Edited version of private ruling

Authorisation Number: 1011576613694

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Ruling

Subject: Work related expenses

1. Are you entitled to a deduction for airfare costs incurred in travelling to and from Country X?

Yes.

2. Are you entitled to a deduction for the work-related portion of your telephone and internet usage costs you incur whilst in Country X?

Yes.

3. Are you entitled to a deduction for the costs relating to the connection and installation of your telephone and internet services whilst in Country X?

No.

4. Are you entitled to a deduction for accommodation and meal costs you incur whilst in Country X?

No.

5. Are you entitled to a deduction for travel costs you incur whilst in Country X?

No.

6. Are you entitled to a deduction for the costs involved with accessing and withdrawing money from your Australian bank account whilst in Country X?

No.

This ruling applies for the following period:

Year ending 30 June 2011

The scheme commenced on:

1 July 2010

Relevant facts and circumstances

You are employed by an Australian entity.

Recently your employer (Australian employer) has arranged a work exchange program whereby you will be paid by your Australian employer but you will work for another entity in Country X (Country X employer) for about six months.

The purpose of the program is to build an ongoing relationship between the two entities.

You are not required by your employer to undertake the exchange, however, it was offered to you and you accepted the offer.

The work you will undertake in Country X will be similar to what you do in Australia, and although you are not undertaking the exchange for educational or training purposes, you expect that you will learn a lot from the experience.

The exchange will allow you to gain experience which will assist you with your existing employment duties.

Your income will not change under this arrangement.

Your employer will not pay you any additional allowances.

You will incur costs for airfares to and from Country X.

You will incur travel costs within Country X.

You will incur rental accommodation costs in Country X.

You will incur meal costs in Country X.

You will incur costs for telephone and internet access in order to contact staff in Australia for work purposes.

Your salary will continue to be paid into your Australian bank account. You will incur fees and charges when accessing and withdrawing money from your account.

The two entities have agreed that Country X employer will pay for any travel required of you for work purposes while in Country X.

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.

Airfares

Interpretive Decision ATO ID 2001/329 considers the case where a taxpayer travelled to and from the United Kingdom on a work exchange program. It was the Commissioner's decision in this case that the airfare expenses incurred by the taxpayer were deductible under section 8-1 of the ITAA 1997.

The reasons for decision in ATO ID 2001/329 states:

There is a direct connection between the work the taxpayer does in the United Kingdom and the taxpayer's income earning activities in Australia. The essential character of the travel costs is that of expenditure incurred in order to gain or produce assessable income because the experience gained in the United Kingdom will assist the taxpayer with his existing employment duties.

The facts in ATO ID 2001/329 are similar to the facts in your case. You will be travelling to Country X on a work exchange program. You will incur an expense for airfares to and from Country X. The essential character of these costs is that of expenses incurred in order to produce assessable employment income, as the experience you will gain in Country X will assist you with your existing employment duties.

Therefore, you are entitled to a deduction for the cost of airfares between Australia and Country X.

Telephone calls and internet usage

The Commissioner has set out his view on the deductibility of telephone and internet expenses in a number of different taxation rulings, including Taxation Ruling TR 95/9.

It is the Commissioner's view that the cost of work-related calls and internet access are an allowable deduction.

Paragraph 177 of TR 95/9 states

Work-related calls may be identified from an itemised telephone account. If such an account is not provided, a reasonable estimate of call costs, based on diary entries of calls made over a period of one month, together with relevant telephone accounts, will be acceptable for substantiation purposes.

You will incur expenses when you make work-related calls and use the internet for work-related purposes.

These expenses relate to the earning of your assessable income, they are not of a capital or private nature.

Therefore, you are entitled to a deduction for the work-related portion of your telephone calls and internet usage expenses.

Telephone and internet connection and installation fees

The Commissioner has set out his view on the deductibility of the cost of connecting and installing telephone and internet services in a number of different taxation rulings, including Taxation Ruling TR 98/14.

It is the Commissioner's view that the costs of connecting and installing telephone and internet services are not allowable deductions.

Paragraphs 170-171 of TR 98/14 state:

A deduction is not allowable for the cost of installing or connecting a telephone, mobile phone, pager, beeper or other telecommunications equipment as it is considered to be a capital expense and/or a private expense.

In Case M53 80 ATC 357; (1980) 24 CTBR (NS) Case 29, Dr P Gerber (Member) stated (ATC at 359; CTBR at 236):

... on payment of the connection fee, this taxpayer brought into existence an advantage for the enduring benefit of his newly established medical practice. ... It follows that it is 'like' an expenditure of a capital nature.

In your case you will incur expenses relating to the connecting and installing telephone and internet services. Although these expenses are related to the earning of your assessable income, they are of a capital nature.

Therefore, you are not entitled to a deduction for the cost of installing and connecting your telephone and internet services.

Accommodation and meal expenses

Accommodation and meal expenses ordinarily are private or domestic in nature. However, Taxation Ruling TR 98/9 states that where the accommodation expense relates to an overseas study tour or work-related conference, the expense is a necessary cost of participating in the tour or conference and is therefore not of a private nature as its essential character is an income-producing expense.

TR 98/9, however, limits the deductibility of accommodation and meal expenses where the taxpayer has travelled to another location and established a new home.

Paragraph 93 of TR 98/9 lists the key factors to be taken into account in determining whether a new home has been established. These factors include:

· the total duration of the travel

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

· the nature of the accommodation, e.g., hotel, motel, or long term accommodation

· whether the taxpayer is accompanied by his or her family

· whether the taxpayer is maintaining a home at the 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.

TR 98/9 provides a number of examples designed to illustrate factors and circumstances that are relevant in determining whether a taxpayer has established a new home in the new location.  Most applicable to your case is Example 5 at paragraphs 104 and 105 which states:

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.

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.

Although in your case you will be travelling to Country X as part of a work exchange program rather than a study tour or conference, the principles set out in TR 98/9 apply to your case, as in both TR 98/9 and in your case the primary issue is the deductibility of work-related travel expenses.

In your case, you are relocating to Country X for six months. You will not be travelling while in Country X. The long term nature of your stay in Country X indicates that you will establish a new home in Country X for the duration of your stay.

Therefore, the expenses you incur for accommodation and meals while in Country X will not be deductible under section 8-1 of the ITAA 1997 as they are private and domestic in nature.

Travel within Country X

A deduction is generally not allowable for the cost of travel by an employee between home and their normal workplace as it is considered to be a private expense. 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 (Taxation Ruling TR 95/34 paragraph 77).

Home to work travel

The expenses you will incur in travelling from your accommodation to your workplace in Country X will not be incurred in the performance of your employment duties. They are considered to be a private expense.

Therefore, you are not entitled to a deduction for travel expenses incurred in travelling to and from your accommodation and workplace while in Country X.

Work-related travel

Furthermore, in the case of work-related travel within Country X, the agreement between the Australian employer and Country X employer specifically states that the Country X employer will pay for any work-related travel while you are in Country X. Therefore, you will not incur any expenses in relation to work-related travel.

Therefore, you are not entitled to a deduction for any work-related travel expenses.

Bank fees

The Commissioner's view in regards to the deductibility of bank fees is set out in Taxation Ruling IT 2084.

A deduction is allowable, as a work-related expense, for Financial Institutions Duty that relates to the direct depositing of salary and wages into an employee's bank account. A deduction is not allowable for any other bank fees as a work related expense.

In your case, you will incur bank fees when you withdraw money from your Australian bank account while you are in Country X. These fees are not Financial Institutions Duties.

Therefore, you are not entitled to a deduction for bank fees.

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