Banks and Commissioner of Taxation (Taxation) [2017] AATA 468 (11 April 2017)

Transcription

1 Banks and Commissioner of Taxation (Taxation) [2017] AATA 468 (11 April 2017) Division TAXATION AND COMMERCIAL DIVISION File Numbers 2015/1934, 2015/1935 Re Paul Michael Banks APPLICANT And Commissioner of Taxation RESPONDENT DECISION Tribunal Egon Fice, Senior Member Date 11 April 2017 Place Melbourne The Tribunal affirms the Objection Decision made by the Commissioner on 6 June [sgd]... Egon Fice, Senior Member Commonwealth of Australia 2017

2 TAXATION - appeal against objection decision - income tax assessment - claimed deductions disallowed on audit - whether assessment excessive or otherwise incorrect - claimed deduction for work-related travel allowance - application of exception from substantiation for travel and overtime meal allowances - applicant unable to rely on exception from substantiation due to amount claimed - applicant unable to prove deductions - applicant unable to prove assessment excessive or otherwise incorrect TAXATION - penalties - administrative penalties - where applicant s taxation shortfall arose due to failure of applicant and applicant s tax agent to take reasonable care - where applicant incorrectly advised as to taxation obligations - where applicant failed to provide tax agent with all relevant information - penalties correctly imposed - no basis for remission of penalties for any other reason contended Legislation Administrative Appeals Tribunal Act 1975 (Cth) ss. 19D, 25, 37 Income Tax Assessment Act 1997 (Cth) ss. 8-1, , , , , , , , , , Taxation Administration Act 1953 (Cth) ss. 14ZZ, 14ZZK; sch. 1 ss , , , Cases Imperial Bottleshops Pty Ltd and Anor v Commissioner of Taxation (1991) 22 ATR 148 Secondary Materials Miscellaneous Taxation Ruling MT2008/1, Penalty relating to statements: meaning of reasonable care, recklessness and intentional disregard Taxation Ruling TR2004/6, Income tax: substantiation exception for reasonable travel and overtime meal allowance expenses Taxation Determination TD2010/19, Income tax: what are the reasonable travel and overtime meal allowance expense amounts for the income year? Taxation Determination TD2011/17, Income tax: what are the reasonable travel and overtime meal allowance expense amounts for the income year? Taxation Ruling TR 2004/6, Income tax: substantiation exception for reasonable travel and overtime meal allowance expenses PAGE 2 OF 31

3 REASONS FOR DECISION Egon Fice, Senior Member 11 April 2017 Background and Reconstitution 1. This application was heard by the Tribunal, differently constituted, on 8 February 2016, 9 February 2016 and 20 June Further submissions were received in relation to the application on 25 July 2016 and 31 August The Tribunal s decision was reserved as of 7 September On 7 March 2017, after being formally requested to do so by Deputy President S A Forgie and after consultation with the Tribunal as previously constituted, the President of the Tribunal exercising his power under s. 19D(2) of the Administrative Appeals Tribunal Act 1975 (Cth) (the AAT Act) reconstituted the Tribunal appointing me to continue this proceeding. Section 19D(4) of the AAT Act provides: The reconstituted Tribunal must continue the proceeding. For this purpose, it may have regard to any record of the proceeding before the Tribunal as previously constituted (including a record of any evidence taken in the proceeding). 3. In writing these reasons for decision, I have had regard to all documents, including the documents produced by the Respondent under s. 37 of the AAT Act; documents admitted into evidence in the course of the hearing; and the Transcript of Proceedings in this matter on 8 and 9 February 2016, and 20 June The Reviewable Decision 4. The decision under review in this matter is an Objection Decision made on 5 June 2014, which concerned the Applicant s claimed deductions for the 2011 and 2012 income years. During the 2011 and 2012 income years the Applicant, Mr Paul Banks, was employed as a truck driver by Dunn s Transport Pty Ltd. In the course of his employment, Mr Banks was required to stay overnight away from his home. Dunn s Transport paid Mr Banks a bona fide travel allowance to assist him with the cost of accommodation (where applicable), and food and drink expenses incidental to the travel. The allowance was said to be paid on the basis of $50 per night that Mr Banks slept away from home. Dunn s PAGE 3 OF 31

4 Transport also stated that Mr Banks was required to take on each trip sleeping gear and tools for performing repairs on the truck when necessary. 5. In the income tax returns Mr Banks lodged for the relevant income years, he claimed work related travel expenses in the amount of $24,888 in the 2011 income year and $21,636 in the 2012 income year. His assessable income for those years was $74,624 and $78,311 respectively. In the relevant income years, Mr Banks also claimed deductions for workrelated car expenses; work-related clothing expenses; other work-related expenses; interest deductions; gifts or donations; and expenses in managing his tax affairs. 6. In a letter dated 2 May 2013 the Australian Taxation Office (ATO) informed Mr Banks that his income tax returns for the 2011 and 2012 income years had been selected for audit in relation to those claimed deductions. In a letter dated 16 July 2013 the ATO informed Mr Banks that it had completed its audit for both income years. The ATO amended the assessments disallowing a number of Mr Banks claimed deductions, resulting in a shortfall amount of $19, which Mr Banks was then required to pay. That sum was calculated by making the following adjustments in each income year: 2011 Claimed and Allowed Deductions Item Claimed amount Allowed amount Work-related car expenses $3,750 $1,680 Work-related travel expenses $24,888 $162 Work-related clothing expenses $799 $460 Other work-related expenses $1,642 $521 Interest deduction $66 $0 Gifts or donations $100 $0 Costs of managing tax affairs $1,023 $ Claimed and Allowed Deductions Item Claimed amount Allowed amount Work-related car expenses $3,750 $1,680 Work-related travel expenses $21,636 $0 Work-related clothing expenses $600 $620 Other work-related expenses $1,410 $1,508 Interest deduction $48 $0 PAGE 4 OF 31

5 Gifts or donations $50 $0 Costs of managing tax affairs $1,282 $ The auditors also informed Mr Banks that he was liable to an administrative penalty on the shortfall amount for failure to take reasonable care when he prepared his income tax returns in each income year. That amounted to $2, for the 2011 income year and $2, for the 2012 income year. 8. On 18 December 2013 Mr John Fumberger, a registered tax agent, lodged an objection to the assessments for the relevant income years. In a letter dated 5 June 2014 the ATO allowed the following claims in the two income years in question (the Objection Decision): 2011 Item Allowed Amount Work-related car expenses $1,680 Work-related travel expenses $11,990 Other work-related expenses $521 Interest deduction $0 Gifts or donations $0 Costs of managing tax affairs $ Item Allowed Amount Work-related car expenses $2,559 Work-related travel expenses $12,980 Other work-related expenses $1,666 Interest deduction $0 Gifts or donations $0 Costs of managing tax affairs $ The ATO also informed Mr Banks that while he remained liable to pay an administrative penalty and a shortfall interest charge, they would be reduced for the amounts allowed as a result of the Objection Decision. The Commissioner issued notices of amended assessment for the 2011 and 2012 income years on 13 June PAGE 5 OF 31

6 10. After the Commissioner had made his Objection Decision, on 22 September 2014 Mr Banks, through his tax agent Mr Fumberger, sought full remission of the shortfall interest charges and administrative penalties which had been determined by the Commissioner in his decision. On 23 January 2015 the Commissioner issued a Notice of Review Decision confirming that: the safe harbour exception (found in s (6) of the Taxation Administration Act 1953 (Cth) (the Administration Act)) would be applied to the penalties previously imposed on the total shortfalls arising from overstated expenses claims; and a partial remission of the overall shortfall interest charge would be applied. 11. I should point out that the Tribunal s jurisdiction to review certain decisions is found in s. 25 of the AAT Act. Relevantly, it provides: (1) An enactment may provide that applications may be made to the Tribunal: for review of decisions made in the exercise of powers conferred by that enactment; or for the review of decisions made in the exercise of powers conferred, or that may be conferred, by another enactment having effect under that enactment. 12. The enactment which provides that applications may be made to the Tribunal regarding taxation matters is found in the Administration Act at s. 14ZZ which provides: (1) If the person is dissatisfied with the Commissioner s objection decision (including a decision under paragraph 14ZY(1A) to make a different private ruling), the person may: if the decision is a reviewable objection decision either: (i) (ii) apply to the Tribunal for review of the decision; or appeal to the Federal Court against the decision; or otherwise appeal to the Federal Court against the decision. 13. Clearly, in this case, the Tribunal is limited to reviewing only the Commissioner s Objection Decision. It cannot review the decision made by the Commissioner on 23 January 2015 as it is not an Objection Decision. However, if, following the findings I make on the Objection Decision I am of the view that Mr Banks is entitled to a remission of penalties imposed on him, I shall of course be mindful of the decision made by the Commissioner in his Notice of Review Decision. PAGE 6 OF 31

7 14. The Objection Decision made by the Commissioner dealt with the number of claims other than work-related travel expenses claimed by Mr Banks. Except for the claim for other work-related expenses claimed in the 2012 income year, the claims were reduced in the Objection Decision. No issue was taken with those reduced claims as determined in the Objection Decision. The only issues which it appears I am required to determine are: (c) (d) whether the work-related travel expenses claimed by Mr Banks satisfied the requirements in s. 8-1 of the Income Tax Assessment Act 1997 (Cth) (ITAA 97); whether s of the ITAA 97 operates to exempt Mr Banks from the obligation to establish that work-related travel expenses were incurred as claimed; whether Mr Banks or his tax agent failed to take reasonable care in claiming the work-related travel expenses resulting in Mr Banks being liable to an administrative penalty calculated at 25% of the shortfall amount for the claimed work-related travel expenses for each of the relevant income years pursuant to s (1) of Schedule 1 of the Administration Act; and if I find Mr Banks is liable to the administrative penalties levied by the Commissioner, whether there is any basis for remission either in part or in full of those penalties pursuant to s of Schedule 1 of the Administration Act. GROUNDS OF OBJECTION AND BURDEN OF PROOF 15. Section 14ZZK of the Administration Act provides: On an application for review of reviewable objection decision: the applicant is, unless the Tribunal orders otherwise, limited to the ground stated in the taxation objection to which the decision relates; and the applicant has the burden of proving: (i) (ii) if the taxation decision concerned is an assessment the assessment is excessive or otherwise incorrect and what the assessment should have been; or in any other case that the taxation decision concerned should not have been made or should have been made differently. 16. The Commissioner s disallowance of the claimed deductions for work-related travel expenses made by Mr Banks has resulted in in a significant increase in Mr Banks taxable income. Mr Banks included a travel allowance of $10,900 for the 2011 income year and PAGE 7 OF 31

8 $11,800 for the 2012 income year in his income tax returns for those years. The amount paid to Mr Banks was not in dispute. 17. Mr Banks bears the burden of proving that the claimed expenses were in fact incurred or that he has met the substantiation requirements, if they apply, for the claimed deductions. 18. As for the administrative penalties, Mr Banks bears the burden of proving that the decisions to impose penalties should not have been made or that they should have been made differently. WORK-RELATED DEDUCTIONS 19. Section 8-1 of ITAA 97 is the general deductions provision. It provides: (1) You can deduct from your assessable income any loss or outgoing to the extent that: it is incurred in gaining or producing your assessable income; or it is necessarily incurred in carrying on a *business for the purpose of gaining or producing your assessable income. (2) However, you cannot deduct the loss or outgoing under this section to the extent that: (c) (d) it is a loss or outgoing of capital, or of a capital nature; or it is a loss or outgoing of a private or domestic nature; or it is incurred in relation to gaining or producing your *exempt income or your *non-assessable non-exempt income; or a provision of this Act prevents you from deducting it. 20. Section explains the meaning of the expression work expense. Travel allowance expenses are included in that meaning. Relevantly, it provides: (1) A work expense is a loss or outgoing you incur in producing your salary or wages. (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: be for accommodation or for food or drink; or be incidental to the travel. (3) A travel allowances is an allowance your employer pays or is to pay to you to cover losses or outgoings: PAGE 8 OF 31

9 that you incur for travel away from your ordinary residence that you undertake in the course of your duties as an employee; and that our losses or outgoings for accommodation or for food or drink, or are incidental to the travel. The travel may be within or outside Australia. (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 allowance at 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. SUBSTANTIATION RULES 21. Ordinarily, a taxpayer is required to substantiate any claims made in relation to his or her income tax returns should the Commissioner seek substantiation (s of ITAA 97). Because the taxation system currently operating in Australia is described as a system of self-assessment, documents substantiating claims for deductions are not ordinarily required to be produced to the ATO upon lodgement of an income tax return. However, if the Commissioner decides to audit an income tax return of the taxpayer, he would ordinarily seek substantiation of the claims as part of that audit. Records substantiating work expenses must be retained by the taxpayer for 5 years or, where an objection is lodged, an extended period (ss and ). 22. Section provides that to deduct certain types of loss or outcomes, the taxpayer needs to substantiate them under Division 900 of ITAA 97. Subdivision 900-B deals with substantiating work expenses. Section relevantly provides: (1) To deduct a *work expense: it must qualify as a deduction under some provision of this Act outside this Division; and you need to substantiate it by getting written evidence. PAGE 9 OF 31

10 23. Subdivision 900-E deals with written evidence. Section , which deals with written evidence from a supplier, is relevant in Mr Banks case. It provides: (1) You may use this set of rules for any type of expense except the decline in value of a *depreciating asset. (2) You must get a document from the supplier of the goods or services the expense is for. The document must set out: (c) (d) (e) the name or business name of supplier; and the amount of the expense, expressed in the currency in which it was incurred; and the nature of the goods or services; and the day the expense was incurred; and the day it is made out. (3) There are 2 exceptions to these requirements: if the document does not show the day the expense was incurred, you may use a bank statement or other reasonable, independent evidence that shows when it was paid; if the document the supplier gave you does not specify the nature of the goods or services, you may write in the missing details yourself before you lodge your *income tax return for the income year. 24. An alternative means of substantiation is provided in respect of a small total of small expenses. Section provides: (1) If your expense is small, and you have a small total of small expenses, you can make a record of the expenses instead of getting a document from the supplier. (2) Each expense must be $10 or less, and the total of all your expenses that: (c) are each $10 or less; and you incurred the income year and wish to deduct; and you must get written evidence for under this division; must be $200 or less. These limits can be increased from time to time by regulations made under section There are, however, some exceptions to the general substantiation rule. Section deals with the exception for domestic travel allowance expenses. It provides: (1) You can deduct a *travel allowance expense for travel within Australia without getting written evidence or keeping travel records if the Commissioner considers reasonable the total of the losses or outgoings you claim for travel covered by the allowance. (2) In deciding whether the total of the losses or outgoings you claim is reasonable, the Commissioner must take into account the total of the losses or PAGE 10 OF 31

11 outgoings of the following kinds that it would be reasonable for you to incur for the travel: (c) accommodation; food or drink; losses or outgoings incidental to the travel. 26. What the Commissioner considers are reasonable amounts for the substantiation exception in Subdivision 900-B of ITAA 97 is set out in Taxation Determinations for each year. A Taxation Determination is a public ruling for the purposes of the Administration Act. If a taxpayer relies on the ruling, the Commissioner must apply the law in the way set out in the ruling unless the Commissioner is satisfied that the ruling is incorrect and disadvantages the taxpayer, in which case the law may be applied to the taxpayer in a way that is more favourable. For the 2011 income year, the relevant determination is TD 2010/19. For the 2012 income year, TD 2011/17 applies. 27. Table 6 of TD 2010/19 applies to employee truck drivers for the 2011 income year. The reasonable amount is divided into two blocks, dependent upon the truck driver s salary range. If the driver s salary is $97,100 and below, the maximum total reasonable allowance for food and drink is $84.90 per day. If the truck driver s salary is $97,101 and above, the maximum total reasonable allowance for food and drink is $92.65 per day. 28. Table 6 of TD 2011/17 applies to employee truck drivers for the 2012 income year. If the driver s salary is $100,840 and below, the Food & Drink allowance is $87 per day. If the driver s salary is $100,841 and above, the amount rises to $94.95 per day. 29. Despite the exception to substantiation set out in s of ITAA 97, that exception does not mean that a taxpayer may not be required to substantiate that an expense was actually incurred and that it was for work related purposes. To begin with, s (1) provides that to deduct the work expense, it must qualify as a deduction under some other provision of ITAA 97. Generally, that is a reference to s. 8-1 of ITAA 97 dealing with workrelated deductions. 30. Taxation Ruling TR 2004/6 is binding on the Commissioner. It came into effect on 23 June 2004 and was consolidated in June It remained in force until withdrawn on 27 April 2016, but was reinstated on 28 April 2016 and is relevant in this case. PAGE 11 OF 31

12 Paragraphs of TR 2004/6 explain the substantiation exception in the following way: 13. The objective of the substantiation exception for travel and overtime meal allowance expenses provided for in Subdivision 900-B of the ITAA 1997 is to relieve taxpayers covered by the exception from the requirement to substantiate claims for deductible expenses by using detailed calculations, records or receipts. If a claim for expenses that are covered by a travel allowance or overtime meal allowance qualifies for exception from substantiation, it is not necessary to keep written evidence as would otherwise be required under Subdivision 900-B of the ITAA A taxpayer can choose not to use the exception from substantiation. Each taxpayer can decide between maintaining fewer records and limiting a claim to the reasonable amount, which in some circumstances may be lower than the amount actually incurred, or keeping written evidence and claiming the full amount of deductible expenses incurred, which may be higher than the reasonable amount. 15. If a taxpayer relies on the exception from substantiation, they may still be required to show the basis for determining the amount of their claim, that the expense was actually incurred, and that it was for work-related purposes. What counts as evidence for a claim subject to the substantiation exception will vary according to individual circumstances and the nature of the expense. 31. TR 2004/6 at paragraph 16 sets out some common situations which may arise. The following are relevant: 16. Where a taxpayer receives a bona fide travel allowance or a bona fide overtime meal allowance and incurs deductible expenses in relation to it: Where the deduction claimed is more than the reasonable amount, the whole claim must be substantiated with written evidence, not just the excess over the reasonable amount. Where the allowance received is not shown on the employee s payment summary and is not greater than the reasonable amount and it is fully expended on deductible expenses, the allowance received is not required to be shown as assessable income in the employee s tax return. Where it is not shown, a deduction for the expense cannot be claimed in the tax return refer to paragraph 12. Where the allowance paid by the employer is greater than the reasonable amount the taxpayer may still use the exception from substantiation if the claim for deduction is not greater than the reasonable amount. In that case the allowance must be shown as assessable income and written evidence is not required to support the claim. Where the deductible expense is less than the allowance received, the taxpayer must show the allowance as assessable income in the tax return, and claim only the amount of the deductible expenses incurred. PAGE 12 OF 31

13 32. Taxation Determination TD 2011/17 refers to Taxation Ruling TR 2004/6 and sets out the key points as follows: 3 Key points from the TR 2004/6 about claiming travel allowance expenses and overtime meal allowance expenses are: Claim must be allowable A deduction claim cannot exceed the amount actually incurred for work-related purposes. The payment of an allowance does not of itself allow a deduction to be claimed. Allowance must be paid - The substantiation exception only applies if the employee is paid an overtime meal allowance or a travel allowance. The allowance must have an identifiable connection with the nature of the expense covered. For travel allowance expenses The employee must sleep away from home. Substantiation exception Where the amount claimed is no more than the applicable reasonable amount, substantiation of the claim with written evidence is not required. Claims in excess of reasonable amounts If the amount claimed is more than the reasonable amount, the whole claim must be substantiated, not just the excess. Verification of reasonable claims In appropriate cases, where the substantiation exception is relied on, the employee may still be required to show: how they worked out their claim; an entitlement to a deduction (for example that work-related travel was undertaken); a bona fide travel allowance was paid; and if accommodation is claimed, that commercial accommodation was used. The nature and degree of evidence will depend on the circumstances: for example the circumstances under which the employer pays allowances, the occupation of the employee, and the total amount of allowances received and claimed during the year by the employee. MR BANKS WORK-RELATED TRAVEL EXPENSE CLAIM 33. There was no dispute that Mr Banks received a travel allowance of $10,900 in the 2011 income year and $11,800 in the 2012 income year. Those amounts were returned as income in his income tax returns. Also, there can be no dispute that Mr Banks claimed work-related travel expenses in the amount of $24,888 in 2011 income year and $21,636 PAGE 13 OF 31

14 in the 2012 income year. Plainly, the expense deduction claimed in each year exceeded the bona fide travel allowance provided to Mr Banks by his employer. 34. It is important to note that the reasonable travel allowance claim is based on food and drink components only associated with reasonable domestic daily travel allowance amounts. The amounts determined by the Commissioner are reasonable for meal expenses of employee truck drivers who have received a travel allowance and who are required to sleep away from home. There was no dispute about the fact that Mr Banks was paid $50 per day by way of travel allowance for each night he was required to sleep away from home. Mr Banks confirmed as much in his oral evidence-in-chief. 35. Mr Banks employment as a driver typically required him to drive from Ballarat to Adelaide and return. He agreed that was the typical routine for each trip. While there were occasional changes to the routine, including stops along the way for rest or meal breaks, typically he would leave Ballarat in the afternoon of the first day, arriving in Adelaide late that evening or in the early hours of the following day. Typically, he would stop at Ararat and Tintinara, purchasing food and drink. He would also have an evening meal following arrival in Adelaide. On the following day, he would have breakfast at Adelaide and return to Ballarat, stopping at Price, Port Wakefield, and Tintinara. He usually arrived back at Ballarat late in the evening on the second day. 36. In his Objection Decision, the Commissioner determined that the travel allowance provided by Mr Banks employer of $100 per overnight trip was considered to be a reasonable amount in his circumstances. Accordingly, the Commissioner found that the allowance paid to Mr Banks met the criteria of a bona fide travel allowance and qualified for the substantiation exception. 37. Using the reasonable travel and overtime meal allowance expense tables set out in TD 2010/19, the Commissioner determined that the reasonable amount for Mr Banks for the 2011 income year, undertaking his usual pattern of travel, was $ per overnight trip; comprising $20.65 for breakfast, $23.60 for lunch and $40.65 per dinner for two dinners. In the 2012 year, using the figures from TD 2011/17, the Commissioner determined that the reasonable amount for Mr Banks usual pattern of travel was $128.65; comprising $21.15 for breakfast, $24.20 for lunch and $41.65 per dinner for two dinners. PAGE 14 OF 31

15 38. However, the serious problem which Mr Banks faced was that he was unable to produce receipts for the relevant income years which substantiated his claim for meals and drinks and incidental expenses incurred on overnight trips. When requested by the ATO on 22 May 2014 to do so, Mr Fumberger provided a total of nine receipts, dating between July 2013 and April 2014 on Mr Banks behalf. 39. Obviously, not one of those receipts related to the relevant income years. Nevertheless, Mr Fumberger submitted that these were typical of the expenses incurred by Mr Banks on his round trip. The maximum expenditure recorded on those receipts is $40 and the minimum $20. Plainly, those receipts cannot be said to substantiate the expenditure Mr Banks claims to have incurred in the relevant income years. 40. Although Mr Banks, in cross-examination, provided a number of estimated costs incurred in purchasing various meals, drinks and incidentals, that evidence must, necessarily, carry little weight. In fact, it is clear from the evidence given by Mr Banks that his memory of the nature of the food and drinks he in fact consumed and their cost were anything but clear. That is not meant as a criticism of Mr Banks but rather, that one could hardly be expected to remember with any degree of accuracy that information after the passage of four or five years. 41. Further, Mr Banks said he was aware that he needed to keep some receipts. He admitted he rarely kept such receipts. When asked whether Mr Fumberger told him he needed to keep receipts to support his taxation claims from a number of years, Mr Banks referred to the Seven year rule. He said he had the impression he had to keep them for that period of time rather than being told by Mr Fumberger. In fact s refers to the retention period as being five years. 42. In his Objection Decision the Commissioner determined Mr Banks claim by examining the 9 receipts provided by Mr Banks and broadly assessing those which may have been provided in respect of breakfast, lunch and dinner. The Commissioner concluded that a reasonable estimate of Mr Banks food, drink and incidental expenses per overnight trip was $110 per trip. Relying on the evidence given by Mr Banks, Ms Cameron arrived at a total expenditure per trip to be $ This is to be contrasted with the calculation made by Mr Fumberger in his Objection which estimated Mr Banks expenditure over the two days to be $175. Mr Fumberger then calculated the travel allowance claim in the 2011 PAGE 15 OF 31

16 income year by claiming 218 nights at $93.80 totalling a claim of $20,448. For the 2012 income year, Mr Fumberger used the figures of 236 nights at $84.90 totalling a claim of $20, Mr Fumberger justified the claimed figures by stating that each trip covered a period of at least 28.5 hours, which was the equivalent of two overnight claims. Plainly, that is a misconception by Mr Fumberger. The reasonable allowance figures are based on maximum amounts allowed for breakfast, lunch and dinner per day. Claims for those amounts are only reasonable if they involve an overnight stay by the truck driver. Effectively, Mr Fumberger has doubled the number of trips which Mr Banks in fact made in each income year. Furthermore, he has used incorrect figures in each income year for the daily rate. The maximum total, based on Mr Banks salary, for the 2011 income year was $84.90 per day (TD 2010/19) and the 2012 income year $87 per day (TD 2011/17). 44. The Commissioner, correctly in my opinion, by referring to the payslips provided by Mr Banks, calculated that he had 109 overnight trips in the 2011 income year and 118 overnight trips in the 2012 income year. The Commissioner then arrived at a reasonable estimate using $110 per overnight trip which, on the receipt evidence provided, was reasonably generous, allowing for dinner on the first day, and breakfast, lunch and dinner on the second day, resulting in a reasonable deduction claim of $11,990 in the 2011 income year and $12,980 in the 2012 income year. These figures are contrasted against the deduction claims by Mr Banks on his income tax returns for the corresponding years of $24,888 and $21, As is explained at paragraph 13 of TR 2004/6, if the claim for expenses covered by travel allowance or overtime meal allowance qualifies for an exception from substantiation, as is the case in this matter, it is not necessary to keep written evidence as would otherwise be required under Subdivision 900-B of ITAA 97. However, in this case, Mr Banks clearly claimed a deduction significantly in excess of the reasonable amount. As is explained in paragraph 16 of TR 2004/6, the whole of the claim must be substantiated with written evidence, not simply the excess over the reasonable amount. 46. A taxpayer of course is not prevented from claiming a travel related expense in excess of the reasonable amount determined by the Commissioner. However, should he or she do so, they are required to provide written evidence to substantiate their claimed deduction. PAGE 16 OF 31

17 Despite this, the Commissioner has allowed Mr Banks work-related travel expenses in the amounts of $11,990 and $12,980 respectively. 47. Mr Fumberger, who not only assisted Mr Banks in preparing his income tax returns for the years in question, also appeared on his behalf at the hearing of this matter. In addition, he gave evidence, or what purported to be evidence, on behalf of Mr Banks in the form of an affidavit and he was cross-examined by Ms Cameron. Had objections been raised at the time of tendering that affidavit, much of it would have been struck out. It is either selfserving, and by that I mean statements made in his own interest as Mr Banks tax agent rather than that of Mr Banks, and much is also simply hearsay. A substantial portion of it is argumentative, taking issue with the way in which the Commissioner has calculated a reasonable amount for a work-related travel expense. It points clearly to the fact that Mr Fumberger had a conflict of interest in appearing before the Tribunal on behalf of Mr Banks. Nevertheless, I should mention some aspects of his evidence because they stand in stark contrast to that given by Mr Banks in his oral evidence. 48. In cross-examination Mr Fumberger was asked where he obtained the figures of $93.80 and $84.90 for the 2011 and 2012 income years respectively. His response was they came from tax determinations but was unable to identify which determinations. When Mr Fumberger was shown TD 2010/19 which deals with reasonable travel or overtime meal allowance expense amounts for the 2011 income year, Mr Fumberger referred to Table 1 which is found at paragraph That table refers to an employee s annual salary of $97,100 or below. It is divided into a bracket of capital city allowances, high cost country centres, Tier 2 country centres which are described at Table 5 and other country centres. The figure of $93.50 per day applies only to capital cities. Lesser amounts are allowed for country centres. However, that table plainly does not apply to employee truck drivers whose allowances are specifically referred to in Table 6. Clearly, from the answers given by Mr Fumberger, he had not previously looked at table When asked why he didn t use Table 6 for the 2011 income year, he suggested that he did use Table 6 plus the incidentals on Table 1. That response was also incorrect. If he had used Table 6 plus the incidentals shown on Table 1, that would have resulted in the claimed sum of $84.90 plus $16.85, which is $ Plainly, Mr Fumberger was simply PAGE 17 OF 31

18 making it up as he went along. For the 2012 income year, Mr Fumberger used the amount $84.90 which is in fact the Table 6 daily allowance for the 2011 income year. When asked why that was the case, he simply said: I thought that was more relevant. When asked why he thought that figure was more relevant, Mr Fumberger said: Just because. In fact the 2012 income year figure is $87 per day. 51. Mr Fumberger was also asked whether he had produced any notes or copies of receipts for food and drink other than the nine receipts he produced in May 2014 which related to years other than those income years in question. Mr Fumberger responded that they were submitted at the time of the audit. When it was put to him that they did not relate to the income years in question, he responded: Yes, they do, 11 and 12. When asked which receipts he was referring to, Mr Fumberger said all the receipts that Mr Banks brought with him and produced at the interview were photocopied and sent to the auditor. 52. The audit report which is dated 16 July 2013 had attached to it copies of the documents provided to the auditor by Mr Fumberger. There were no receipts for food or drinks connected with Mr Banks travel expense claim with those documents. While the auditor concluded from the information provided by Mr Fumberger, that the travel allowance paid to Mr Banks was not a bona fide travel allowance, she concluded: Even if your allowance was correctly classified as a bona fide travel allowance, you have not provided sufficient information to show that you incurred the expenses. It is not sufficient to multiply the number of nights that you sleep away from home by the Commissioner s reasonable rate without showing that you actually incurred expenses. You did provide receipts showing that you spent $ on meals in the year ended 30 June On this basis an amount of $162 has been allowed in your income tax return. 53. As no receipts were produced for the 2012 income year, the auditor disallowed the entire claim for work-related travel expenses for that year. 54. As I have noted above in relation to the auditor s report, it appears that a very limited number of receipts were produced by Mr Banks and only for the 2011 income year. That accords with the evidence given by Mr Banks in the course of his cross-examination when the following questions were put and answers given: No, and you haven t got any receipts here today to show that that is what you do?- --You did not ask for them, so I did not bring them. PAGE 18 OF 31

19 Leaving aside what s has been asked for, you didn t think it was important to bring anything extra like that today?---not for the years that are not covered by the tribunal. What about for years that are covered?---well, I don t--- You don t have anything?---no 55. Although Mr Banks gave vague evidence about having done some research himself via the internet about the allowances a truck driver was entitled to claim, that evidence was not convincing. He was unable to explain how he located Tax Rulings or Taxation Determinations on the ATO website. Even for those who are relatively familiar with the website, that can itself be a daunting task. Assuming he had looked at and found the appropriate Rulings and Determinations, the Tribunal suggested that having looked at those documents, he would have discussed them with Mr Fumberger. Mr Banks had previously referred to Mr Fumberger as a truck driver specialist when it came to completing income tax returns. The following exchange then occurred: You didn t check with your specialist to make sure that the way you were reading it was the right way?---i thought we were on the same page, yes. I m sorry?---i thought we were on the same page. I think we were on the same page. How did you think that if you hadn t discussed it with him?---well, I figure if he s claiming it, it must be right. 56. With respect to Mr Banks, that final answer probably explains why the income tax returns in 2011 and 2012 claimed the deductions recorded on those returns. It was plainly Mr Fumberger s idea and understanding of the taxation law and Mr Banks, understandably, simply accepted it was correct. As I have already indicated above, Mr Fumberger provided Mr Banks with the wrong advice and then attempted to justify his decision in the course of the hearing of Mr Banks application for review of the Commissioner s Objection Decision. That is undoubtedly why the following statement appears in Mr Fumberger s so-called statement of evidence: 1. Typically, like all tax returns prepared by myself [sic], Mr Banks [sic] return was compiled with a great deal of professional care and skill, and with consultation with Mr Banks. Mr Banks was familiar with the tax laws that were fundamental to the preparation of his return, and in particular the application of the exception from substantiation principle that had been adopted in this case. Mr Banks had undertaken his own research on this matter, and this was discussed at times, between ourselves [sic]. PAGE 19 OF 31

20 57. According to Mr Fumberger s so-called statement of evidence, he estimated Mr Banks work related travel expenditure over two days to be $175. That is, an amount of $87.50 per day. While Mr Fumberger said that involved at least six meals, his claim was in fact calculated on the basis of seven meals: breakfast, lunch and dinner for two days as well as what is referred to as supper on the second day in the amount of $ If Mr Fumberger had examined Table 6 of TD 2010/19 dealing with 2011 income year, it would have been obvious to him that the food and drink allowance does not include an allowance for supper. While Table 1 provides an allowance of $16.85 for incidentals, the food and drink allowance, which applies to other country centres on that table is identical to that found on Table 6. The maximum reasonable claim per day is $84.90 and not $87.50 per day. That should have been obvious to Mr Fumberger, given that he was a registered tax agent at that time. 59. Furthermore, in the 2011 income year, Mr Fumberger in fact the doubled the nights Mr Banks slept away from home for that income year. His justification for doing so was said to be: That is, the reasonable amount determined by the Commissioner for overnight travel applies for each trip undertaken by the taxpayer. But because each trip covers a period of at least 28.5 hours, the equivalent to 2 overnight claims are made, and is on this basis that the bona fide travel allowances paid. 60. It should have been obvious to Mr Fumberger, and I have no doubt that it was, that the statement I have quoted above is patently incorrect. The reasonable allowance is calculated on a per day basis, provided the employee truck driver was required to sleep away from home and that the expenses were incurred in the course of Mr Banks travel for his employer. Furthermore, it is divided into reasonable allowances for breakfast, lunch and dinner. As TR 2004/6 states, at paragraph 46: The reasonable amounts reflect accommodation expenses incurred in commercial establishments for short-term daily accommodation and the relevant food and drink expenses incurred during the period of that travel [emphasis added]. The reasonable amount for incidentals applies to deductible incidental travel expenses incurred for each day the employee travels if those expenses are covered by the travel allowance. 61. Therefore, where an employee truck driver leaves his home on the first day and travels to Adelaide where he sleeps overnight, the actual expenses he incurred on that first day for food and drink are claimable. In addition, if the employee truck driver then drives to his PAGE 20 OF 31

21 home town on the second day, he is entitled to claim for actual expenses incurred on that day. If the truck driver leaves his place of residence after breakfast on the first day and returns before dinner on the second day, his reasonable amount for that trip is calculated by reference to the reasonable amounts for lunch and dinner on the first day and breakfast and lunch on the second day. It is not simply the total maximum daily reasonable amount based on three meals for each day. 62. It should have been patently obvious to Mr Fumberger that making a claim for two such trips when only one trip was undertaken, even though it covered two days with one overnight sleep away from home, was incorrect. To do so would be making a claim for four days at the daily rate. It should have been obvious to Mr Fumberger that the reasonable claim for each trip which required Mr Banks to sleep away from home, given he was driving over two days, could only have been the actual food and drinks expenses he incurred on those two days. Therefore the maximum reasonable claim for each trip could only have been $ If Mr Banks had, in fact, incurred expenses to that amount on each of his 109 overnight trips, the maximum claim Mr Banks could have made amounted to $18, Mr Banks claim was for $24,888 in the 2011 income year, which plainly exceeded the maximum reasonable amount determined by the Commissioner. Therefore, if he had in fact incurred that level of expenditure on each trip, his claim could only be allowed if he met the substantiation rules. In the 2012 income year, assuming maximum expenditure on each overnight trip comprising two days of driving at the maximum rate of $87 per day, the maximum claim amount based on 118 overnight trips is $20,532. The claim in the 2012 income year was $21,636, also exceeding the reasonable amount determined by the Commissioner. 64. As is explained in TR 2004/6, there are two grounds upon which the substantiation exception for travel and overtime meal allowances can be invoked. The first is that the taxpayer receives a bona fide travel allowance and the second is that he or she in fact incurs deductible expenses in the course of the work-related travel. If the deduction claimed is more than the reasonable amount, the whole claim must be substantiated by written evidence. Where the deductible expense claimed is less than the allowance received, the taxpayer can claim only the amount of the deductible expense incurred. In Mr Banks s case, his claimed deductions for the 2011 and 2012 income years for work- PAGE 21 OF 31

22 related travel expenses exceeded the reasonable amount determined by the Commissioner in each case. Accordingly, it should have been obvious to Mr Fumberger that Mr Banks was required to fully substantiate the claimed expenditure. Mr Banks was not entitled to rely on the exception from substantiation provided for in s of ITAA In any event, as is stated in TR 2004/6, a taxpayer relying on the exception from substantiation may nevertheless be required to show the basis for determining the amount of their claim; that the expense was actually incurred; and that it was for work-related purposes. This in fact simply picks up the requirements set out in s. 8-1 of ITAA 97, that is, that the expenses were incurred in gaining or producing assessable income. 66. Substantiation of claimed deductions requires the taxpayer to prove, by written evidence, that the expenditure claimed was in fact incurred and that it satisfied the general requirements set out in s. 8-1 of ITAA 97, that is, that it was necessarily incurred in the course of gaining assessable income. The oral evidence of Mr Banks given about his expenditures does not satisfy the legislative requirement for substantiation. However, Subdivision 900-H provides for relief from the effects of failing to substantiate claims. Section provides: Not doing something necessary to follow the rules in this Division does not affect your right to a deduction if the nature and quality of the evidence you have to substantiate your claim satisfies the Commissioner: you incurred the expense; and that you are entitled to deduct the amount you claim. 67. In this case, the evidence relied on by Mr Banks was his oral evidence, based solely on imperfect recollections of the amount and nature of expenditure for food and drinks. While some example receipts appear to have been provided by Mr Banks at audit, those receipts were not in evidence before the Tribunal and they by no means covered the entirety of his claimed expenditure on food and drink. The Federal Court of Australia (Hill J) in Imperial Bottleshops Pty Ltd and Anor v Commissioner of Taxation (1991) 22 ATR 148 said this about a taxpayer that did not keep records of his deductible outgoings, at 155: A taxpayer who does not keep records of his deductible outgoings faces a very difficult task. If it goes into the witness box and swears that he has incurred the outgoings he is making a self-serving statement. That does not necessarily mean PAGE 22 OF 31

23 that he is not to be believed. Such a statement, like statements of purpose, or object or state of mind must, however, be tested most closely, and received with the greatest caution : Pascoe v Federal Commissioner of Taxation (1956) 6 AIRT 315; 11 ATD 108 at 111. It would, of necessity, be a rare case indeed where a taxpayer, claiming to have expended a very large sum of money on trading stock and other business expenses, would succeed in satisfying the burden of proving that the assessment is excessive. Some other corroborative evidence would normally be required which makes it more probable than not that his sworn testimony is to be believed. It must, however, be borne in mind that the evidence of a taxpayer is not to be regarded as prima facie unacceptable, cf McCormack v Federal Commissioner of Taxation (1979) 143 CLR 248 at 302 per Gibbs J; 9 ATR 610; 23 ALR Mr Banks evidence was, as I have already indicated, unsatisfactory. He frequently referred to what he would have done rather than what he recalled doing. He plainly had difficulty in remembering what he had purchased on any particular occasion and the associated expense. That is hardly surprising, given the number of years which have passed since that expenditure was incurred. Furthermore, as Ms Cameron said in her closing submissions, the expenditures claimed by Mr Banks to have been incurred on a two day trip amounted to some $ while the claim submitted by Mr Fumberger on objection amounted to $175. The evidence of both Mr Fumberger and Mr Banks on the expenses incurred in purchasing food and drinks on any single trip to Adelaide cannot be reconciled nor relied on for the purposes of the claimed deductions. 69. Relief from the effects of failing to substantiate expenditure may also be relied on where there was a reasonable expectation that the substantiation would not be required. That is explained in s of ITAA 97 as follows: Not doing something necessary to follow the rules in this Division does not affect your right to deduct an amount if the only reason was that you had a reasonable expectation that you would not need to do it in order to be able to deduct that amount. 70. The difficulty for Mr Banks in seeking to rely on this provision is that he used a registered tax agent to complete his income tax returns. The evidence discloses, clearly enough, that Mr Fumberger was aware of the substantiation rules in the ITAA 97. Furthermore, it is sufficiently clear that he advised Mr Banks that he would not be required to keep receipts evidencing his expenditure provided his claimed deductions were within what the Commissioner considered reasonable for the travel covered by the allowance he received. PAGE 23 OF 31