Federal Court rules in favour of taxpayer in Shaw decision

The driver had calculated his meal expenses by multiplying the number of days he was away from home by the maximum reasonable daily allowance set out in TD 2020/5, which was $105.75.

The truck driver and his accountant assumed they were not obliged to provide receipts or other documentary evidence to support his claim because it fell within the limits set out in TD 2020/5.

The ATO issued an amended assessment in 2022 that reduced the driver's claim deduction to zero.

After the truck driver objected to the amended assessment in January 2023, the ATO then allowed the objection in part, increasing his allowable deductions for meal expenses to $5,890 based on a review of his logbook, fatigue diary and bank statements. This was an average of $19 per day multiplied by 310, being the number of days the driver was away from home.

In the Federal Court decision, Justice Craig Colvin said there was an important difference between qualification and substantiation when it comes to work expenses.

"To qualify for deduction, the work expense must come within a provision of the Act 'outside' Division 900. In addition, it must be substantiated by written evidence as provided for in Subdivision 900-E," he said.

"A number of provisions in Division 900 are expressed in terms of what may be deducted by a taxpayer. However, [..] those provisions are dealing with the substantiation that is required in order to be able to deduct an amount. Division 900 does not state the qualification for a deduction. That must be found outside Division 900."

Justice Colvin noted that there is an exception for domestic travel allowance expenses provided in s 900-50 of the Income Tax Assessment Act 1997.

Section 900-50 reads:

"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."

"The opening words 'You can deduct' do not have the effect that an amount that the Commissioner considers reasonable can be claimed as a deduction. Considered in context, those words mean that an amount that has been incurred that is deductible under some provision of ITAA97 that is outside Division 900 may be deducted," Justice Colvin said.

The court also did not accept the Commissioner's view that the tribunal should have undertaken precise line-by-line apportionment of the taxpayer's bank statements.

Justice Colvin ruled that the tribunal was entitled to rely on credible evidence from the taxpayer regarding eating habits, work travel patterns, and food spending.