Thambiannan and Commissioner of Taxation (Taxation)
[2016] AATA 1004
•8 December 2016
Thambiannan and Commissioner of Taxation (Taxation) [2016] AATA 1004 (8 December 2016)
Division
TAXATION & COMMERCIAL DIVISION
File Number(s)
2015/5072
Re
Thangadurai Thambiannan
APPLICANT
And
Commissioner of Taxation
RESPONDENT
DECISION
Tribunal Ms G Lazanas, Senior Member
Date 8 December 2016 Place Sydney The objection decision is affirmed.
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Ms G Lazanas, Senior Member
CATCHWORDS
TAXATION AND REVENUE – deductions for work related travel expenses and medical insurance – losses or outgoings of a private nature – objection decision affirmed
LEGISLATION
Income Tax Assessment Act 1997 (Cth) s 8-1
Taxation Administration Act 1953 (Cth) s 14ZZK
CASES
Commissioner of Taxation v Payne (2001) 202 CLR 93
Federal Commissioner of Taxation v Smith (1981) 147 CLR 578
Federal Commissioner of Taxation v Cooper (1991) 29 FCR 177Ronpibon Tin NL v Federal Commissioner of Taxation (1949) 78 CLR 47
REASONS FOR DECISION
Ms G Lazanas, Senior Member
8 December 2016
Mr Thambiannan is in dispute with the Commissioner of Taxation in relation to certain deductions that he claimed for the year ended 30 June 2013 (the relevant year). Those deductions concerned work related travel expenses totalling $6,200 for a trip to India that Mr Thambiannan says he did for work purposes, and a deduction for medical insurance in the sum of $1,321.
Mr Thambiannan, as the taxpayer, bears the burden of proving that the assessment, the subject of the dispute, is excessive and what the assessment should have been:
s 14ZZK(b)(i) of the Taxation Administration Act 1953 (TAA).
I have decided that Mr Thambiannan is not entitled to claim the deductions as he failed to discharge the burden of proof. Specifically, the limited information and documents provided by Mr Thambiannan, through his tax agent, did not support the deductibility of the deductions claimed. On the evidence available, the expenses claimed by Mr Thambiannan were of a private nature and not deductible.
THE FACTUAL BACKGROUND
During the relevant year, Mr Thambiannan was a senior test engineer working with HCL Australia Services Pty Ltd (HCL), having commenced work with HCL on 2 September 2012.
On 22 July 2013 Mr Thambiannan, through his taxation agent, Mr Gambhir Watts of Taxation Guru Pty Ltd, lodged an income tax return for the relevant year. Mr Thambiannan claimed, amongst other deductions, deductions for work related travel expenses in the sum of $6,200 in his tax return for the relevant year.
On 31 July 2013, the Commissioner issued a Notice of Assessment to Mr Thambiannan.
On 19 September 2014, the Commissioner notified him that an audit would be undertaken in relation to the work related travel expenses and other work related expense deductions that he had claimed in his income tax return.
On 17 October 2014, Mr Watts responded to the Commissioner’s request for information in the following terms:
… Thangadurai has moved to India and as such it has been quite hard to contact him. He has responded and provided some information and other information including letters from the employer is awaited.
Thangadurai was employed as a Software Engineer/Business Analyst IT by HCL Australia Services Pty Ltd (based in North Sydney) an offshore division of HCL Ltd India. He was engaged on various client sites in and around Sydney and at times was deputed to continue the client project overseas. During 2013 he was required to work on the client project in India for a period of about 25 days.
… Other travel expenses include airfares and accommodation for which invoices/receipts are attached. Food and incidentals are claimed at the Commissioner Reasonable rate as per the tax determination.
Cost Item Description
Amount $
Airfare
$1,120
Accommodation 20 days Ind Rs 114,000
$1,983
Food and Incidentals 20 days @ $145 per day
$2,900
Local Travel in India approx. Rs 12,000
$1,97
Total
$6,200
… Receipts and bank statements for most expenses are attached.
On 9 January 2015, the Commissioner wrote to HCL and requested information about the taxpayer’s employment. A response was received from HCL on 27 January 2015 which stated as follows:
As per Our Record Thangadurai Thambiannan has not traveled officially any other location/state/county during his employment period of 2nd September 12 to 30 Jun 13, He was working with requested client location.
HCL also provided the employment agreement for Mr Thambiannan which relevantly provided:
HCL Australia takes immense pleasure on your selection for secondment to and we welcome you on board.
In your current title as SENIOR TEST ENGINEER you shall perform duties as per organization norms and work exclusively for HCL Australia unless otherwise agreed in writing. Your secondment start date in Sydney…is subject to your work visa approval…
Attached to the employment agreement dated 13 January 2015 is a document marked Annexure A which, amongst other things, sets out a description of the components of Mr Thambiannan’s salary. Relevantly, for the purposes of this dispute, Annexure A states as follows:
Medical Insurance Allowance is being paid to you to enable you to meet all medical insurance premium expenses incurred by you…while…in Australia. Please note insurance premium amount (as applicable) would be deducted from your salary and would be paid directly to the insurance service provider. …This component is paid only till time you are on a 457 Visa….
By letter dated 2 February 2015, the Commissioner advised Mr Thambiannan that his tax audit had been completed and that the Commissioner had disallowed all of the claimed work related expenses and other work related expenses. The Commissioner also imposed an administrative penalty of 25% of the tax shortfall amount. Subsequently, on 10 February 2015, the Commissioner issued a Notice of Amended Assessment for the relevant year and a Notice of Assessment of Shortfall Penalty.
On 12 April 2015, Mr Watts, as the tax agent for Mr Thambiannan, lodged an objection in the following terms:
(a)His work related travel expense claim relates “to the travel during which period Mr Thambiannan visited his employer operations in India to familiarise better the technical operations involved in his daily work routine at the employer Australian operations. This activity is directly related to work...” (sic); and
(b)In relation to his other work related expense claims, “Mr Thambiannan’s total salary included all allowances for all the work related expenses and as such no separate item of allowance was indicated on the PAYG Payment Summary”.
On 22 June 2015, the Commissioner requested further information from Mr Thambiannan including details of the allowances paid to him by his employer as well as information as to whether his employer had directed him to undertake travel to India. On 26 June 2015, Mr Thambiannan, again through his tax agent, provided a further explanation of his expenses. Relevantly, for present purposes, it was stated that Mr Thambiannan’s “relevant managers no longer work … with the project/employer and therefore not in a position to arrange a letter or confirmation” (sic).
On 10 September 2015, the Commissioner issued the Notice of Objection Decision to Mr Thambiannan and the deductions claimed for work related travel expenses and other work related expenses were disallowed in their entirety. Mr Thambiannan’s objection to the administrative penalty was allowed and is, therefore, no longer in dispute.
THE ISSUES
The only issues in dispute between the parties before the Tribunal are whether Mr Thambiannan is entitled to deductions for work related travel expenses in the amount of $6,200 and for a medical insurance premium in the amount of $1,321. As to the latter expense, Mr Thambiannan had not actually claimed a deduction for this amount in his income tax return for the relevant year or raised it in his objection, but it was raised as a new ground of objection for the first time at the hearing. I made an order at the hearing that Mr Thambiannan could do so, in accordance with s 14ZZK(a) of the TAA.
THE LEGISLATIVE FRAMEWORK
The deductions Mr Thambiannan has claimed can only be allowed if they fall within the general deduction provision in s 8-1 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997). The first limb of that section allows a deduction for a loss or outgoing to the extent that it is incurred in gaining or producing assessable income: s 8-1(1)(a) of ITAA 1997. It has long been established that the test is to be understood as meaning incurred “in the course of” gaining or producing assessable income: Commissioner of Taxation v Payne (2001) 202 CLR 93. It is necessary that some link or nexus be established between the loss or outgoing incurred and the production of assessable income: Ronpibon Tin NL v Federal Commissioner of Taxation (1949) 78 CLR 47. That is, Mr Thambiannan, must show a real connection between the expenses and his employment activities for the expenses to be deductible: Federal Commissioner of Taxation v Smith (1981) 147 CLR 578 at 586.
The second limb, relevantly contained in s 8-1(2)(b) of the ITAA 1997, denies a deduction for a loss or outgoing that is of a “private or domestic nature”. What constitutes private or domestic expenses is not defined in the ITAA 1997, however, they are expenses generally considered to relate to the taxpayer in his or her personal or private capacity or associated with household or other domestic affairs of the taxpayer, such as food and accommodation: Federal Commissioner of Taxation v Cooper (1991) 29 FCR 177. Therefore, expenditure which is essentially of a private or domestic nature will not generally be deductible under s 8-1(1) as it will not have been incurred by a taxpayer “in the course of” gaining or producing assessable income, even though the taxpayer may, as a matter of practicality, need to incur the expenditure to earn assessable income.
IS MR THAMBIANNAN ENTITLED TO CLAIM THE DEDUCTIONS?
On the limited evidence made available to the Tribunal, I cannot be satisfied that the travel expenses which Mr Thambiannan claimed as deductions were incurred “in the course of” gaining or producing assessable income or that the travel had any nexus with his employment. None of the documents produced by Mr Thambiannan or by Mr Thambiannan’s employer support his assertion that his travel to India was for a work related purpose. On the contrary, as noted at [9] above, HCL categorically stated to the Commissioner that Mr Thambiannan had not undertaken any official work related travel interstate or overseas. There was also nothing to suggest that Mr Thambiannan had undertaken any unofficial work related travel. Mr Thambiannan chose not to file any witness statement or to appear at the hearing.
Counsel for the Commissioner also pointed to Mr Thambiannan’s payment summaries which indicate that Mr Thambiannan took paid annual leave and unpaid personal leave in June 2013 being the time when he was in India. In other words, the payment summaries show that Mr Thambiannan was in India on his own time and not on his employer’s time. All the documents point to Mr Thambiannan’s trip to India being of a private nature.
In relation to the deduction claimed for the medical insurance premium, Mr Watts argued that Mr Thambiannan was entitled to claim a deduction for the premium because his employer had made an allowance for this in his salary package. The difficulty with Mr Watts’ contention is that regardless of whether Mr Thambiannan’s employer had paid him an allowance for the expense, it is not deductible as medical insurance is inherently private in nature. The mere fact that Mr Thambiannan needed to incur the expense to be able to obtain a sub-class 457 visa in the relevant year and to commence work in Australia does not change the essential character or nature of the expenditure, which is that it is private in nature and, therefore, not deductible. That is, even if it was a prerequisite to him working and earning assessable income, it is not deductible.
CONCLUSION
As Mr Thambiannan failed to discharge his onus of proof in relation to the deductibility of the expenses, the reviewable objection decision is affirmed.
I certify that the preceding 22 (twenty -two) paragraphs are a true copy of the reasons for the decision herein of Ms G Lazanas, Senior Member ....................................[sgd]....................................
Associate
Dated 8 December 2016
Date(s) of hearing 4 July 2016 Advocate for the Applicant Mr G Watts, Taxation Guru Pty Ltd Counsel for the Respondent Mr N Swan Solicitors for the Respondent ATO Review and Dispute Resolution
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