ATO Interpretative Decision

ATO ID 2001/331

Income Tax

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Issue

Are travel insurance, passport costs and expenses relating to accompanying relatives incurred by a taxpayer who was on a work exchange program in the United Kingdom, deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Decision

No. Expenses for travel insurance, passport costs and expenses relating to accompanying relatives are considered private in nature and are therefore not deductible under section 8-1 of the ITAA 1997.

Facts

The taxpayer was involved in a work exchange program with an organisation in the United Kingdom. The exchange allowed the taxpayer to undertake similar employment duties overseas to those in their current employment in Australia. The exchange was encouraged by the taxpayer's employer, who organised the necessary licences. Although not necessarily leading to an increase in income, the experience was beneficial to the taxpayer's career as a whole.

The taxpayer travelled with family members and incurred associated travel expenses such as travel insurance and passport costs in order to get to the overseas destination.

The salary and wages derived by the taxpayer whilst in the United Kingdom is exempt income under section 23AG of the Income Tax Assessment Act 1936.

Reasons for Decision

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital nature, private or domestic nature or relate to the earning of exempt income.

In Case T78 86 ATC 1094 the Administrative Appeals Tribunal allowed a deduction to a barrister for airfares to attend a work related course. However, his claim for travel insurance was found to be expenditure of a private and domestic nature and therefore not deductible. Travel insurance policies invariably cover items that are generally private in nature. For example illness, loss of baggage and theft or damage to belongings.

The expenses associated with acquiring passports relate primarily to the taxpayer's personal right to travel to any overseas destination. They closely parallel the costs associated with obtaining a driver's licence, which were characterised as being of a private nature (Case P55 82 ATC 253; 25 CTBR (NS) 824 Case 117). Thus expenditure in obtaining a passport is generally private in nature. It should be noted, however, that the costs of certain employment visas may be deductible.

The expenses incurred on travel insurance and a passport are therefore not allowable deductions under section 8-1 of the ITAA 1997.

Section 26-30 of the ITAA 1997 prevents a deduction for expenses attributable to the travel of a relative where the relative simply accompanies you while you travel. However, if the relative accompanying you, performs substantial duties as your employer's employee or as your employee, and it is reasonable to conclude that your relative will still accompany you, even if he or she does not have a personal relationship with you, then the expenses will be deductible.

There is no indication that the taxpayer's family is travelling to the United Kingdom for reasons other than to accompany the taxpayer on the trip. In the circumstances, the travel costs associated with the taxpayer's spouse and children are not a deductible expense under section 8-1 of the ITAA 1997.

Legislative References:
Income Tax Assessment Act 1997
   section 8-1
   section 26-30

Case References:
Case T78
   86 ATC 1094

Related ATO Interpretative Decisions
ATO ID 2001/328
ATO ID 2001/329
ATO ID 2001/330

Keywords
Exempt income
Work related expenses
Overseas travel expenses

Business Line:  Small Business/Individual Taxpayers

Date of publication:  15 September 2001

ISSN: 1445-2782