A recent case at the Administrative Appeals Tribunal has highlighted the current ATO practice in identifying and scrutinising overtime meal allowance deduction claims. In the case, an individual who was in receipt of an allowance also made a claim under D5 claiming a deduction for the allowance.

An individual taxpayer is not bound to show substantiation where the amount claimed as a deduction is at or below the reasonable amount outlined in public rulings (the ruling for the current year is TD2017/19, however as the case related to the 2013 income year the necessary ruling was TD 2012/17). 

However, the individual must be in receipt of an allowance to make the claim. Also, for overtime meal deductions, an individual would claim in item D5 of the tax return which can be include many other items. It is only upon further ATO scrutiny where they can determine if an amount has been claimed above the reasonable limit declared.

Relevant facts and circumstances

Mitchell was a site surveyor who was in receipt of payments which included an allowance for overtime meals. The allowance was part of the union-assisted signed EBA, and provided an individual $15 per day where 1.5 hours or more overtime was worked.

He made a claim of the maximum reasonable amount, being $27.10 per day for 300 days. The argument for making the claim was based around the usual working hours for the taxpayer. On further examination, the usual working hours were:

                 • 7am - 5.30pm Monday to Thursday

                 • 7am - 3.30pm Fridays

                 • "Seven to eight" hours on Saturdays

                 • Early starts after a concrete pour

                 • Occasional Sundays, and

                 • Every second Monday was a Rostered Day Off.

 An 'ordinary work day' listed in the EBA was 8 hours per day Monday to Friday and 4 hours Saturday and Sunday. Therefore, it is conceivable that Mitchell's regular 10.5 hour day, after taking into consideration breaks, would include 1.5 hours overtime. Thus, an overtime meal allowance would be paid.

The basis of the ATO's investigation centred on whether it was conceivable that Mitchell's worked 300 days of overtime in the year in question. While there are many items which can come under the banner of D5 Other work-related expenses , the ATO gave particular attention to the $8,130 claimed for overtime meal expenses.

The taxpayer rightfully argued that an exemption from substantiation is available if the claim is not greater than reasonable amount provided in a public ruling. However, the ATO challenge in the 300 days where an overtime meal allowance was paid to the individual was the basis of the case.

It was revealed on examination by the ATO that the overtime meal allowance was paid to Mitchell for 107 days in the 2013 financial year. Even if he worked overtime as per the EBA on other days, he was not paid an allowance as he mustn't have met the criteria. 

Claim over the reasonable amount

After it was discovered that Mitchell received an allowance for 107 days, his claim for overtime meals of $8,130 was over the reasonable allowable amount.

Despite this fact, the ATO granted the taxpayer the ability to make a claim for the amount they received. In this way, the benefit to the taxpayer was a net tax of nil. However, they were unable to make a claim for the reasonable amount over the 107 days, which was available without substantiation.

Risk mitigation steps

This recent case shows the depths the ATO will investigate the working arrangements of individuals to justify the receipt and claim of various employee-related deductions.

Part of the investigations included specifics surrounding the regular working times and when the overtime allowance was payable according to the EBA. Further, details about changes to regular working times were obtained. It was only after this level of investigations could the ATO make a determination about the validity of the claims made by Mitchell.

Taxpayers when in receipt of these types of allowances need to be aware of the level of scrutiny in which the ATO will look into their affairs.

Although it was not the case in this particular instance, the ATO has the ability to completely deny the deduction relating to the expensed allowance amount.

Information sourced using CCH iknow