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A recent tax case of Duncan and Commissioner of Taxation [2024] AATA 974, the Administrative Appeals Tribunal (AAT) looked at a situation where a taxpayer, Mr. Duncan, tried to claim large deductions for meals eaten during his work trips. As the new financial year arrives, the tax return has been started. This case in time has shed some light on the meal expenses deduction claiming for the tax return season.

The Situation

Mr. Duncan is a long-haul truck driver who spent 282 days on the road in the year in question. He claimed a deduction of $100 per day for food and drink, which added up to a total of $28,200 for the year. This amount was just below the Australian Taxation Office’s (ATO) reasonable amounts (See TD 2023/3), so Mr. Duncan believed he did not need to provide detailed evidence for these expenses.

The ATO’s Response

The ATO agreed that Mr. Duncan spent $8,393 on meals at cafes and restaurants because these expenses were supported by his bank statements. However, the ATO did not accept the remaining $20,000 deduction because there was not enough evidence to support it.

The Arguments

  1. Automatic Deductions Claim:
    • Mr. Duncan argued that he was entitled to automatic deductions up to the ATO’s reasonable amounts without needing to prove he spent the money.
    • The AAT disagreed, stating that the law requires the expenses to be actually incurred, even if the claim is below the ATO’s reasonable amounts.
  2. Evidence of Grocery Expenses:
    • Mr. Duncan tried to show some expenses by providing evidence of purchases at supermarkets and stores near his home.
    • The AAT found it difficult to determine which meals were eaten during his trips and which were not because the purchases were made near his home.

Tribunal’s Decision

The AAT ruled against Mr. Duncan, highlighting that even if the claimed deductions are below the ATO’s reasonable amounts, taxpayers still need to prove that the expenses were actually incurred.

Important Lessons

  • Substantiation Exceptions: The rules can reduce the need for keeping every receipt and invoice, but taxpayers still need to incur the expenses.
  • Evidence Requirements: The ATO can ask for evidence on how deductions were calculated and require proof that the expenses were incurred.
  • Good Practices: Keeping a detailed diary or log of trips and meals, along with bank and credit statements, can help support deductions and reduce the risk of ATO challenges.

Pitt Martin Group is a CPA accounting firm, providing services including taxation, accounting, business consulting, self-managed superannuation funds, auditing and mortgage & finance. We spend hundreds of hours each year on training and researching new tax laws to ensure our clients can maximize legitimate tax benefit. Our contact information are phone +61292213345 or email Pitt Martin Group is located in the convenient transportation hub of Sydney’s central business district. Our honours include the 2018 CPA NSW President’s Award for Excellence, the 2020 Australian Small Business Champion Award Finalist, the 2021 Australia’s well-known media ‘Accountants Daily’ the Accounting Firm of the Year Award Finalist and the 2022 Start-up Firm of the Year Award Finalist, and the 2023 Hong Kong-Australia Business Association Business Award Finalist.

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This content is for reference only and does not constitute advice on any individual or group’s specific situation. Any individual or group should take action only after consulting with professionals. Due to the timeliness of tax laws, we have endeavoured to provide timely and accurate information at the time of publication, but cannot guarantee that the content stated will remain applicable in the future. Please indicate the source when forwarding this content.

By Angela Abejo @ Pitt Martin Tax