Contract dated 3 May 2014 for a loan for the purchase of a Mercedes Benz,[96] and an apparent computer record of a registration renewal notice for a Subaru WRX with an expiry date of 8 August 2018.[97] He also provided:
·a depreciation schedule showing that a Mercedes Benz ML350 was acquired on 5 May 2014 and a Subaru WRX was acquired on 21 August 2014;[98]
·a transaction history for Debits to a NAB account for Melbourne Airport in relation to the 2017 year;[99] and
·a computer printout for purported airport parking at Melbourne airport in an amount of $3,698[100]. It shows one trip from the airport on 1 July 2015 and 30 return trips to and from the airport (between 28 July 2015 to 5 May 2016). It does not show where the journey to the airport commenced nor where the journey from the airport finished (or any breaks in those journeys).[101]
[96] Exhibit R1, T17, p. 165.
[97] Exhibit R1, T17, p. 180.
[98] Exhibit R1, T21, p. 197.
[99] Exhibit R1, T21, p. 203-204.
[100] Exhibit R1, T 21, p. 199.
[101] According to Google maps the journey from the Applicant’s Melbourne home to the Tullamarine Airport is between 57.8 and 65.8 kilometres depending on whether you went via Bell Street at 57.8k, Carlton and Kew East at 60.5k and the M1, Monash Freeway at 65.8k. As an average then of 61.8k and 61 trips either to and or from the Airport the most the Applicant may have travelled is 3,769.8kms.
In his oral evidence at the hearing, the Applicant told the Tribunal that he drove his car to New South Wales for a locum appointment ‘on a few occasions’ or ‘one to five times or so’.[102] He kept a record of the odometer reading on both cars at the beginning and end of the period, but he cannot recall if he gave this to his accountant. He used the Subaru WRX sixty percent of the time and the Mercedes Benz for the other periods.[103] He said he was not sure of the kilometres he travelled from home to his assistant surgeon duties and back.[104] When he drove to the airport from home and back again he was not reimbursed for any of his car expenses nor for the parking. In relation to the 5,000 kilometres that he claimed for motor vehicle expenses he left it to his accountant to work it out based on the information he provided to him of the days he was away and the days he used the car.[105]
[102] Transcript, p. 7.
[103] Transcript, p. 23.
[104] Transcript, p. 23.
[105] Transcript, p. 22.
Other work-related expenses
In his objection, the Applicant provided the following information:
·his employer provides accommodation and flight ticket on each overnight assignment outside the state;[106]
·his employer paid meal allowance which was negotiated to be paid inclusive of the hourly rate of the taxpayer. He was advised not to exceed ATO Commissioner daily reasonable meal allowable rate. This was supported with a letter that the hourly rate is inclusive of the meal allowance;[107]
·he kept a diary of each overnight stay;[108] and
·he used ATO Commissioner’s reasonable meal allowance rate to work out his meal allowance and incidental cost.[109]
[106] Exhibit R1, T17, p. 157 at point 3 (sic).
[107] Exhibit R1, T17, p. 157 at point 4, referring to Exhibit R1, T17, p. 162.
[108] Exhibit R1, T17, p. 157 at point 5. However, while there was no document ‘5.1’ provided with the objection, in a later response on 19 July 2019 by the accountant, see T28, p. 300, he said ‘Our client[s] diaries are bookings made through the locum jobs which the dates are documented on the excel spreadsheet. The spreadsheet details the days he spent on each assignment and working arrangements. This also can be crosschecked with the employer.
On 15 June 2019 further information was provided in relation to the Meal and incidental expenses. The Applicant ‘kept [a] substantial diary where meal[s] have not been provided and it was not a made up idea but a realistic occurrence. The calculation of meal allowance was necessary since this was negotiated during contract with the employer to round his payment up with meal allowance…I have attached the written evidence of proper record kept… to support the deductible expense; Exhibit R1, T28, p. 304.
[109] Exhibit R1, T17, p.157 at point 4.
In his oral evidence at the hearing, the Applicant said that he kept receipts for the amounts he spent on food and drink but they had faded, and therefore he and his accountant relied on bank statements to come up with the calculation for the amounts deducted. He understood that there was a threshold he could claim for food and drink, and as long as he was ‘under that threshold’ he did ‘not need to provide receipts’.[110]
SUBMISSIONS
[110] Transcript, p. 24.
Applicant
The Applicant contends that he was employed by Global Medics (a medical locum agency), registered in NSW to transact business with NSW PHOs by way of supplying medical locum officers.[111] The terms and conditions of the employment agreements with his employer whilst travelling interstate or to regional areas include:
·Global Medics (the employer) or its delegate (FCM Travel Solutions) will pay the Applicant for his accommodation and flight travel costs of each assignment.[112]
·The meal allowance for each assignment is negotiated to be paid along with the hourly rate of the Applicant by the employer.[113] The Applicant was advised by the employer’s delegate that ‘Meal limits do apply and cannot exceed the following maximum daily allowances’ as determined by the ATO for reasonable limits for meal and travelling allowances per location/centre each financial year.[114]
·It was on the basis of TD 2015/14; the agreement the Applicant signed with the employer; and the instruction given in the documentation given to the Applicant by the employer’s delegate that the Applicant claimed meal and incidental expenses.[115]
[111] Applicant’s Summary of Submissions dated 8 April 2021, [1].
[112] Applicant’s Summary of Submissions dated 8 April 2021, [7].
[113] Applicant’s Statement of Material Facts dated 14 August 2020, [3]; Applicant’s Summary of Submissions dated 8 April 2021, [7] and p. 29.]
[114] Applicant’s Statement of Material Facts dated 14 August 2020, [4].
[115] Applicant’s Statement of Material Facts dated 14 August, [5].
Car expenses
Using the cents per kilometre method the Applicant can claim up to 5,000 business kilometres per car per year. The Applicant used two cars for running his sole trading business and travelled for work purposes in the year. The Applicant also recorded the business income in the year in the review. The cents per kilometre in the relevant income year is 66 cents: Car 1 – 5,000 x 66 = $3,300; Car 2 – 5,000 x 66 = $3,300 - Total car expenses = $6,600.[116]
[116] Applicant’s Summary of Submissions dated 8 April 2021, [49].
Meal and incidental costs
The Applicant worked away from home providing locum medical services for 247 days in the income year. He kept a record of days worked away from home.[117] TD 2015/14 must be read with TR 2004/6 which provides that where the amount claimed is no more than the reasonable amount, substantiation of the claim with written evidence is not required. The calculation of reasonable meal allowance was worked out as 146.20 x 247 days = $36,111.40.[118] The Applicant’s reasonable incidental costs was calculated as 26.80 x 247 days = $6,619.60.[119]
Respondent
[117] Applicant’s Summary of Submissions dated 8 April 2021, [8], [11].
[118] Applicant’s Summary of Submissions dated 8 April 2021, [9].
[119] Applicant’s Summary of Submissions dated 8 April 2021, [10].
Applicant’s employment
The Respondent contends that the Applicant was not employed by Global Medics. References in the policy document point to him being employed by the various LHD.[120] The Respondent relies on clause 2.2 which states:
‘A locum medical officer engaged by public health organisation is an employee of the public health organisation for the duration of the term of employment with that public health organisation.’[121]
[120] Respondent’s Further Outline of Submissions Post-Hearing dated 14 April 2021, [6]. Document 1b: ‘Employment and Management of Locum Medical Officers [LMOs] by NSW Public Health Organisations’, definition of ‘Medical Workforce Unit’ and ‘Public Health Organisation’ (PHO) p. 3 of 64 and ‘Remuneration of LMOs’ clause 3.7 on page 9 of 64, to reference two examples.
[121] Exhibit R2, ST13, p. 454.
Work-related car expenses
The Respondent contends the travel undertaken by the Applicant was not on work but to work or business, and private in nature.[122] It was travel by car either to or from his home in Melbourne:
·to or from an assignment as an assistant surgeon (business); or
·to or from the Melbourne airport for a flight to or after a flight from his employment; or
·directly to a regional hospital in New South Wales:
oas a Locum Medical Officer; or
oas an ED Locum, as the case may be.[123]
[122] Respondent’s SFIC dated 5 October 2020, [83]; Respondent’s Outline of Submissions dated 22 February 2021, [90].
[123] Respondent’s SFIC dated 5 October 2020 [84]; Respondent’s Outline of Submissions dated 22 February 2021, [91].
When the Applicant travelled from his home in Melbourne to a hospital/PHO in NSW he was travelling to work. His duties did not commence until he arrived at the relevant hospital/PHO. Accordingly, any car expenses incurred in travelling from his home to the relevant hospitals or to the Melbourne Airport, and return, were not incurred in the course of gaining or producing his assessable income. They are a prerequisite to earning his income and are private in nature. Therefore, they are not deductible under section 8-1 of the ITAA.[124]
[124] Respondent’s Further Outline of Submissions Post-Hearing dated 14 April 2021, [8].
It is not enough that the Applicant estimated his claim for work-related car expenses using the cents per kilometre method. He needs to show a reasonable basis for claiming that he travelled over 5,000 kilometres on deductible travel in each car.[125] The Applicant has not set out detail of the number of times and the distance travelled in his car going to and from Wagga Wagga.[126]
[125] Respondent’s SFIC dated 5 October 2020, [85]-[87]; Respondent’s Outline of Submissions dated 22 February 2021, [92]-[93].
[126] Respondent’s Outline of Submissions dated 22 February 2021, [94].
The Applicant’s car expenses must be deductible either under section 8-1 or section 25-100. The decision in Lunney v Commissioner of Taxation (1958) 100 CLR 478 (‘Lunney’) stands for the proposition that the costs of travel to and from a taxpayer’s home and his work or business is not deductible.[127] The expenses the Applicant incurred were in order to put him in the position to earn his assessable income and were a prerequisite to him earning his assessable income.[128] His activities in relation to attending the hospitals of the health service providers was not itinerant meaning he does not fit within an exception in Lunney.[129]
[127] Respondent’s Outline of Submissions dated 22 February 2021, [95].
[128] Respondent’s Outline of Submissions dated 22 February 2021, [96].
[129] Respondent’s Outline of Submissions dated 22 February 2021, [98].
The car expenses incurred by the Applicant when he travelled from his home (which he contends is where he ran his business from) to the respective LHD hospitals in NSW are specifically denied deductibility by section 25-100. The decision in Commissioner of Taxation v Payne (‘Payne’)[130] is authority for denying claims for car expenses incurred in travelling between two separate income producing activities. Section 25-100 was introduced to overcome the decision in Payne, but still disallows the expenses where one of the places the taxpayer is carrying out the income producing activities is their home.[131]
[130] Commissioner of Taxation v Payne (2001) 202 CLR 93; [2001] HCA 3 (‘Payne’).
[131] Respondent’s Further Outline of Submissions Post-Hearing dated 14 April 2021, [11].
The Applicant has not discharged his onus of demonstrating whether he ran his business from home. If he did not, then the car expenses incurred when he travelled from his home to perform work as an assistant surgeon are private home to work travel.[132] TR 93/309 indicates why the Applicant is not carrying on a business from home.[133]
[132] Respondent’s Further Outline of Submissions Post-Hearing dated 14 April 2021, [12].
[133] TR 93/309 Income tax: deductions for home office expenses, relevantly states:
4. Whether an area of the home has the character of a place of business is a question of fact which depends on the particular circumstances of each case. This is likely to be the case where a part of a residence is set aside exclusively for the carrying on of a business by a self employed person (e.g., a doctor's surgery). Another example is where part of the home is used as a taxpayer's sole base of operations for income producing activities (e.g., where no other work location is provided to an employee by an employer).
5. The following factors, none of which is necessarily conclusive on its own, may indicate whether or not an area set aside has the character of a "place of business":
• the area is clearly identifiable as a place of business;
• the area is not readily suitable or adaptable for use for private or domestic purposes in association with the home generally;
• the area is used exclusively or almost exclusively for carrying on a business; or
• the area is used regularly for visits of clients or customers.
Other work-related expenses
The Applicant acknowledges that a meal allowance was rolled into his wage.[134] The Respondent contends nevertheless that the Applicant’s claimed meal and incidental expenses claimed are private in nature and not allowable under section 8-1.[135]
[134] Applicant’s Amended Statement of Facts dated 14 September 2020 at p. 4, 3ii. In doing so he referred to, effectively, Exhibit R2, ST4, p. 400.
[135] Respondent’s SFIC dated 5 October 2020, [89].
As the Applicant was employed by the respective LHD, he was not travelling away from his home overnight in the course of performing his employment duties. Any expenditure the Applicant incurred on food and drink and incidentals was incurred because of the Applicant’s personal circumstances i.e. he lived a long way from where he works. They are private expenses and are not deductible under section 8-1.[136]
[136] Respondent’s SFIC dated 5 October 2020, [89].
In the event the Tribunal was to find the Applicant was entitled to a deduction for food and drink and incidental expenses while he was working at the respective LHD hospitals in NSW, the Respondent contends the Applicant has not substantiated his expenses in accordance with Division 900. An expense must be deductible under a provision outside Division 900. The relevant provision in this case is section 8-1. Under section 8-1, all expenses for food and drink and incidentals must be incurred in the course of gaining or producing the Applicant’s assessable income, and those expenses cannot be private or domestic in nature.[137]
[137] Respondent’s SFIC dated 5 October 2020, [70].
The Applicant’s bank statements do not provide the details that are necessary under section 900-115. Further, they do not support the Applicant’s claim for the reasonable amount. No amount on the bank statement summary provided is for incidental expenses and the amounts shown for food and drink, are in most cases, substantially less than the reasonable amount that has been claimed. Accordingly, the Applicant has not demonstrated that he incurred incidental expenses of $7,544 or food and drink expenses of $34,249.
The reasonable amounts published by the Respondent are only relevant for determining whether the substantiation exceptions apply. They are not an automatic deduction. The substantiation for travel allowance expenses (accommodation, food and drink and losses or outgoings incidental to the overnight travel) will only apply if the Applicant received a travel allowance to cover those expenses (section 900-50, subsection 900-30(2) and subsection 900-30(3)).[138]
[138] Respondent’s SFIC dated 5 October 2020, [72] – [73].
In the event that the Tribunal were to find that the Applicant was entitled to rely on the exception from substantiation in section 900-50, the Applicant has not demonstrated that he incurred the amount of $34,249 for food and drink and $7,544 for incidentals while he was working in NSW. This is still necessary to claim a deduction under section 8-1. The only evidence provided to date is bank statements, which without other documents, do not substantiate what he actually purchased on meals and incidentals. The Respondent has applied TR 2004/6 and TD 2015/14 to the Applicant’s situation correctly.[139]
[139] Respondent’s SFIC dated 5 October 2020, [90] – [94].
The Applicant has not discharged his onus of demonstrating that his employer (the respective NSW Health LHD) paid him an allowance to cover these costs. Accordingly, even if he was entitled to a deduction for his food and drink and incidental expenses, he would not be able to rely on the exception from substantiation.[140]
[140] Respondent’s SFIC dated 5 October 2020, [94].
In the alternative, if the Tribunal should find against the Respondent on this point, he contends the Applicant is unable to merely rely on the Respondent’s published reasonable rates as set out in TD 2015/14.[141] The Respondent provides in that determination the amounts he considers are reasonable claims for domestic travel allowance expenses- accommodation, food and drink, and incidentals that are covered by the allowance.[142]
[141] TD 2015/14 Income tax: what are the reasonable travel and overtime meal allowance expense amounts for the 2015-16 income year; Respondent’s SFIC dated 5 October 2020, [90].
[142] TD 2015/14 at [1(b)]; Respondent’s SFIC dated 5 October 2020, [91].
The Respondent also contends that the determination should be read with Taxation Ruling TR 2004/6 Income tax: substantiation exception for reasonable travel and overtime meal allowance expenses which explains the substantiation exception.[143] Expenses claimed must have been incurred and before a deduction can be claimed the allowance must be paid.[144] The Respondent provided in TR 2004/6 that his exception to the requirement to substantiate work related expenses for food and drink and incidentals does not apply in some cases. He considers that an amount for travel expenses that has been folded-in as part of normal salary/wages, for example under a workplace agreement, is not considered to be an allowance. If an allowance has been folded-in as part of normal salary/wages the exception from substantiation contained in TR 2004/6 does not apply. The necessary written evidence must be kept to support claims for deductible expenses incurred.[145] In this case, the Applicant was not paid a separate travel allowance nor a meal allowance. Therefore, he is required to produce documents with the necessary detail to substantiate the claim.[146]
[143] TD 2015/14 at [2]; Respondent’s SFIC dated 5 October 2020, [92].
[144] Respondent’s SFIC dated 5 October 2020, [93].
[145] TR 2004/6 at [59]; Respondent’s SFIC dated 5 October 2020, [94].
[146] Respondent’s SFIC dated 5 October 2020, [95]-[96].
The discretion to grant relief from substantiation in certain circumstances should not be exercised because the Respondent is not satisfied Applicant is entitled to deduct the amount he claimed.[147]
[147] Respondent’s SFIC dated 5 October 2020, [97].
Again, if the Tribunal is against the Respondent on that point the most that the Applicant could be taken to have incurred on food and drink is $1,735.13.[148]
[148] Respondent’s SFIC dated 5 October 2020, [98].
CONSIDERATION AND REASONS
Under section 14ZZK of the Taxation Administration Act 1953 (Cth) (‘TAA’), the Applicant bears the onus to prove that the Respondent was wrong or excessive in his assessment with respect to the work-related deductions claimed by the Applicant in his ITR for the relevant income year. The Applicant must establish that the amount of tax levied under the assessment exceeds his substantive liability under the taxation legislation.
1) Work-related car expenses
In order to claim a deduction for work-related car expenses, the Applicant must satisfy either:
a) section 8-1 ITAA - the general deduction provision; or
b) section 25-100 ITAA - travel between workplaces.
a) Does section 8-1 apply to the car expenses incurred by the Applicant?
i) Were the car expenses incurred in gaining or producing assessable income under subsection 8-1(1)(a)?
Subsection 8-1(1)(a) enquires whether the expenses were ‘incurred in gaining or producing your assessable income’. Determining this is a question of fact.[149] It is well established that the term ‘incurred in gaining or producing assessable income’ is understood as meaning incurred ‘in the course of gaining or producing’ assessable income.[150] It does not mean ‘in connection with’.[151] For an expense to be ‘incurred in gaining or producing’ assessable income, it is both sufficient and necessary that the occasion of the expense be found in whatever is productive of assessable income.[152] In Payne the High Court stated the question that requires consideration:
‘… is the occasion of the outgoing found in whatever is productive of actual or expected income?’[153]
[149] Ronpibon Tin NL & Tong Kah Compound NL v Federal Commissioner of Taxation (Cth) (1949) 78 CLR 47; [1949] HCA 15 (‘Ronpibon Tin’) at 59.
[150] Payne at [9], per Gleeson CJ, Kirby and Hayne JJ.
[151] Payne at [9], per Gleeson CJ, Kirby and Hayne JJ. Applied in Watson as Trustee for the Murrindinidi Bushfire Class Action Settlement Fund v Commissioner of Taxation [2020] FCAFC 92 at [32] per Kenny, Davies and Thawley JJ.
[152] Payne at [9]; Commissioner of Taxation v Day (2008) 236 CLR 163; [2008] HCA 53 (‘Day’) at [30]. If no assessable income is produced, the occasion of the expense should be found in what would be expected to produce assessable income.
[153] Payne at [11]; Day at [30] per Gummow, Hayne, Heydon and Keifel JJ.
Where the occasion of transport expenses can be found in the employee’s employment duties, the expenses will be ‘incurred in gaining or producing’ the employee’s assessable income. Other ways that this has been expressed in the context of transport expenses is that the employee is travelling ‘on work’,[154] the travel is part of the employment,[155] or the travel is an incident of the employment.[156]
[154] John Holland Group Pty Ltd v Commissioner of Taxation [2015] FCAFC 82 (‘John Holland’) at [45], per Edmonds J.
[155] John Holland at [60], per Pagone J.
[156] John Holland at [36], per Edmonds J referencing The Roads and Traffic Authority of New South Wales v Commissioner of Taxation [1993] FCA 445.
The Applicant must show that the car expenses were incurred ‘in the course of gaining or producing’ his assessable income in order for him to undertake his locum work in NSW or his sole trader work as an assistant surgeon.
The deductibility of transport expenses where the employee is travelling between home and a regular place of work is well settled. With limited exceptions, such expenses are not deductible. Lunney involved two taxpayers who each claimed as deductible the expenses of travelling from their homes to their respective places of work. Mr Lunney was a ship’s joiner who travelled from his home at Narraweena to his place of employment at Darling Harbour, Sydney. Mr Hayley was a dentist with his own practice, who travelled from his home in Strathfield to his surgery at Macquarie Street, Sydney. The majority of the High Court found that the expenses incurred by each of the taxpayers in travelling between home and work were not deductible. Williams, Kitto and Taylor JJ stated:
‘It is, of course, beyond question that unless an employee attends at his place of employment he will not derive assessable income and, in one sense, he makes the journey to his place of employment in order that he may earn his income. But to say that expenditure on fares is a prerequisite to the earning of a taxpayer’s income is not to say that such expenditure is incurred in or in the course of gaining or producing his income … Expenditure of this character is not by any process of reasoning a business expense; indeed it possesses no attribute whatever capable of giving it the colour of a business expense. Nor can it be said to be incurred in gaining or producing a taxpayer’s assessable income or incurred in carrying on a business for the purpose of gaining or producing his income; at the most, it may be said to be a necessary consequence of living in one place and working in another.’[157]
[157] Lunney v Commissioner of Taxation (1958) 100 CLR 478 at [6], [8].
Determining whether a particular transport expense is ‘incurred in gaining or producing assessable income’ involves consideration of the proper scope of the employee’s work activities to determine if the circumstances of the transport expense have a sufficiently close connection to earning the employment income. Regard must be had not just to the duties in the contract of employment, but to the nature of the work as a matter of substance.[158]
[158] Day; Commissioner of Taxation v Cooper, R.J. [1991] FCA 190 (‘Cooper’).
In Healy v Federal Commissioner of Taxation (‘Healy’),[159] the Tribunal suggested that the following may assist in determining whether a loss or outgoing was incurred ‘in the course of’ gaining or producing actual or expected income:
‘What is required is an objective:
(i)identification of the ‘occasion’ for the loss or outgoing;
(ii)identification of the ‘activity’ that is ‘productive’ of the assessable income in question; and
(iii)a determination whether the loss or outgoing can be properly regarded as having been incurred in the course of that activity: see Federal Commissioner of Taxation v Anstis [2010] HCA 40; (2010) 241 CLR 443 and Federal Commissioner of Taxation v Visy Industries USA Pty Ltd [2012] FCAFC 106; (2012) 205 FCR 317.
What makes the outgoing deductible under s 8-1 of the ITAA 1997 is the existence of a sufficient connection, a ‘link’ or ‘nexus’, between the loss or outgoing and the production of assessable income. A taxpayer's subjective purpose in incurring a loss or outgoing is not normally relevant to whether a sufficient connection exists.’[160]
[159] [2013] AATA 281; (2013) 96 ATR 123.
[160] Healy, at [92] to [95].
In Watson as Trustee for the Murrindinidi Bushfire Class Action Settlement Fund vs Commissioner of Taxation[161], the Full Federal Court held:
‘While the connection with activities which more directly gained or produced the assessable income need not be direct (Day at [21]), the occasion of the outgoing must be found in what is productive of the assessable income; there must be a sufficient nexus between the outgoing and ‘the activities which more directly gain or produce the assessable income.’[162]
Consideration may further be given to whether the outgoing is ‘incidental and relevant’ to the activity.[163] The High Court stated in Federal Commissioner of Taxation v Smith[164]:
The section does not require that the purpose of the expenditure shall be the gaining of the income of that year, so long as it was made in the given year and is incidental and relevant to the operations or activities regularly carried on for the production of income. What is incidental and relevant in the sense mentioned falls to be determined not by reference to the certainty or likelihood of the outgoing resulting in the generation of income but to its nature and character, and generally to its connexion with the operations which more directly gain or produce the assessable income.[165]
[163] Watson as Trustee for the Murrindinidi Bushfire Class Action Settlement Fund [2020] FCAFC 92 at [34].
[164] (1981) 147 CLR 578.
[165] Federal Commissioner of Taxation v Smith (1981) 147 CLR 578 at 585 – 586.
Taxation Ruling TR 2021/1 Income tax: when are deductions allowed for employees' transport expenses? explains the above principles in the context of transport expenses in paragraphs 12, 13 and 21. It further provides in paragraphs 16 and 17 that in determining whether transport expenses are deductible, the following factors are relevant:[166]
·the travel fits within the duties of employment;
·the travel is relevant to the practical demands of carrying out the work duties;
· the employer asks for the travel to be undertaken;
·the travel occurs on work time; and
·the travel occurs when the employee is under the direction of the employer.
[166] TR 2021/1, paras 16 and 17.
The Tribunal is not bound to apply Taxation Ruling TR 2021/1, but it may, and should, apply it in exercising its discretion unless it is unlawful or ‘tends to produce an unjust decision.[167] Brennan J explained the relevance of an adopted policy to decision-making in Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634 (‘Drake’) at 640:
‘Decision-making is facilitated by the guidance given by an adopted policy, and the integrity of decision-making in particular cases is the better assured if decisions can be tested against such a policy. By diminishing the importance of individual predilection, an adopted policy can diminish the inconsistencies which might otherwise appear in a series of decisions, and enhance the sense of satisfaction with the fairness and continuity of the administrative process.’
[167] Re Drake and Minister for Immigration and Ethnic Affairs (No 2) (1979) 2 ALD 634 at 640.
The Tribunal is not aware of any cogent reason for not following Taxation Ruling TR 2021/1.
There are six possible scenarios relevant to the Applicant’s travel to undertake his locum work, or as a sole trader assistant surgeon, in the course of which he claims he incurred work-related car expenses:
·Scenario 1 – the Applicant travels by his car from his home in Melbourne to Melbourne airport and return in order to undertake his locum employment in NSW
·Scenario 2 – the Applicant travels by his car from his home in Melbourne to his assistant surgeon duties as a sole practitioner and return
·Scenario 3 – the Applicant travels from his assistant surgeon duties to Melbourne airport by his car and return in order to undertake his locum employment in NSW
·Scenario 4 – the Applicant travels by his car from his home in Melbourne directly to his locum work in NSW and return in order to undertake his locum employment in NSW
·Scenario 5 – the Applicant travels by his car from his home in Melbourne to his locum work in NSW and on completion of duties at the first NSW LHD hospital, he then travels by his car to a second NSW LHD hospital and either returns to the first NSW LHD hospital or home
·Scenario 6 – the Applicant travels by his car from his home in Melbourne directly to his locum work in NSW and on completion of duties he travels to another destination where he does not carry out any locum duties and then travels home.
Having regard to the authorities cited above and the five factors identified as relevant in TR 2021/1, the Tribunal makes the following findings in relation to whether the Applicant’s car expenses were incurred in gaining or producing assessable income.
The travel fits within the duties of employment
The majority of the High Court in Lunney held that it is not sufficient to establish that the travel was a necessary precondition to or prerequisite of performing the work that was productive of the assessable income, even though, but for the travel, the work would not have been able to be performed.[168] Williams, Kitto and Taylor JJ stated:
‘Nor can it be said to be incurred in gaining or producing a taxpayer's assessable income or incurred in carrying on a business for the purpose of gaining or producing his income; at the most, it may be said to be a necessary consequence of living in one place and working in another. And even if it were possible—and we think it is not—to say that its essential purpose is to enable a taxpayer to derive his assessable income there would still be no warrant for saying, in the language of s 51, that it was “incurred in gaining or producing the assessable income” or “necessarily incurred in carrying on a business for the purpose of gaining or producing such income”.’[169]
[168] Lunney, at [407].
[169] Lunney, at [601].
As explained in paragraph 28 of TR 2021/1:
‘The usual position that the cost of travel between home and the employee’s regular place of work is not deductible does not change merely because:
·the employee’s home is very distant (for example requiring a flight) from their regular place of work.’
In relation to the six scenarios of travel outlined above in paragraph 101, the Tribunal finds as follows:
· Scenario 1 – the Applicant travels by his car from his home in Melbourne to Melbourne airport and return in order to undertake his locum employment in NSW. It was only on arrival at the relevant hospital in NSW that the Applicant’s employment duties commenced, and he was ‘on work’[170] for which he was paid. His travel by car to the airport and on the plane to his destination was on his own time for which he was not specifically paid. The Applicant’s travel was not within his duties of employment as is required for any travel expenses, including car expenses, to be deductible under section 8-1.
· Scenario 2 – the Applicant travels by his car from his home in Melbourne to his assistant surgeon duties where he is a sole practitioner and return. It was only on arrival at the relevant place of work where he performed his duties as an assistant surgeon that the Applicant’s duties commenced. Accordingly, the Applicant’s travel is no different to that of the situation of the professional in Lunney.[171]
· Scenario 3 – the Applicant travels from his assistant surgeon duties to Melbourne airport by his car and return in order to undertake his locum employment in NSW. It was only on arrival at the relevant hospital in NSW that his duties commenced, where he was ‘on work’ and for which he was paid. He travelled on his own time from his assistant surgeon duties to the airport to take the flight to his destination in NSW for which he was not specifically paid. Accordingly, the Applicant’s travel is not within his duties of employment as required for the purposes of section 8-1.
· Scenario 4 - the Applicant travels by his car from his home in Melbourne directly to his locum work in NSW and return. It was only on arrival at the relevant hospital in NSW that the Applicant’s employment duties commenced, where he was ‘on work’ and for which he was paid. He travelled on his own time in his car from his home in Melbourne to his destination in NSW for which he was not specifically paid. Accordingly, the Applicant’s travel is not within his duties of employment for the purposes of section 8-1.
· Scenario 5 – the Applicant travels by his car from his home in Melbourne to his locum work in NSW and on completion of duties at one NSW LHD hospital, he then travels by his car to second NSW LHD hospital and either returns to the first NSW LHD hospital or home.
Paragraph 39 of TR 2021/1 states:
‘In contrast to transport expenses between home and a regular place of work, expenses of travelling between work locations, neither of which is the employee’s home, are ordinarily deductible provided that the employment is the occasion for the expenses. This includes different workplaces of the same employer, clients of the employer and other locations where the employee carries out their employment duties (for example, a court of law or at a client’s work site).’
·It was only on arrival at the relevant hospital in NSW, being both the first and second LHD Hospital, that the Applicant’s duties commenced, where he was ‘on work’ and for which he was paid. He travelled on his own time between hospitals, or to and from his home in Melbourne, for which he was not specifically paid. Accordingly, the Applicant’s travel does not fit within his duties of employment for section 8-1 purposes.
·Scenario 6 – the Applicant travels by his car from his home in Melbourne to his locum work in NSW and on completion of duties he travels to another destination where he does not carry out any locum duties and then travels home. It was only on arrival at the relevant hospital in NSW that the Applicant’s duties commenced, where he was ‘on work’. Accordingly, the travel does not fit within his duties of employment for the purposes of section 8-1.
[170] See paragraph 12 of TR 2021/1.
[171] The second appellant in Lunney carried on in Sydney the professional practice of a dentist, and claimed in his return of income to deduct fares paid during the relevant period for conveyance by public transport from his residence to his place of work and from his place of work to his residence.
In conclusion, for all six scenarios, the specific travel in question does not fit within the duties of the Applicant’s employment. The travel was a necessary precondition to or prerequisite of performing the work that was productive of the assessable income. This is so, even though his employment agent (Global Medics) organised his travel by flight, which was paid for by the relevant NSW LHD hospital, that allowed the Applicant to undertake his role as locum at the relevant NSW LHD hospital.
The travel is relevant to the practical demands of carrying out the work duties
John Holland concerned JH Rail who was major participant in the industry of rail construction and maintenance in Australia. In Western Australia, many of the rail construction projects in which JH Rail was involved were connected with the requirements of mining projects. In order to carry out its rail projects, JH Rail needed to be able to deploy skilled people to projects in different areas as those projects came on line. John Holland Group was an employer of employees who were skilled in carrying out rail construction projects. Between May 2011 and September 2012, John Holland Group employees worked on the Midwest Project. The employer paid for its employees to be flown from Perth to Geraldton, near where the Midwest Project was located, and back again on a rostered basis. Most employees lived in Perth. Most of the John Holland rail projects in Western Australia were in remote and regional areas. Most projects lasted about a year. Most areas in which a project was located did not have sufficient accommodation available to function as permanent accommodation for employees and their families.
In comparing the circumstances in John Holland with those in Cooper, Pagone J in John Holland stated:
‘In this case, in contrast, the employment necessitated that travel be part of the activities productive of assessable income. It was the remoteness of the project location that caused there to be a need for travel to be part of that for which employees were employed. There is no suggestion of the obligation to travel being created other than by the demands of the nature of the employment, or as device to clothe what would be a private journey before the derivation of income with the appearance of a journey as part of the employment.’[172]
[172] (2015) 232 FCR 59; (2015) 321 ALR 530; [2015] FCAFC 82 at [59].
His Honour’s conclusion that the employment in John Holland necessitated that travel be a part of the activities productive of assessable income was tied to the finding that, unlike the Applicant whose employment did not commence until he started his first shift at the relevant NSW LHD Hospital, the John Holland employees were rostered on at Perth airport and travelled on work time.
In relation to the six scenarios listed above, the need for the Applicant to travel to the airport and then on a flight to his destination arose because he chose to live in Melbourne, that is, at a considerable distance from his workplace. While the relative remoteness of NSW LHD hospitals may have made it necessary for the hospitals to offer to transport some of its employees to them in order to attract staff, this is not relevant to the practical demands of carrying out the work duties required of the Applicant in his role as a Locum doctor at the hospitals.
The employer asks for the travel to be undertaken
Given the need to source qualified staff for the NSW LHD hospitals, the hospitals requested and paid for some employees to travel to the hospitals to undertake necessary work. The need for these employees to travel, including the Applicant, arose because the employees lived at a distance from the workplace. This situation is distinguishable from a case where an employer asks an employee to travel to somewhere other than their regular workplace to perform work duties.
The travel occurs on work time
Paragraph 25 of TR 2021/1 recognises that most employees have a regular place of work, being a usual or normal place where the employee starts and finishes their work duties. In considering the deductibility of travel expenses, the Full Federal Court in John Holland contrasted the requirement to travel to a regular place of work with the travel being required because of the specific demands of the employment. This in turn informed the decision of whether the expense was incurred in the course of gaining or producing the assessable income of the employee. In answering the question whether the expense was incurred in the course of gaining or producing the assessable income of the employee, Pagone J stated:
‘The answer to the question in dispute depended upon whether the travel undertaken by the employees between Perth airport and Geraldton was within the employment of the employees.’[173]
[173] John Holland at [57].
On the basis that the employees:
·were rostered on from arrival at Perth airport;
·took flights because they were directed to do so and required to do so as part of their employment obligations;
·travelled during work time; and
·were required to act in accordance with their employer’s directions while travelling, including obeying codes of conduct
Pagone J concluded that the travel from Perth airport occurred in the course of the employees’ employment.
His Honour also observed that, while the extremes of distance between home and work alone are not sufficient to make the occasion of travel employment-related, remoteness of a project location may be a relevant factor. His Honour stated:
‘The criteria for deductibility is thus not that there is a great distance to travel from home to work but that the travel is part of the employment. A distant or remote location for the performance of employment duties may, however, be a relevant factor in determining whether travel is part of the employment. The location of the place at which work needs to be performed may occasion a need for travel to be part of employment. The remoteness of the project in this case provides the explanation for the travel being part of the employment…’[174]
[174] John Holland at [60].
His Honour distinguished the daily travel between home and the regular workplace of ordinary employees identified in Lunney, and the travel undertaken by John Holland employees, stating:
‘The case under consideration in Lunney was of “ordinary people” paying fares “to enable them to go day by day to their regular place of employment or business and back to their homes”; it is not about the specific demands occasioned by employment that required, as part of the employment, travel to a remote place. The employees in this case are required to travel as part of their employment to a remote location.’[175]
[175] John Holland at [64].
Edmonds J in John Holland found that:
‘Travel each way between Perth Airport and the project accommodation occurred during working time for which the employees were rostered-on, and paid.’[176]
[176] John Holland at [24].
In comparing and contrasting Lunney to the facts of John Holland, Edmonds J found:
‘In my view, there is no reason why Perth Airport should not be a point at which employees’ duties and remuneration for performance of these duties both commences and ceased. The contract so provides. The fact that Perth Airport is not an area or premises owned or leased by John Holland is irrelevant.’[177]
[177] John Holland at [44].
In relation to the six scenarios, the income producing activities for which the Applicant was rewarded was carried out at the relevant NSW LHD hospitals or at the place at which he performed his assistant surgeon work. Travel by the Applicant to and from the relevant NSW LHD hospital or the place at which he performed his assistant surgeon work was not an income-producing activity. This can be contrasted with John Holland where the employees were travelling on work time.
In conclusion, in none of the six scenarios did the Applicant’s travel occur on work time, and accordingly, his car expenses related to this travel were not incurred in gaining or producing assessable income.
The travel occurs when the employee is under the direction and control of the employer
The Applicant was not under the direction and control of his employer when he travelled. This is because his contractual obligations had either not commenced or had ceased when he was travelling to and from the relevant NSW LHD hospital. This can be contrasted to John Holland where the employees were ‘on work’ when they were travelling to the place where the primary work would be performed.
Having regard to the relevant authorities and the five factors identified as relevant in TR 2021/1, the Tribunal is satisfied that subsection 8-1(1)(a) has no application to any of the six travel scenarios identified in paragraph 100, and accordingly the car expenses the Applicant incurred in undertaking this travel was not incurred in gaining or producing assessable income.
ii) Were the car expenses necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income under subsection 8-1(1)(b)?
The Tribunal has considered whether the Applicant was ‘carrying on’[178] a business. Business is defined as including:[179]
‘any profession, trade, employment, vocation or calling, but does not include occupation as an employee.’
[178] Defined in subsection 995-1(1) as: ‘carrying on an enterprise includes doing anything in the course of the commencement or termination of the enterprise.’
[179] ITAA, at subsection 995-1(1); Spriggs v Federal Commissioner of Taxation (2009) 239 CLR 1; [2009] HCA 22.
When considering the second limb of subsection 51(1) of the Income Tax Assessment Act 1936 (the predecessor to section 8-1 of the ITAA), the Full High Court in Ronpibon Tin NL v Federal Commission of Taxation (1949) 8 ATD 431; 78 CLR 47 said (at [56]):
‘The word “business” is defined by s 6(1) to include profession, trade, employment, vocation or calling, but not occupation as an employee. The alternative in s 51(1) therefore covers a wide description of activities. But in actual working it can add but little to the operation of the leading words, “losses or outgoings to the extent to which they are incurred in gaining or producing the assessable income”. No doubt the expression “in carrying on a business for the purpose of gaining or producing” lays down a test that is different from that implied by the words “in gaining or producing”. But these latter words have a very wide operation and will cover almost all the ground occupied by the alternative.’
As stated above, in Lunney it was established that travel between home and work will only be deductible where it is incurred in the course of gaining or producing a taxpayer’s assessable income, and if the travel is merely from home to a place where the business activity is carried on, then no deduction for the travel will be allowed.
In relation to his employment in NSW as a locum doctor, the Applicant was an employee of the relevant NSW LHD Hospitals. In making this finding, the Tribunal has relied on the Contracts of Employment as a Locum Medical Doctor entered into between the Applicant and the various Medical Workforce Units which state that he is employed pursuant to section 116 of the Health Services Act 1997 in the relevant LHD.[180] In relation to his work as an assistant surgeon, the Applicant was a sole trader and was carrying out his profession. However, in both cases, the car travel undertaken by the Applicant to his workplace or the airport to travel to his workplace was not undertaken in the course of gaining or producing assessable income, and therefore the expenses he incurred were not while he was ‘carrying on a business’. Thus, none of the six scenarios in paragraph 100 fall under subsection 8-1(1)(b) entitling the Applicant to claims deductions for the car expenses he incurred.
[180] Exhibit R2, ST6, p. 402-411.
b) Does section 25-100 apply to any of the travel undertaken?
Section 25-100 of the ITAA allows certain travel between workplaces to be deductible. The only circumstance in which the Applicant may be said to have travelled between workplaces is Scenario 5 when the Applicant, on completion of duties at one NSW LHD hospital, then travels by his car to second NSW LHD hospital and either returns to the first NSW LHD hospital or home. At the time of his travel to what can be described as the second hospital at which he was employed in NSW, the arrangement under which the Applicant gained assessable income at the first NSW LHD hospital had ceased.[181] Accordingly, in this scenario it cannot be said that the Applicant was travelling between workplaces. This is similar to Walker and Federal Commissioner of Taxation[182] where the Tribunal held that section 25-100 did not apply in similar circumstances.[183]
[181] ITAA, at subsection 25-100(4).
[182] [2017] AATA 324; 2017 ATC 10-449; (2017) 105 ATR 186.
[183] Walker and Federal Commissioner of Taxation [2017] AATA 324; 2017 ATC 10-449; (2017) 105 ATR 186 at [54].
Payne is authority for denying claims for car expenses incurred in travelling between two separate income-producing activities. Section 25-100 was introduced to overcome the decision in Payne, however subsection 25-100(3) provides that travel between two places is not travel between workplaces if one of the places the taxpayer is travelling between is a place at which the taxpayer resides. Accordingly, the Applicant’s travel between his home and the place where he performed his assistant surgeon duties is not travel between two workplaces unless the Applicant can demonstrate his home is a place at which he ran a business. The Applicant claims that he undertook work from home,[184] but he has not discharged his onus of demonstrating that he ran his business from home. Accordingly, the car expenses incurred when he travelled from his home to perform his work as an assistant surgeon are private home to work travel.
[184] Applicant’s Summary of Submissions dated 8 April 2021, point 49viii.c.ii.
2) Other work-related expenses
The Applicant acknowledges that a meal allowance (food and drink) was rolled into his hourly rate paid to him by the NSW Health Service LHDs for the work he performed as a Locum Medical Officer. He contends however that he is entitled to claim the Commissioner’s reasonable rates for food, drink and incidentals for the days he worked interstate, being on his calculation 247 days. The Respondent contends that the expenses claimed for food, drink and incidentals are private in nature and not allowable under section 8-1
The Respondent published Draft Taxation Ruling TR2021/D1 - Income tax and fringe benefits tax: employees: accommodation and food and drink expenses, travel allowances, and living-away-from-home allowances on 17 February 2021. In TR2021/D1 the Respondent outlines his view of when an employee can deduct food and drink expenses under section 8-1 of the ITAA when they are travelling on work.
Paragraph 6 of TR2021/D1 states that an employee can only deduct food and drink expenses under section 8-1 to the extent:
·they incur the expenses in gaining or producing their assessable income;
·the expense is not of a capital, private or domestic nature;
·the expense is not incurred in gaining or producing exempt income or non-assessable non-exempt income; and
·a provision of the ITAA does not prevent it from being deducted.
Paragraph 10 of TR2021/D1 states that food and drink expenses are ordinarily private in nature and are generally not deductible under section 8-1 of the ITAA.[185] This includes the costs an employee incurs in consuming food and drink to go about their daily activities.
[185] Cooper; Commissioner of Taxation v Forsyth (Cth) [1981] HCA 15 (‘Forsyth’).
In Cooper, Hill J explained at [56]:
‘Food and drink are ordinarily private matters, and the essential character of expenditure on food and drink will ordinarily be private rather than having the character of a working or business expense. However, the occasion of the outgoing may operate to give to expenditure on food and drink the essential character of a working expense in cases such as those illustrated of work related entertainment or expenditure incurred while away from home.’
For the purposes of TR2021/D1 such expenses are referred to as ‘living expenses’. Paragraph 13 of TR2021/D1 states that ‘living expenses are a prerequisite to gaining or producing an employee’s assessable income and are not incurred in preforming an employee’s income-producing activities’ and are also ‘private or domestic in nature’.[186] Accordingly, even if the expenses were incurred in gaining or producing assessable income, they are not deductible due to the application of subsection 8-1(2)(b).
[186] Cooper; Handley v Commissioner of Taxation (Cth) [1981] HCA 16 (Handley); Forsyth.
Paragraph 15 of TR2021/D1 states that to be deductible, the food and drink expenses ‘must have a sufficiently close connection to the performance of the employment duties and activities through which the employee earns income.’ It is not enough to ‘show some general link or causal connection between the expenditure and the production of income’.[187] Paragraph 16 provides that ‘the occasion of the outgoing on food and drink must be found in the income-producing activities, rather than in the personal circumstances of where the employee lives.’
Paragraphs 18 and 19 of TR2021/D1 distinguish between an employee who is required by their employer as an incident of their employment to stay away from their usual residence overnight for relatively short periods of time, and an employee who lives far away from where they gain or produce their assessable income. The first employee will be ‘travelling on work’ and the occasion of the outgoing on accommodation and food and drink will generally be found in the employee’s income-producing activities. In the case of the second employee, food and drink expenses are incurred ‘because the employee’s personal circumstances are such that they live far away from where they gain or produce their assessable income’,[188] and accordingly ‘the occasion of the outgoing will not be found in the employee’s income-producing activities’[189].
[188] Federal Commissioner of Taxation v Charlton 84 ATC 4415 (‘Charlton’), Commissioner of Taxation v Toms, A.J. [1989] FCA 153 (‘Toms’), Hancox v Commissioner of Taxation [2013] FCA 735 (‘Hancox’); Ricketts v Colquhoun [1926] AC 1.
[189] TR2021/D1, at [19].
Paragraph 20 of TR2021/D1 further provides that ‘travelling on work’ does not describe the activities of employees who ‘choose to sleep near their workplace, rather than returning to their usual residence between work shifts.’
In paragraph 23 of TR2021/D1, the Respondent states his view that if any of the following factors apply, the employee will not be ‘travelling on work’ and the accommodation and food and drink expenses incurred will be ‘living expenses’:
·the expenses are incurred because the employee’s personal circumstances are such that they live far away from where they gain or produce their assessable income;[190] and
·the employee incurs the expenses because they are living at a location.[191]
[190] Personal circumstances - see further paragraphs 24 to 36 of TR2021/D1.
[191] Living at a location - see further paragraphs 37 to 70 of TR2021/D1.
Having regard to the relevant authorities and the guidance provided in TR2021/D1, the Tribunal is satisfied that an employee cannot deduct accommodation and food and drink expenses they have incurred where, due to their personal circumstances, they live far away from where they gain or produce their assessable income. These expenses are living expenses and are not deductible. Accordingly, it finds that the Applicant’s living expenses, including his food, drink and incidental expenses, whether or not he was paid an allowance for these expenses, were ‘private or domestic in nature.’[192] They are not deductible due to the application of subsection 8-1(2)(b).
[192] Cooper; Handley; Forsyth.
If the Applicant is regarded as ‘travelling for work’ and therefore entitled to a deduction for food and drink and incidental expenses while he was working at the respective LHD hospitals in NSW, the Tribunal is not satisfied that he has substantiated his expenses in accordance with Division 900. The Applicant’s bank statements do not provide the details required under section 900-115. No amount on the bank statement summary provided by the Applicant is for incidental expenses, and the amounts shown for food and drink expenses, are in most cases, substantially less than the amount that has been claimed. The Tribunal is therefore not satisfied that the Applicant incurred incidental expenses of $7,544 or food and drink expenses of $34,249, nor that he has substantiated the same, during the relevant income year.
The reasonable amounts published by the Respondent are only relevant for determining whether the substantiation exceptions apply. They are not an automatic deduction. The substantiation for travel allowance expenses (accommodation, food and drink and losses or outgoings incidental to the overnight travel) will only apply if the Applicant received a travel allowance to cover those expenses (section 900-50, subsection 900-30(2) and subsection 900-30(3)). The Applicant has not demonstrated that he received a travel allowance to cover his food, drink and incidental expenses. He concedes that a meal allowance was rolled into his hourly rate. If an allowance has been folded-in as part of normal salary/wages, the exception from substantiation contained in TR 2004/6 does not apply. The necessary written evidence must be kept to support claims for deductible expenses incurred. The Tribunal is satisfied that the Respondent correctly applied TR 2004/6 and TD 2015/14 to the Applicant’s circumstances, and finds that the Applicant has not substantiated his claims as required for incidental expenses of $7,544 or food and drink expenses of $34,249 during the relevant income year.
3) Shortfall Interest Charge
Section 280-170 of the TAA provides, relevantly, that a taxpayer may object in the manner set out in Part IVC of that act against a decision of the Commissioner not to remit an amount of SIC they are liable to pay on an additional amount of income tax, if the amount of the charge that was not remitted is more than 20% of the additional amount.
In the Applicant’s case the additional amount of income tax is $24,157.49. The SIC applied is $1,183.90, which is less than 20% of the additional tax. Accordingly, the Tribunal is not able to review the Respondent’s decision not to remit the SIC.
DECISION
The Reviewable Decision dated 21 August 2019 is affirmed.
I certify that the preceding 142 (hundred and forty-two) paragraphs are a true copy of the reasons for the decision herein of Senior Member Linda Kirk
........................SGD................................................
Associate
Dated: 30 August 2021
Dates of hearing: 23 February and 30 March 2021 Date final submissions received: 16 April 2021 Advocate for the Applicant: Mr Arogun Solicitors for the Respondent: Mr Stewart
- AGLC
- Mfula and Commissioner of Taxation (Taxation) [2021] AATA 3067
- Case
- [2021] AATA 3067
- Decision Date
CaseChat Overview and Summary
The primary legal issues before the Tribunal were whether the applicant was entitled to deductions for these claimed expenses under section 8-1 of the Income Tax Assessment Act 1997 (ITAA) or section 25-100 of the ITAA, and whether the shortfall interest charge should be remitted in whole or in part. The applicant contended that his car expenses were incurred in gaining or producing assessable income and that travel between workplaces was covered by section 25-100. He also argued for the deductibility of food expenses incurred while working away from home.
The Tribunal found that the applicant had not satisfied the requirements of section 8-1 of the ITAA for his car expenses, as they were not incurred in the course of gaining or producing assessable income. The occasion of the expense was not found in the income-producing activity itself, but rather in the applicant's personal choice to reside in Melbourne and travel to various hospitals in New South Wales for locum work. Similarly, section 25-100 was deemed not applicable to the travel undertaken. Furthermore, the applicant had failed to substantiate his claims for other work-related expenses. Regarding the shortfall interest charge, the Tribunal determined that it lacked the power to review the Commissioner's decision not to remit the charge, as the amount of the charge was less than 20% of the additional tax assessed.
Consequently, the Tribunal affirmed the Reviewable Decision of the Commissioner dated 21 August 2019, meaning the applicant's claimed deductions were disallowed, and the assessed tax liability, including the shortfall interest charge, was upheld.
Orders
Orders of the court
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Background to the litigation
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Evidence
Evidence Before The Court
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Ratio Decidendi
Legal Principle Established
Again, if the Tribunal is against the Respondent on that point the most that the Applicant could be taken to have incurred on food and drink is $1,735.13.[148][148] Respondent’s SFIC dated 5 October 2020, [98].CONSIDERATION AND REASONS Under section 14ZZK of the Taxation Administration Act 1953 (Cth) (‘TAA’), the Applicant bears the onus to prove that the Respondent was wrong or excessive in his assessment with respect to the work-related deductions claimed by the Applicant in his ITR for the relevant income year. The Applicant must establish that the amount of tax levied under the assessment exceeds his substantive liability under the taxation legislation. 1) Work-related car expenses In order to claim a deduction for work-related car expenses, the Applicant must satisfy either:a) section 8-1 ITAA - the general deduction provision; orb) section 25-100 ITAA - travel between workplaces.a) Does section 8-1 apply to the car expenses incurred by the Applicant?i) Were the car expenses incurred in gaining or producing assessable income under subsection 8-1(1)(a)? Subsection 8-1(1)(a) enquires whether the expenses were ‘incurred in gaining or producing your assessable income’. Determining this is a question of fact.[149] It is well established that the term ‘incurred in gaining or producing assessable income’ is understood as meaning incurred ‘in the course of gaining or producing’ assessable income.[150] It does not mean ‘in connection with’.[151] For an expense to be ‘incurred in gaining or producing’ assessable income, it is both sufficient and necessary that the occasion of the expense be found in whatever is productive of assessable income.[152] In Payne the High Court stated the question that requires consideration:‘… is the occasion of the outgoing found in whatever is productive of actual or expected income?’[153][149] Ronpibon Tin NL & Tong Kah Compound NL v Federal Commissioner of Taxation (Cth) (1949) 78 CLR 47; [1949] HCA 15 (‘Ronpibon Tin’) at 59.[150] Payne at [9], per Gleeson CJ, Kirby and Hayne JJ.[151] Payne at [9], per Gleeson CJ, Kirby and Hayne JJ. Applied in Watson as Trustee for the Murrindinidi Bushfire Class Action Settlement Fund v Commissioner of Taxation [2020] FCAFC 92 at [32] per Kenny, Davies and Thawley JJ.[152] Payne at [9]; Commissioner of Taxation v Day (2008) 236 CLR 163; [2008] HCA 53 (‘Day’) at [30]. If no assessable income is produced, the occasion of the expense should be found in what would be expected to produce assessable income.[153] Payne at [11]; Day at [30] per Gummow, Hayne, Heydon and Keifel JJ. Where the occasion of transport expenses can be found in the employee’s employment duties, the expenses will be ‘incurred in gaining or producing’ the employee’s assessable income. Other ways that this has been expressed in the context of transport expenses is that the employee is travelling ‘on work’,[154] the travel is part of the employment,[155] or the travel is an incident of the employment.[156][154] John Holland Group Pty Ltd v Commissioner of Taxation [2015] FCAFC 82 (‘John Holland’) at [45], per Edmonds J.[155] John Holland at [60], per Pagone J.[156] John Holland at [36], per Edmonds J referencing The Roads and Traffic Authority of New South Wales v Commissioner of Taxation [1993] FCA 445.