ATO Interpretative Decision
ATO ID 2002/1005
Income TaxTravel expenses incurred in respect of work-related items
FOI status: may be released
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Status of this decision: Decision Current
This ATOID provides you with the following level of protection:
If you reasonably apply this decision in good faith to your own circumstances (which are not materially different from those described in the decision), and the decision is later found to be incorrect you will not be liable to pay any penalty or interest. However, you will be required to pay any underpaid tax (or repay any over-claimed credit, grant or benefit), provided the time limits under the law allow it. If you do intend to apply this decision to your own circumstances, you will need to ensure that the relevant provisions referred to in the decision have not been amended or repealed. You may wish to obtain further advice from the Tax Office or from a professional adviser.
Is the taxpayer entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for travel expenses incurred in order to purchase and maintain work related items?
No. The taxpayer is not entitled to a deduction under section 8-1 of the ITAA 1997 for travel expenses incurred in order to purchase and maintain work related items.
The taxpayer is an employee in an industry which requires them to wear protective clothing and use various tools.
The taxpayer incurs travel expenses in order to purchase and wash their protective clothing and to purchase various tools used in their employment. The travel is undertaken in the taxpayer's own time.
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, private or domestic nature, or relate to the earning of exempt income.
Travel expenses incurred by a taxpayer which are incidental and relevant to the derivation of their assessable income are deductible under section 8-1 of the ITAA 1997. A number of significant court decisions have determined that, for an expense to satisfy the tests in section 8-1 of the ITAA 1997:
- it must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income-producing expense (Lunney & Hayley v. Federal Commissioner of Taxation (1958) 100 CLR 478;  HCA 5; (1958) 7 AITR 166; (1958) 11 ATD 404);
- there must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income (Ronpibon Tin NL & Tongkah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47;  HCA 15; (1949) 4 AITR 236; (1949) 8 ATD 431); and
- it is necessary to determine whether there is the requisite connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces his or her assessable income (Charles Moore & Co (WA) Pty Ltd v. Federal Commissioner of Taxation (1956) 95 CLR 344;  HCA 77); (1956) 11 ATD 147; (1956) 6 AITR 379; FC of T v. Cooper (1991) 29 FCR 177;  FCA 164; 91 ATC 4396; (1991) 21 ATR 1616 (Cooper's Case); Roads and Traffic Authority of NSW v. FC of T (1993) 43 FCR 223;  FCA 314; 93 ATC 4508; (1993) 26 ATR 76; Federal Commissioner of Taxation v. Hatchett (1971) 125 CLR 494;  HCA 47; 71 ATC 4184; (1971) 2 ATR 557).
The requisite connection is not shown by demonstrating only that there is some causal connection between the expenditure and derivation of the income, nor by demonstrating that the expenditure was incurred 'in connection with' the derivation of assessable income or 'for the purpose of' deriving assessable income. What must be shown is closer and more immediate connection. The expenditure must be incurred 'in the course of' gaining or producing the assessable income. In Cooper's Case , Lockhart J stated:
'The question whether additional expenditure of the taxpayer is deductible under s51(1) cannot be answered simply by a process of reasoning that, because expenditure of this type is a prerequisite to the earning of the taxpayer's assessable income (in the sense that it is necessary if assessable income is to be derived), it must be incidental and relevant to the derivation of income. It does not follow that such expenditure is incurred in or in the course of gaining or producing the assessable income.'
The cost of purchasing a work related item, used by the taxpayer in the course of their duties, may be deductible under section 8-1 of the ITAA 1997, or Division 40 of the ITAA 1997 if the item is a depreciating asset. The cost of maintaining a work related item used by the taxpayer in the course of their duties, for example laundering protective clothing (Taxation Ruling TR 98/5) may also be deductible under section 8-1 of the ITAA 1997. These expenses are considered to have a sufficient nexus with gaining or producing of assessable income.
However, the travel undertaken by the taxpayer was not travel in the course of their duties. It was travel undertaken in order to prepare themselves for later carrying out their duties. It may have been a prerequisite (using the terminology in Cooper's Case) to the earning of the taxpayer's assessable income but it was not expenditure incurred in, or in the course of, gaining or producing assessable income. It is expenditure incurred in order to put the taxpayer in the position to earn assessable income. As such the requisite connection between the expense and the earning of income does not exist.
Consequently, the taxpayer is not entitled to a deduction under section 8-1 of the ITAA 1997 for travel expenses incurred in respect of the purchase and maintenance of the work related items.
|Date of amendment||Part||Comment|
|13 May 2016||Reason for Decision||Update minor formatting errors
Inserted medium neutral case citations
|Case References||Inserted medium neutral case citations|
|9 May 2014||Issue||Update formatting|
|Reason for Decision||Update minor formatting errors
Update minor grammatical errors
Add medium neutral case references
|Case References||Add medium neutral case reference|
Year of income: Year ending 30 June 2003
Lunney & Hayley v. Federal Commissioner of Taxation
(1958) 100 CLR 478
 HCA 5
(1958) 7 AITR 166
(1958) 11 ATD 404
(1949) 78 CLR 47
 HCA 15
(1949) 4 AITR 236
(1949) 8 ATD 431 Charles Moore & Co (WA) Pty Ltd v. Federal Commissioner of Taxation
(1956) 95 CLR 344
 HCA 77
(1956) 11 ATD 147
(1956) 6 AITR 379 FC of T v. Cooper
(1991) 29 FCR 177
 FCA 164
91 ATC 4396
(1956) 21 ATR 1616 Roads and Traffic Authority of NSW v. FC of T
(1993) 43 FCR 223
 FCA 314
93 ATC 4508
(1993) 26 ATR 76 Federal Commissioner of Taxation v. Hatchett
(1971) 125 CLR 494
 HCA 47
71 ATC 4184
(1971) 2 ATR 557
Related Public Rulings (including Determinations)
Taxation Ruling TR 98/5
Laundry & dry cleaning expenses
Protective clothing expenses
Tools of trade expenses