PSJF and Commissioner of Taxation (Taxation)

[2018] AATA 678

PSJF and Commissioner of Taxation (Taxation) [2018] AATA 678 (20 March 2018)

Division:TAXATION & COMMERCIAL DIVISION

File Numbers:         2017/0466-0467

Re:PSJF

APPLICANT

AndCommissioner of Taxation

RESPONDENT

DECISION

Tribunal:Senior Member Theodore Tavoularis

Date:20 March 2018

Place:Brisbane

The decisions under review are affirmed.

.....................[sgd]...................................................

Senior Member Theodore Tavoularis

CATCHWORDS

TAXATION – income tax deductions – where Applicant claimed a number of expenses as work-related deductions – whether Applicant’s travel expenses were work-related – whether Applicant’s other expenses were work-related – burden of proof – where insufficient evidence was brought to show expenses to be work-related – whether administrative penalties were properly imposes – decision under review affirmed

LEGISLATION

Income Tax Assessment Act 1997

(Cth), ss 8-1, 40-30, 900-15, 900-20, 900-115, 900-120, 900-195

Taxation Administration Act 1953

(Cth), s 14ZZK, Schedule 1, ss 284-75, 284-90, 298-20

REASONS FOR DECISION

Senior Member Theodore Tavoularis

20 March 2018

INTRODUCTION

1. In his tax returns for the 2012-2013 and 2013-2014 financial years (“the relevant period”), PSJF (“the Applicant”) claimed a number of expenses, which he purported to be work-related, as deductions. The Commissioner of Taxation (“the Respondent”) now alleges that these claimed expenses were not work-related, and so are not valid deductions.

   ISSUES

2. There are three issues before the Tribunal:

   (a)Are the work-related travel and other expenses claimed by the Applicant in the relevant period validly claimable as deductible items pursuant to the Income Tax Assessment Act 1997 (Cth) (“ITAA97”)?

   (b)Were the administrative penalties imposed for the relevant period correctly calculated and imposed pursuant to ss 284-75(1) and 284-90 of Schedule 1 of the Taxation Administration Act 1953 (Cth) (“TAA53”)?

   (c)Should the discretion to remit the administrative penalties for the relevant period, in full or in part, pursuant to s 298-20 of Schedule 1 to the TAA53 be invoked?

   PRELIMINARY ITEMS

3. The Respondent correctly asserts, pursuant to the provisions of TAA53, specifically s 14ZZK, that the Applicant should be put to proof on all facts on which he seeks to rely to establish that the subject assessments for the relevant period are excessive.

   FACTS

4. The following items are not in dispute:

   -For all purposes related to this matter, the Applicant was employed as a photographer by Nationwide News Pty Ltd;

   -The Applicant’s 2013 financial year income tax return claims deductions for work-related travel expenses of $3,200.00 and other work-related expenses in the amount of $10,594.00;

   -The Applicant’s 2014 financial year income tax return claims deductions for work-related travel expenses of $2,800.00 and other work-related expenses in the amount of $20,295.00;

   -The total quantum of claimed deductions attracted the attention of the Respondent, which conducted audits of the Applicant’s income tax affairs for the relevant period. These audits occurred in March 2015;

   -The outcome of the audits, made known to the Applicant on 4 June 2015, was that none of the expenses for the relevant period were considered by the Respondent to comprise allowable deductions;

   -Respective notices of amended assessment for each of the income years comprising the relevant period were issued to the Applicant on 12 June 2015;

   -Simultaneously, on 12 June 2015, the Respondent issued notices of assessment of shortfall penalty for both years of income comprising the relevant period;

   -On 14 March 2016, the Applicant lodged objections to the amended notices of assessment, and to the respective notices of administrative penalty for both income tax years comprising the relevant period; and

   -The respective objections were disallowed in full by the Respondent. This decision, dated 10 May 2016, comprises the reviewable decision now before the Tribunal.

   DISCUSSION

5. The Respondent has, helpfully, identified the two primary contentions of the Applicant:

   (a)That he is entitled to claim some or all of the disallowed expenses as allowable deductions. The Respondent has labelled this issue “the allowable deductions issue”; and

   (b)In terms of the penalties that have been imposed, the Tribunal should exercise its discretion to either fully remit or substantially reduce the totality of those penalties.

6. The Respondent then further divided the allowable deductions issue into two sub-issues, comprising (1) certain disputed travel expenses for the relevant period; and (2) certain other disputed expenses for the relevant period. For the purposes of clarity, it is necessary to reproduce the relevant table prepared by the Respondent,[1] summarising the disputed travel expenses for the relevant period:[2]

   [1] See Exhibit 3, [10].

   [2] I note these figures were not in dispute.

Year ended 30 June 2013
Description	Amount
Flight expense	$2,208.36
Darwin hotel	$300.00
Car hire	$100.00
Total	$2,608.36
Year ended 30 June 2014
Description	Amount
Flight (Alice Springs to Bangkok)	$1,888.76
Flight (Alice Springs to Darwin)	$984.00
Total	$2,872.76

1. I do likewise for the other disputed expenses for the relevant period:[3]

   [3] Ibid, see [11]. These figures were also not disputed.

Year ended 30 June
Description	Amount
Stationary	$367.97
Mobile phone	$168.04
Protective gear	$194.64
Computer hardware	$375.05
Camera and flash batteries	$180.03
Depreciation of equipment (under $300)	$250.86
Depreciation of equipment (over $300)	$8,676.00
Other	$381.41
Total	$10,594.00
Year ended 30 June 2014
Description	Amount
Stationary	$196.60
Protective gear	$106.60
Internet	$568.00
Camera batteries	$82.88
Depreciation of equipment (under $300)	$1,598.70
Depreciation of equipment (over $300)	$10,101.00
Other	$7,641.22
Total	$20,295.00

Are the work-related travel expenses allowable deductions?

1. For an expense to constitute an allowable deduction in the production of salary or wages income, a two-pronged test must be satisfied: first, that expense must come within the definition of a deduction pursuant to s 8-1 of the ITAA97. Secondly, such claimed deduction must be substantiated with written or receipt-based evidence. There is no other way for any claimed expense to be allowed as a deduction against assessable income.

2. Put another way, element (1) above must, to quote the requirements of s 8-1 of the ITAA97, “be incurred in gaining or producing [the Applicant’s] assessable income” and cannot be an “outgoing of a domestic or private nature”. Element (2) above requires that the claimed expense must be substantiated by written evidence – most usually in the form of a tax invoice and accompanying receipt – from “a supplier”. That paperwork must identify the supplier and “the nature of the goods or services” provided by the supplier in order to meet the requirements of s 900-115 of the ITAA97.

3. Of critical importance to the present application is the mandatory requirement that both above elements must be satisfied so that a given expense can be claimed as an allowable deduction. If only one of the elements can be satisfied, the expense will not carry the status of an allowable deduction.

4. The Respondent has outlined certain additional record-keeping obligations that devolve to taxpayers, pursuant to s 900-20 of the ITAA97. For example, for travel expenses, if a taxpayer is absent from their “ordinary residence” for six or more nights in a row, a diary or similar document must be produced by the taxpayer, particularising specific activities the taxpayer has done or performed for the specific purpose of deriving assessable income while on his/her travels.

5. As against that, s 900-195 of the ITAA97 is an ameliorating provision which vests a discretion in the decision-maker to allow a claimed deduction in circumstances where such record-keeping obligations – such as a diary – have not been met. As I understood this application, its crux lies in whether the nature and quality of the evidence adduced by the Applicant activates the exercise of such discretion, so that the Applicant’s abovementioned claimed expenses can take on the character of allowable deductions.

6. For reasons that follow, I am of the view that, well-intended though his application may be, the Applicant falls way short – in evidentiary terms – of convincing the Tribunal that such discretion ought to be exercised.

   Findings in relation to the claimed travel expenses

7. There are three flight expenses sought to be claimed as allowable deductions during the relevant period, in addition to certain hotel and hire car expenses. The Applicant contends these three trips were undertaken as part of his job as a photographer. Specifically, he says he made these trips as part of his shooting of stock photographs in regional Australia and Thailand for his employer, Nationwide News Pty Ltd. This evidence, in turn, is at odds with his previous evidence to the Respondent, where he stated that “…The nexus for this trip is to continue growth and expansion of my business aerialphotographythailand”.[4]

   [4] Exhibit 5, T-Documents, p 199.

8. A cautious approach to the incurring of these three flight expenses leans towards a finding that the expense was primarily one incurred for the purposes of a family trip or holiday. It is uncontentious that each of the three flight expense items relates to travel costs for the Applicant, his wife and their two children. The Applicant contends that his family had to accompany him on these trips because they were to act as his models in his photographic work. This evidence, in turn, is at odds with what he told a previous decision-maker. He said “My partner… completes translation of Thai clients for me and I am eventually hoping that my two sons (who were born in Thailand) will continue on with the business there using drones.”[5]

   [5] Ibid.

9. The grave and insurmountable difficulty for the Applicant’s claiming of these flight expenses as allowable deductions against business income is that at no time during the relevant period has he declared to the Respondent any business income he may have derived from those trips. Of similarly grave concern is that there is absolutely no evidence from the Applicant’s employer to the effect that the employer asked, stipulated or directed him to incur the cost of making these trips (not just for him, but for his family as well). The employer could have been called as a witness to this hearing if that had been the case. The employer was not called as a witness.

10. Therefore, even if only for want of evidence, I agree with the Respondent’s contention that the three flight expenses are exclusively of a private or domestic nature, comprising travel costs incurred by the Applicant for private and domestic purposes. There is simply no evidence before the Tribunal to contradict such a finding.

11. The remainder of the disputed travel expenses constitute costs incurred by the Applicant for a hotel and a hire car while he was in Darwin. He contends these expenses should somehow be characterised as deductible because, according to him, he incurred them when visiting Darwin to discuss relocation of his place of employment with his employer.

12. In support of the contention that these additional expenses are deductible, the Applicant has sought to rely on bank statements.[6] The difficulty with that contention is that the evidence of expenditure appearing in those bank statements is either generic or singular (as opposed to recurring) instances of expenditure. As was sought to be explained to the Applicant during the hearing, the evidence of funds expended on certain items apparent on the bank statements is not of the type or nature of expenditure that one would expect to be attributable to his employment.

    [6] I note that the Applicant had previously produced to the Respondent some other documents including return tickets for two of his trips.

13. He is not, to use the Respondent’s helpful example, a farmer who has, for the last five years of income, claimed the costs of tractor tyres as a deduction, without opposition from the Respondent. However, for one (theoretical) half of a year of income, the relevant invoices/receipts for that farmer’s acquisition of the tractor tyres have gone missing. In those circumstances, there is scope within the Respondent’s discretion to accept bank statements as convincing evidence of that farmer’s on-going requirement to purchase tractor tyres and,[7] as such, to accept the bank statement evidence in lieu of tax invoice/receipt-type documentation. Here, there is no established pattern of behaviour and little documentary evidence supporting the Applicant’s claim. I therefore cannot find that these are valid deductions as (1) they do not have corroborating evidence which meets the requirements of s 900-115, and (2) I am not satisfied that the discretion to find them valid without such supporting documentation should be exercised.

    [7] This discretion is per s 900-195 of ITAA97.

14. For completeness, I note that the further (and definitional) problem with the hotel/hire car expenditures is that they may fall within the realm of relocation expenses and, be they actual or prospective, they should likely be regarded as private in nature.

15. On the whole, for the reasons above, I am not satisfied that the Applicant’s claimed travel, accommodation and care hire expenses are allowable deductions.

    Findings in relation to the other disputed expenses

16. The Applicant has claimed a number of other deductions, referenced above. He seeks to rely on bank statements to substantiate (a) the incurring of the expenses, and (b) to demonstrate they are deductible against his assessable income. They are not. This is because the bank statements fail to meet the evidentiary threshold stipulated in s 900-115 of ITAA97. To repeat: that section requires that an expense sought to be characterised and claimed as an allowable deduction must be substantiated by written evidence from a “supplier”, setting out specific details demonstrating the character of the expense propounded by the taxpayer. The specific details include things such as the name of the supplier of the good(s) or service(s) and the nature of the good(s) or service(s) provided.

17. The regularly accepted documentary example which meets the abovementioned requirements is a duly rendered tax invoice for goods or services with an accompanying receipt for payment. Contrastingly, a bank statement will indicate the application of funds from a given bank account in the form of a credit transfer from one account to another. That is all the bank statement can say about the transaction. A bank statement, by definition, is silent about:

    (a)whether the credited entity is a “supplier” to the taxpayer; and

    (b)the specific nature of the good(s) and/or service(s) for which the bank statement indicated payment.

18. In other words, evidence of the mere transfer of funds, be it by way of bank transfer or by any other means, is not sufficiently informative of the actual character of an expense to meet the threshold requirements of s 900-115 of the ITAA97. Accordingly, for want of other corroborating evidence, the other disputed expenses cannot be claimed as allowable deductions. As such, it is unnecessary for the Tribunal to determine whether the other disputed expenses were or were not incurred in the Applicant’s earning of assessable income.

19. I note also that the Applicant claimed some $20,626.56 of deductions for depreciation in the value of various elements of his camera equipment. I accept that these assets may constitute depreciating assets under s 40-30 of ITAA97. However, such a deduction must be substantiated in accordance with s 900-120. The Applicant has not done so. Similarly, I am not satisfied that the discretion to accept the deductions anyway should be exercised as, simply, I am not satisfied – especially given the overwhelming lack of evidence put forward by the Applicant as to even the cost of his equipment – that the Applicant’s camera equipment depreciated by anywhere near $20,000 in value in the relevant two-year period.

    Evidence adduced by the Applicant: some contradictions and misconceptions

20. The Applicant gave his own evidence and sought to lead evidence from his partner of some twenty years. First, the Applicant told the hearing that he acknowledged that the provision of tax invoices and receipts for payment were clearly the best method of characterising an expense as an allowable deduction. His evidence was that he once held receipts for most, if not all, of the expenses now propounded as allowable deductions but that most, if not all, of those receipts were inadvertently lost in his family’s move from Alice Springs to Cairns.

21. According to the Applicant, during the move it became apparent, as often occurs as a result of relocation, that an amount of the family’s items were now surplus to requirements. The Applicant said that rather than take unnecessary or no longer required items with them to Cairns, a garage sale (or the equivalent) was organised to sell or otherwise dispose of those surplus items. His evidence was that most, if not all, of the receipts and invoices were in the boxes or containers in which the surplus items for sale had been placed. When those items were purchased, the boxes they were in – and the receipts inadvertently accompanying those items – were also taken away. This is why, the Applicant claims, there are little or no receipts now available.

22. Secondly, regard should be had to the Applicant’s partner’s evidence. She told the hearing a slightly different story to that of the Applicant. According to her evidence, the receipts did not come to be lost because of the inadvertent sequence of events culminating in the accidental giving away of the receipts at a garage sale before their move from Alice Springs to Cairns. Indeed, she did not mention the alleged loss of the receipts as having anything to do with her family’s move. Rather, she seemed to think that she was the primary and overt cause of the loss because she disposed of them. In her words, she “put the receipts in the bin”.

23. Putting aside the palpable inconsistencies between the Applicant’s evidence and that of his partner, I am not aware (and nor was I directed to) any provision in any statute or regulation facilitating exercise of the Respondent’s discretion to allow an expense as an allowable deduction in circumstances where the receipt (or other documentation) going to proof of such a contention in is inadvertently or carelessly lost. Accordingly, the mere fact of the loss of the Applicant’s receipts or other documentation does not assist the Applicant.

24. The Applicant was self-represented in this matter. It became apparent in the course of both the submissions he made and the evidence he provided that he may well have operated under a misconception as to the legal elements requiring satisfaction before an item of expense can be validly characterised as a deduction. This is not to criticise the Applicant in any way. His expertise lies elsewhere.

25. The Applicant expressed incredulity at being compelled to justify his own income tax affairs when (1) large multi-national corporations are apparently not meeting their taxation obligations; and (2) certain charges arising from avoidance of taxation obligations had been brought against the son of a high-ranking official in the Respondent’s administrative structure. Those two submissions, of course, are of no relevance to this application and take it nowhere. I will not consider them any further.

26. The Applicant expressed similar incredulity at the seeming incapacity of the applicable statutory framework to facilitate virtually automatic allowable deductions for several items that may have been purchased incidental to one’s line of work. The Applicant could not comprehend how, for example, he was compelled to purchase a business suit to attend an important or sombre event related to his work, yet that expense did not give rise to an allowable deduction.

1. The Respondent’s representative helpfully pointed out:

   (a)the purchase of that business suit does not meet the requirements of s 8-1 of the ITAA97 because it was not acquired in (1) gaining or producing his assessable income or (2) in the Applicant’s carrying out of a business for the purpose of gaining or producing his assessable income; and

   (b)the purchase of a generic item such as a business suit does not have the character of a specifically defined uniform, for a designated workplace, bearing a distinctive logo and paraphernalia (such as headwear) that an employee of that workplace is compelled to wear as a condition of their employment. The prime example of this is the uniform worn by employees of McDonald’s stores.

2. It was pointed out to the Applicant that in the above McDonald’s example, (1) the requirements of s 8-1 of the ITAA97 are clearly satisfied, and (2) one could readily meet the necessary standard of written evidence required by section 900-115 of the ITAA97. Both of these requirements must be satisfied in order for an expense to be classified as an allowable deduction. The difficulties for the Applicant are that:

   (a)The flight expenses he claimed possibly meet the second of the above requirements, but not the first; and

   (b)The remainder of his other claimed expenses (including Darwin hotel accommodation and car travel in Darwin) fail to meet either of the above two requirements.

   THE IMPOSITION OF ADMINISTRATIVE PENALTY

3. Subsection 284-75(1) of Schedule 1 of the Taxation Administration Act 1953 (Cth) (“TAA53”) provides:

   You are liable to an administrative penalty if:

   (a)you make a statement to the Commissioner or to an entity that is exercising powers or performing functions under a * taxation law (other than the * Excise Acts); and

   (b)the statement is false or misleading in a material particular, whether because of things in it or omitted from it.

4. Subsection 284-90, in turn, stipulates certain rates of penalties deriving from the nature of the conduct giving rise to the false or misleading disclosure. Those rates comprise 25% of the “shortfall amount as a result of [the false or misleading] statement… and the amount, or part of the amount, resulted from a failure by you or your agent to take reasonable care to comply with a * taxation law”. This is increased to 50% of the shortfall amount as a result of “recklessness” relating to the operation of a taxation law, and 75% if there is “intentional disregard” for a taxation law.

5. The Applicant has sought to characterise private and domestic expenses as allowable deductions. Even if he were acting under a misconception or misapprehension about the deductibility of those items when lodging his tax return for the relevant period,[8] the Respondent, in two separate determinations,[9] sought to convince the Applicant that the claimed expenses could not be characterised as allowable deductions. Even with the benefit of those two determinations, the Applicant has seen it fit to propound the present application. While this may not constitute reckless or an intentional disregard of his tax obligations, it is surely reasonable to find that a reasonable person would not have claimed those expenses. The Applicant has thus, to my mind, failed to exercise the requisite level of care or attention in complying with his tax obligations, but not to the point of recklessness. Hence, the Respondent’s imposition of a penalty at the rate of 25% of the shortfall is appropriate.

   [8] The Applicant’s 2013 Tax Return was lodged on 19 August 2013 and the 2014 Return was lodged on 22 July 2014.

   [9] On 4 June 2015 – via the audit and completed by the Respondent. Further on or about 12 June 2015, via the Respondent’s issuing of amended Notices of Agreement reflecting the outcome of the audit.

6. There is no evidence before me (1) demonstrating special circumstances such as to warrant remission of the penalty in part or in full, or (2) demonstrating cogent factors against the imposition of the penalty. I therefore must find that a 25% penalty should be imposed upon the Applicant.

   CONCLUSION

7. Having regard to the totality of the evidence, I am of the view that the Applicant has failed to discharge his onus of establishing an entitlement to claim any of the disputed travel expenses or other disputed expenses as allowable deductions.

8. I accordingly affirm the decisions under review.

I certify that the preceding 41 (forty-one) paragraphs are a true copy of the reasons for the decision herein of Senior Member Theodore Tavoularis

................[sgd]........................................................

Associate

Dated: 20 March 2018

Date of hearing:	5 March 2018
Applicant:	In person
Advocate for the Respondent:	Mr Alexander Dekkers
Solicitors for the Respondent:	Australian Taxation Office Dispute Resolution