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Ruling

Subject: Accommodation expenses

Are you entitled to a deduction for the accommodation expenses incurred while working away from home?

No.

Relevant facts and circumstances

You commenced employment away from where you ordinarily reside.

As your work is some distance from your residence, you have been renting a property since commencing your employment.

You reside in the rental property during the working week, Monday to Friday.

Your employer does not pay for any expenses in relation to your travel and accommodation.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

Section 8-1 of the Income Tax Assessment Act 1997 (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.

As a general rule, expenditure on accommodation while working away from home is not allowed as a deduction. These costs are essentially 'living expenses' of a private or domestic nature. The fact that income cannot be earned unless these expenses are incurred is not determinative of deductibility. The expenses are a prerequisite to the earning of assessable income rather than being incurred in the course of gaining that income.

This principle was derived by the High Court in Lunney v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 11 ATD 404; (1958) 7 ATR 166 (Lunney's Case) where it was found that the expenses in travelling from home to work did not have a connection with the activities carried out by the taxpayers to earn their income. It was accepted that although the travel expenses were necessary and a prerequisite to earning income, the travel itself was not an activity that earned the income.

The issue of expenses incurred in relation to accommodation near the workplace while maintaining a family residence in another location was considered in the cases of FC of T v. Toms 89 ATC 4373; (1989) 20 ATR 466 (Toms' Case) and FC of T v. Charlton 84 ATC 4415; (1984) 15 ATR 711 (Charlton's Case).

These cases established that accommodation expenses incurred by an individual who lives away from home to carry out the duties of their employment will not be deductible. Expenses of this nature were found to be private in nature and incurred before or after the activity of earning assessable income.

In Charlton's Case, the taxpayer was a pathologist employed to carry out autopsies for the local coroner in Bendigo. He rented a flat in Bendigo while maintaining a permanent family home in Melbourne, located approximately 150 kilometres away. The taxpayer claimed that the rental was incurred in the production of assessable income, but the Court ruled that the expense of accommodation was considered private and domestic in nature and would not be deductible under section 8-1 of the ITAA 1997.

Similarly, the Federal Court in Toms' Case disallowed a forest worker's deduction for the cost of maintaining a caravan and other living expenses. The taxpayer incurred the expenses in providing temporary accommodation at the base camp. These expenses were dictated not by work but by private considerations. Therefore, the essential character of the expenditure was considered to be of a private or domestic nature.

In your case

You have incurred accommodation expenses to stay in a location near work due to the distance of your employment from where you normally reside. The expenses you incurred are a prerequisite to the earning of your assessable income. They were incurred in order to enable you to earn income but were not incurred in the course of actually gaining or producing that income.

The accommodation expenses are considered to be of a private or domestic nature. Therefore, you are not entitled to a deduction for the accommodation expenses under section 8-1 of the ITAA 1997.

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