Substantiation exception for reasonable travel allowance expenses

One of the issues that Tax & Super Australia finds frequently raised by members is the tax treatment of work related travel expenses, as well as the reliance on the “reasonable amounts” prescribed by the Commissioner. In our view, the current ATO guidance may not adequately cover the issues encountered by practitioners and taxpayers. Often, taxpayers can get these claims wrong.

In fact, the ATO has itself noticed an increase in the disparity between travel allowances paid and deductions claimed for accommodation, meals and incidentals.

As a result, the ATO has announced that it is going to ramp up its efforts to check these claims, which it says has in turn resulted in underlining various “deficiencies and difficulties” for employees in showing the amount claimed was incurred, or was incurred in gaining or producing their assessable income.

The exception from substantiation for reasonable travel allowance expenses only applies where a taxpayer receives a travel allowance for the work related travel to which the claim for deduction relates. However the ATO says this does not seem to be widely understood.

As such, the ATO has initiated consultation regarding this substantiation exception. “More and more, taxpayers and their representatives are telling us the ATO’s guidance is confusing and, as a consequence, the outcome of compliance action is considered unjust,” it says.

The ATO says that in light of the developments and present-day experience regarding claiming deductions for travel expenses, it is considering how to improve its approach and guidance in this area. Hence the consultation now being carried out.

Thirty “discussion questions” has been put forward by the ATO (you can find them on this ATO web page [scroll down]). Interested parties are invited to lodge written submissions on the issues raised, but the ATO also says that it welcomes other ideas, comments and suggestions in relation to the substantiation exception for reasonable travel allowance expenses.

A call to arms

Members with views on this issue, or battle stories to relate, can email us at, with “Travel expense submission” in the subject line.

Tax & Super Australia will prepare a submission on behalf of its members to outline the concerns and practical difficulties encountered by practitioners and taxpayers when it comes to claiming work-related travel expenses, and how to substantiate those expenses. In the past, we have had member queries on claiming such expenses for a wide range of professions, from academics to fly-in, fly-out workers and more.

Readers may recall that the current substantiation rules for work expenses, and the exception for domestic travel allowance expenses, is contained in subdivision 900-B of the Income Tax Assessment Act 1997. See Taxation Ruling TR 2004/6 Income tax: substantiation exception for reasonable travel and overtime meal allowance expenses. This explains the way in which the substantiation exceptions operate for work expenses of employees that are either reasonable travel allowance expenses or reasonable overtime meal allowance expenses.

The amounts the ATO considers reasonable for the purpose of the substantiation exceptions have usually been provided in an annual taxation determination issued each year. The most recent is Taxation Determination TD 2016/13 Income tax: what are the reasonable travel and overtime meal allowance expense amounts for the 2016-17 income year?

Some background

Substantiation rules were introduced as part of the self-assessment tax system in 1985. The new rules applied to expenses incurred from the year commencing July 1, 1986. In line with the new self-assessment system, the documentary evidence required under the substantiation rules was not to be attached to the income tax return, but to be made available to the ATO upon request.

To reduce the cost of compliance in keeping detailed records, certain exclusions from substantiation were included in the act. Under the initial exclusion rules, taxpayers could claim a deduction for travel expenses they incurred without meeting the substantiation rules provided:

  • their claim for deduction did not exceed the amount of the travel allowance received
  • the travel allowance did not exceed an amount that the Commissioner considered to be reasonable.

Where the travel allowance received by the taxpayer exceeded the amount the ATO considered reasonable, the whole deduction was subject to the substantiation rules, which require detailed records of the expenses to be obtained and kept.


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