Edited version of private ruling

Authorisation Number: 1011492760894

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Ruling

Subject: Expenses - overseas travel

Are you entitled to a deduction for accommodation, meals, utilities and car hire expenses incurred while on sabbatical overseas for a period?

No.

This ruling applies for the following period:

Year ended 30 June 2009

The scheme commenced on:

1 July 2008

Relevant facts and circumstances

You are a medical practitioner and were sent on sabbatical overseas for a period.

The sabbatical was for research purposes with the aim of improving your knowledge within your particular field of expertise.

Your employer stipulated a condition of your sabbatical that you submit a report.

During this period you continued to be paid by your Australian employer while undertaking research.

You were required to rent an apartment close to the facility where you were undertaking your research in the overseas location.

You hired a car and used it for travelling to and from your place of assignment. You were not required to use the car as part of your duties.

You have tax invoices and/or contracts for all accommodation except one month's rent which was a private rental from a colleague. You are able to obtain a contract if necessary.

You are not claiming airfares as these were covered by your employer.

Your family relocated to the overseas location with you for the entire period.

Your wife was not employed while overseas.

Your children were enrolled in school overseas for this period.

Your family home in Australia was not tenanted for this period.

You did not return to Australia during this period.

You did not receive a travel allowance, nor did you receive reimbursement for any of your expenses.

You did not take any leave to travel overseas.

You stated that the trip did not contain a private component.

Your expenses have not been apportioned.

Your employer did not request you to travel overseas but you are expected to take sabbatical as part of your employment.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Please note all references are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise stated.

Section 8-1 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.

The Commissioner's view on the deductibility of self-education expenses is contained in Taxation Ruling TR 98/9 and at paragraph 89 states:

89. Where a taxpayer is away from home overnight in connection with a self-education activity, accommodation and meals expenses incurred are deductible under section 8-1. (Examples include an overseas study tour or sabbatical, a work-related conference or seminar or attending an educational institution.) They are part of the necessary cost of participating in the tour or attending the conference, the seminar or the educational institution. We do not consider such expenditure to be of a private nature because its occasion is the taxpayer's travel away from home on income-producing activities.

However, paragraph 24(c) of TR 98/9, states that expenditure on accommodation and meals will not be allowable where you have travelled to another location and established a new home. The key factors to be taken into account in determining whether a new home has been established are:

· the total duration of the travel

· whether you stay in one place or move frequently from place to place

· the nature of the accommodation, for exaple, hotel, motel, or long-term accommodation

· whether you are accompanied by your family

· whether you are maintaining a home at your previous location while away, and

· the frequency and duration of return trips to the previous location.

The question of whether a new home has been established depends on all the facts; there is no one test to satisfy all the circumstances. For this reason we look to the examples provided in TR 98/9 to assist in determining how these factors apply to you.

There are two possible examples in TR 98/9 that we will examine and compare with your circumstances. The first is example 3 at paragraph 99:

99. Example 3: Madonna undertakes a 5-month study tour in Europe. Her husband and family remain at the family home in Melbourne. The study tour involves travel to four separate locations in Europe for periods of between four and six weeks each. At each location, Madonna stays in serviced apartments.

100. The relevant factors are the short-term nature of the tour and accommodation, travel to several locations and the fact that she is maintaining a home in Melbourne. Together, they indicate that Madonna is travelling away from her home. The conclusion is the same if Madonna was accompanied by her husband and family and their Melbourne home was rented out for the period of the study tour.

In this example, the study tour was for a 5 month period but the fact that the taxpayer moved around and travelled to four different locations during that period determined the eligibility of her deductions. Note that the conclusion would have been the same if her family had accompanied her.

The second example is at paragraph 104:

104. Example 5: Katherine travelled overseas for 6 months to study at a university in Germany. She was accompanied by her husband and three children. An apartment suitable to accommodate the family was rented for the period of her stay and the family home in Australia was rented out.

105. The relevant factors are the period of time away, the renting of the family home and staying in one place with her family. These factors indicate that a new home was established in Germany.

106. A similar factual situation occurred in Case S80 85 ATC 589; 28 CTBR (NS) Case 88. While the case concerned the question of the appropriate apportionment of a rental expense, preliminary comments made by T J McCarthy (Member) support our view. He did not consider that any part of expenditure on accommodation was allowable as a deduction under section 8-1. He stated (85 ATC at 595; 28 CTBR (NS) at 690):

'Between ... the taxpayer was not travelling away from his home on his work. The apartment in Bonn was, and was intended to be, the family residence for five months. The older children went to school in Bonn and family life was centred in Bonn. Whilst in some cases questions of degree may be involved, I do not think there is any doubt in the present circumstances. The essential character of the rental expenditure is of a private or domestic nature.'

In your case:

· Total duration of the travel

The period that related to your sabbatical was x months.

· Whether the taxpayer stays in one place or moves frequently from place to place

With the exception of two short term rentals when you first arrived overseas, you leased an apartment close to the facility where you were undertaking research for the duration of your sabbatical.

· The nature of the accommodation, for example, hotel, motel, long-term accommodation

Your accommodation for the duration of the sabbatical was a furnished house with a garage, which is considered to be long-term accommodation for you and your family while overseas.

· Whether the taxpayer is accompanied by his or her family

Your spouse and children accompanied you, your spouse was not employed while away and your children attended school overseas for the duration of your stay.

· Whether the taxpayer is maintaining a home at the previous location while away

Your family home was not tenanted for the duration of your travel overseas.

· The frequency and duration of return trips to the previous location

You did not return to Australia for the duration of your travel overseas.

Conclusion

Accommodation, meals and utilities

The fact that you were accompanied by your family, your children attended school overseas and the long term nature of your accommodation leads us to the conclusion that you established a new home while overseas. Therefore, the expenses you incurred for accommodation and utilities while on sabbatical overseas will not be deductible under section 8-1 as they are expenses considered to be of a private and domestic nature.

Car hire

Generally commuting between home and a person's regular place of employment or business is private travel. This was highlighted in the case of Lunney v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 11 ATD 404; (1958) 7 ATR 166. The reason for this decision is firstly, expenditure incurred must be in the course of deriving assessable income. Unless one arrives at work it is not possible to derive income. That is, the cost of travel between home and work is generally incurred to put the employee in a position to perform duties of employment, rather than in the performance of those duties. Secondly, the expenditure is of a private or domestic nature.

In your case you relocated overseas on sabbatical and continued to be paid by your employer in Australia. Once you arrived and commenced your assignment, it became your regular place of employment. You used a rental vehicle to travel between your home and place of employment. As the costs you incurred in hiring the vehicle were to transport you from home to work these expenses are private and domestic in nature and put you in a position to perform your duties, you are not entitled to a deduction under section 8-1.

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