Edited version of private ruling

Authorisation Number: 1011716531442

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Ruling

Subject: Travel, food and accommodation

Question 1

Are you entitled to a deduction for the cost of air travel between City A and City B?

Answer

No.

Question 2

Are you entitled to a deduction for the cost of accommodation in City B?

Answer

No.

Question 3

Are you entitled to a deduction for the cost of meals while in City B?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

You are an employee.

Under your work contract you are required to work from City A and City B.

You work three days in City B and two days in City A.

Your residential home is in City A and you rent accommodation in City B.

You currently drive between the two work locations in your car which is salary sacrificed.

You are considering travelling between the two cities by air.

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 the course of gaining or producing assessable income, but are not allowable to the extent that they are of a capital, private or domestic nature.

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.

Certain expenditure is incurred in order to be in a position to be able to derive assessable income, for example, unless one arrives at work it is not possible to derive income. This does not mean that the expenditure is incurred in the course of gaining or producing assessable income. Rather, the expenses are incurred to enable the taxpayer to commence income earning activities.

This was the view taken by the High Court in Lunney & Hayley v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 7 AITR 166; 77 ATC 4076; (Lunney's case).  Williams, Kitto and Taylor JJ stated that:

It is, of course, beyond question that unless an employee attends at his place of employment he will not derive assessable income and, in one sense, he makes the journey to his place of employment in order that he may earn his income. But to say that expenditure on fares is a prerequisite to the earning of a taxpayer's income is not to say that such expenditure is incurred in or in the course of gaining or producing his income.

In Lunney's case the High Court 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.

Taxation Ruling IT 2543 states that the essentially private character of travel between home and work is not affected by factors such as the mode of transport, the availability of transport, the lack of suitable public transport, the erratic times of employment, the time of travel, the distance of travel and the necessity of travel.

However, there are situations where it has been accepted that travel by employees from home to work is deductible. IT 2543 summarises these situations as follows: 

(a) the taxpayer's home constitutes a place of employment and travel is between two places of employment or business; 

(b) the taxpayer's employment can be construed as having commenced before or at the time of leaving home; 

(c) the taxpayer has to transport by vehicle bulky equipment necessary for employment; 

(d) the taxpayer's employment is inherently of an itinerant nature; 

(e) the taxpayer is required to break his or her normal journey to perform employment duties (other than including incidental duties such as collecting newspapers, mail, etc.) on the way from home to the usual place of employment, or from the place of employment to home.

In your case, your situation is not considered to be one of the above situations. City A and city B are both regarded as your normal workplaces. As highlighted above, the necessity or distance of your home to work travel does not change the private nature of the travel. Therefore, you are not entitled to a deduction for travel, either by car or air between City A and City B.

Accommodation and meal expenses

Generally, accommodation and meal expenses incurred by an employee who lives away from home to carry out the duties of his employment will not be deductible. Expenses of this nature have been found to be private or incurred before or after the activity of earning assessable income.

This is supported by the decision in Federal Commissioner of Taxation v. Toms 89 ATC 4373; (1989) 20 ATR 466 (Tom's case), where the Federal Court held that expenses incurred in relation to accommodation near the work place while maintaining a family residence in another location were not an allowable deduction as they were considered to be private expenses.

In the case Federal Commissioner of Taxation v. Charlton 84 ATC 4415; (1984) 15 ATR 711 (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 150kms away. There was evidence that there was difficulty in finding motel accommodation in Bendigo and the taxpayer was reluctant to make the round trip back to Melbourne without rest.  The taxpayer claimed that the rental expenses were incurred in the production of assessable income. 

Justice Crockett of the Supreme Court of Victoria allowed the Commissioner's appeal and ruled:   

The Commissioner contends (correctly in my view) that, if the taxpayer should choose to reside so far from the place where it is necessary for him to be in order to gain his income that he, not only needs to incur expense in travelling to that place but, also to incur expense in the provision to him of some accommodation transitory or discontinuous in its use and secondary to or temporarily supplemental of his actual home, then that expense, too, is for the same reason non-deductible.

The taxpayer's election to live in Melbourne and not in Bendigo meant that the rental expended on the flat in order to enable him to secure accommodation in which to recuperate from the rigours of travel and the nature of his work was an expenditure dictated not by his work but by private considerations.

Your accommodation expenses arise out of your choice to stay in City B instead of returning home at the end of the first day. As in Tom's case and Charlton's case, the cost of accommodation and meals in City B are private and domestic nature, which are incurred to enable you to work in City B. They are not incurred during the actual performance of your work, that is, during the production of assessable income, and as such are not deductible under section 8-1 of ITAA 1997.

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