Edited version of private ruling

Authorisation Number: 1011562743136

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Ruling

Subject: Accommodation

1. Can you offset all or part of the amount of rent you receive from renting out your own property against the rent you pay?

No.

2. Are you entitled to a deduction for rent?

No.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

You are employed as a caretaker and it is part of your contract of employment that you live on site to be on call 24 hours per day.

You rent a unit from your employer at market rate.

You have your own property, which you have vacated in order to live on site, which you rent out.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 8-1

Summary

You must include income you receive from renting your own property in your assessable income.

You are not entitled to a deduction for the cost of your accommodation where you work as it is considered to be a private expense.

Detailed reasoning

Rental income

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Rental income is considered to be ordinary income.

Accommodation expense

Section 8-1 of the ITAA 1997 allows a deduction for all outgoings to the extent to which they are incurred in gaining or producing assessable income, or are necessarily incurred in carrying on a business for that purpose. However, a deduction is not allowable for outgoings that are of a capital, private or domestic nature.

Generally, accommodation expenses are private in nature and are not deductible.

However, in Lunney v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 11 ATD 404; (1958) 7 ATR 166 the Full High Court laid down the principle that for a deduction to be allowable it is not enough for the expenditure to be an essential prerequisite to the derivation of assessable income. In that case it was held that the costs incurred by a taxpayer in travelling to the place where they work are expenses incurred in order to enable them to earn income but are not expenses incurred in the course of earning that income.

In your application, you have cited FC of T v. Vogt 75 ATC 4073; (1975) 5 ATR 274 (Vogt's Case) and Case U107 87 ATC 229; AAT Case 32 (1987) 18 ATR 3181 (Case U107).

Vogt's Case and Case U107 both consider the deductibility of home to work travel and the requirement to carry bulky equipment. Your case, however, relates to the requirement of your employer to live on site and in doing so, incurring expenses higher than would be incurred had you been able to live in a place of your choosing. The principles in Vogt's Case and Case U107 cannot be applied to your situation.

An employer's requirement that an employee incur expenditure which is not related to income-producing activities does not convert that expenditure into a deductible outgoing (Federal Commissioner of Taxation v. Cooper (1991) 29 FCR 177; 91 ATC 4396; (1991) 21 ATR 1616 (Cooper's case)).

In Cooper's case the taxpayer was a professional footballer who was ordered by his coach to eat large quantities of particular foods as he needed to gain weight. If he did not gain this weight, he would be dropped from first grade to reserve grade and this would drastically reduce his income. The courts found that whilst the expense affected his income, gaining weight was not part of his income earning activities and the expense of purchasing additional food remained private.

In Cooper's case Hill J said: 

...the fact that the employee is required, as a term of his employment, to incur a particular expenditure does not convert expenditure that is not incurred in the course of the income producing operations into a deductible outgoing.

The issue of expenses incurred in relation to accommodation near the work place while maintaining a family residence in another location was considered in FC of T v. Toms 89 ATC 4373; (1989) 20 ATR 466 (Toms' Case).

In Toms' Case, the taxpayer was a forest worker who during the working week lived in a caravan in a bush camp 108 kilometres from his family home in Grafton. He claimed it was too far to travel each day to his work in the forest, so that it was necessary to establish a caravan at the camp. He would return home on weekends. He claimed the costs of maintaining his caravan and other living expenses such as the cost of heating and lighting. The Federal Court considered that the caravan was rendered necessary as much by the taxpayer's choice of the place of his residence in Grafton as by his choice of employment in the forest, and its purpose was to enable him to retain his residence at Grafton although employed in the forest. It was held that the expenses incurred in relation to the temporary accommodation near the workplace while maintaining a family residence in another location were dictated not by his work but by private considerations, and therefore were not deductible.

In your case, you incur expenses for renting accommodation to enable you to live on site at your work place to fulfil part of your employment contract. The expenses would not have been incurred but for the requirement by your employer to live on site. However, the expenses are a prerequisite to the earning of assessable income. As in Cooper's case, the expenditure does not convert to expenditure incurred in the course of producing your income because it is a requirement of your employment contract. The expenses are incurred in order to enable you to earn income but are not incurred in the course of gaining or producing that income.

It is not relevant to the deductibility of the expense that the amount you have to pay to rent your accommodation is more than what you are able to charge to rent out your property. Additionally, the assessability of the income you receive from renting your own property has no nexus to the expense you incur to rent accommodation as a part of your employment contract.

Therefore, you must declare the income you receive from renting you own property as assessable income. You are not entitled to deduction for your rental accommodation expenses you incur.

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