House of Representatives

Tax Laws Amendment (2004 Measures No. 1) Bill 2004

Explanatory Memorandum

(Circulated by authority of the Treasurer, the Hon Peter Costello, MP)

Chapter 2 - Deduction for transport between workplaces

Outline of chapter

2.1 Schedule 2 to this bill amends the ITAA 1997 to allow an income tax deduction for transport expenses incurred in travel between workplaces.

Context of amendments

2.2 Expenses incurred in travelling are deductible expenses under section 8-1 of the ITAA 1997 (the general deduction provisions) where they are incurred in gaining or producing assessable income or necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income.

2.3 In the decision known as Payne's case (Commissioner of Taxation v Payne
[2001] HCA 3 ),
the High Court held that expenses incurred in travelling between two places of unrelated income-earning activity were not deductible under the general deduction provisions. The Court held that the expenses were not incurred in the course of earning income from either activity but rather incurred in the interval between the two activities.

2.4 This decision overturned a long-standing interpretation of the income tax law, expressed in published taxation rulings and TaxPack, that expenses incurred in travelling directly between two places of unrelated income-earning activity were deductible under the general deduction provisions, where the taxpayer did not live at either of the places and the travel was undertaken for the purpose of enabling the taxpayer to engage in income-producing activities.

2.5 For example, a deduction had been allowed for the cost of travelling directly between two places of employment, such as travel directly from a full-time job during the day to a part-time job in the evening.

Summary of new law

2.6 The provision provides a specific deduction in the income tax law for transport expenses incurred in travel between workplaces.

2.7 The deduction is allowable where:

·
an individual incurs transport expenses in travelling directly between workplaces;
·
the purpose of the travel between workplaces is to earn assessable income at the second workplace; and
·
the individual does not reside at either place.

2.8 The provision ensures that the deductibility of expenses incurred in travelling directly between two places of unrelated income-earning activity, where the taxpayer does not reside at either place and the travel is undertaken for the purpose of engaging in income-earning activities, is maintained, consistent with published taxation rulings and TaxPack.

2.9 Transport expenses deductible under this provision include transport expenses incurred in travel between:

·
two places of employment;
·
two places of business; and
·
a place of employment and a place of business.

2.10 This amendment does not affect the deductibility of expenses incurred in the course of earning assessable income. Such expenses continue to be deductible under the general deduction provisions.

Comparison of key features of new law and current law
New law Current law
Transport expenses incurred in travelling directly between workplaces are deductible. Expenses incurred in travelling between two places of unrelated income-earning activity are not deductible.

Detailed explanation of new law

Income tax deduction

2.11 An income tax deduction for transport expenses incurred in travel between workplaces is allowable where:

·
an individual incurs transport expenses in travelling between workplaces;
·
the taxpayer engages in assessable income-earning activities at both workplaces;
·
the individual travels directly between workplaces;
·
the purpose of the travel between workplaces is to earn assessable income at the second workplace;
·
at the time of the travel between workplaces, the individual's assessable income-earning activities at the first workplace have not permanently ceased;
·
the individual does not reside at either workplace; and
·
the transport expenses are not capital or of a capital nature.

[Schedule 2, item 3, section 25-100]

2.12 The deduction applies only to taxpayers who are individuals, including an individual who is also a partner in a partnership. It does not apply to taxpayers who are not individuals.

Transport expense

2.13 A transport expense is defined in section 900-225 of the ITAA 1997 as "a loss or outgoing to do with transport, including the decline in value of a depreciating asset used in connection with transport, but not including a loss or outgoing for accommodation or for food or drink, or expenditure incidental to transport."

2.14 Transport expenses include:

·
car expenses;
·
expenses of other motor vehicles, of motor cycles and bicycles; and
·
public transport fares, such as bus and train fares.

2.15 Transport expenses do not include accommodation, meals and incidental expenses, or expenses incurred in being away from home for at least one night. These expenses may be deductible as travel expenses under the general deduction provisions in certain circumstances.

Travel between workplaces

2.16 For the purposes of this provision, a workplace is a place where an individual earns assessable income, provided that the individual does not reside there. A workplace includes:

·
a place where an individual earns assessable income as an employee;
·
a place where an individual earns assessable income in a capacity other than as an employee; and
·
a place where an individual earns assessable income by carrying on a business or business activities.

2.17 Travel between workplaces includes travel between two places of assessable income-earning activity, including:

·
travel between two places of employment;
·
travel between two places of business; and
·
travel between a place of employment and a place of business.

Example 2.1 Christine works as a shop assistant in a department store during the day, then travels by bus from the store directly to her second job as a waitress in a restaurant. The bus fares Christine incurs in travelling directly from the store (her first workplace) to the restaurant (her second workplace) are deductible under this provision.

Example 2.2 Marisa carries on two separate businesses in two locations. At one place, she carries on a business of a cafe. At another place, she carries on a business of a craft shop. Marisa does not reside at either place. Marisa drives her car directly between the two businesses every day. The car expenses Marisa incurs in travelling directly between the two businesses (her first and second workplaces) are deductible under this provision.

Example 2.3 Tim works as a public servant in a government department during the day, and also carries on a business as a martial arts teacher at a studio three days a week after work. The transport expenses Tim incurs in travelling from his office in the government department (his first workplace) directly to the studio (his second workplace) are deductible under this provision.

2.18 The deduction applies when an individual travels directly between two workplaces for the purpose of earning assessable income at the second workplace. That is, the individual completes assessable income-earning activities at the first workplace and then travels directly to the second workplace in order to commence assessable income-earning activities at the second workplace.

2.19 The deduction is not allowable if the individual does not travel directly from the first workplace to the second workplace, or performs an intervening private or domestic activity in the interval between completing assessable income-earning activities at the first workplace and commencing assessable income-earning activities at the second workplace.

Example 2.4 In the above examples, the transport expenses would not be deductible if Christine first returned home to change into her waitress' uniform, or if Marisa went shopping during her travel between her two businesses, or if Tim stopped for a meal on the way to his studio.

Assessable income

2.20 The deduction applies where the individual earns assessable income at both workplaces. The deduction is not allowable if the individual earns exempt income or non-assessable non-exempt income at either of the workplaces.

2.21 The deduction applies where the individual is engaged in assessable income-earning activities at both workplaces on a continuing basis. For the purposes of this provision, travel between workplaces where, at the time of the travel, the individual has permanently ceased assessable income-earning activities at the first workplace, is not travel between workplaces.

2.22 For example, a deduction for transport expenses incurred in travel between workplaces is not allowable under this provision for expenses incurred in travelling directly between a former workplace and a new workplace. The travel is not travel between workplaces, as the assessable income-earning activities at the former workplace have ceased.

Example 2.5 Kim, a lawyer, is employed by a legal firm in Sydney. She obtains a new job with a different employer in Melbourne. Kim leaves her job in Sydney in the morning, flies to Melbourne and goes directly to her new job in Melbourne in the afternoon. Kim's expenses incurred in travelling directly between her former workplace in Sydney and her new workplace in Melbourne are not deductible under this provision, as at the time of the travel her assessable income-earning activities at her former job in Sydney have ceased.

Residence

2.23 The deduction applies where the individual does not reside at either of the workplaces. For the purposes of this provision, travel between a workplace and a place where an individual resides is not travel between workplaces.

2.24 That is, a deduction for transport expenses incurred in travel between workplaces is not allowable under this provision where the individual resides at one of the places. This requirement is consistent with the general non-deductibility of the cost of travelling between an individual's residence and workplace.

Example 2.6 Brian works at a music store during the day and also carries on a business as a music teacher from a room in his home at night. The expenses Brian incurs in travelling directly from the music store to his home are not deductible under this provision.

2.25 A place where an individual resides includes second residences, weekend or holiday homes and shared accommodation. The individual may reside at a place on a permanent or temporary basis.

Example 2.7 Carol maintains two residences, a residence in town where she resides during the week, and a farm in the country at which she carries on a business of primary production, where she resides on weekends. Carol travels directly from her place of employment to the farm on Friday night after work, returning directly to work on Monday morning. The expenses Carol incurs in travelling directly between work and the farm are not deductible under this provision.

2.26 A deduction for expenses incurred in travelling between a workplace and a residence may be allowable under the general deduction provisions in certain circumstances.

Capital expenditure

2.27 The deduction is not allowable to the extent that the transport expense is of a capital nature. This is consistent with the general deduction provisions, which exclude expenses to the extent that they are of a capital nature.

Substantiation

2.28 Transport expenses incurred in travel between workplaces are subject to the substantiation rules of Division 900 of the ITAA 1997. [Schedule 2, items 8 and 9, paragraph 900-30(7)(c)]

2.29 Transport expenses, other than car expenses, incurred in travel between workplaces are substantiated as a work expense under Subdivision 900-B of the ITAA 1997.

2.30 Transport expenses, which are car expenses, incurred in travel between workplaces are substantiated as car expenses under Subdivision 900-C of the ITAA 1997. An individual may use any of the four methods in Division 28 of the ITAA 1997 to calculate a deduction for car expenses incurred in travel between workplaces.

Application and transitional provisions

2.31 These amendments apply for the 2001-2002 and subsequent income years.

2.32 The amendments are retrospective so as to maintain the deductibility of transport expenses incurred in travel between workplaces before and after the High Court decision in Payne's case. Taxpayers will not be adversely affected by the retrospective commencement of the amendments.

Consequential amendments

2.33 The provision is included in Division 12 of the ITAA 1997, which is a list of provisions about deductions. [Schedule 2, items 1 and 2, Division 12-5]

2.34 The definition of 'business kilometres' in Division 28 of the ITAA 1997 is amended to include travel between workplaces [Schedule 2, items 4 to 7, Division 28]. This amendment ensures that a deduction for transport expenses between workplaces, which are car expenses, can be calculated using one of the four methods outlined in Division 28.

2.35 A definition of 'travel between workplaces' is inserted into the Dictionary in Division 995 of the ITAA 1997. [Schedule 2, item 10, Division 995]


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