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Ruling

Subject: Self-education Travel Expenses

Question

Are you entitled to a deduction for travel expenses to and from work if it is also your place of education?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 2011

The scheme commences on:

1 July 2010

Relevant facts and circumstances

You are enrolled in an apprenticeship.

All study and training is done at work.

You do not undertake any formal study - it is all practical with some self paced paperwork to complete.

You have to pay to fly from your home to city A which is interstate. Your employer pays for you to fly to and from your place of work from city A. You then have to pay to fly home from city A.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Section 8-1 of the Income Tax Assessment Act 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.

Lunney v. Commissioner of Taxation [1958] ALR 225; 1958 0311H HCA; 100 CLR 478; (1958) 11 ATD 404; (1958) 32 ALJR 139 (Lunneys case) introduced what is now regarded as the essential character test. This test requires that for an expense to be deductible, it must have the essential character of a business or income producing expense. The taxpayer in this case sought to deduct the cost of travelling from his home to his work. The expenses were disallowed as being private and domestic, establishing the broad principle that costs incurred because of living in one place while working in another cannot be regarded as deductible. The reasons given by the High Court were twofold.

The fact that certain expenditure, such as travelling to work, must be incurred in order to be able to derive assessable income, does not necessarily mean that the expenditure is incidental and relevant to the derivation of assessable income or that it is incurred in the course of gaining or producing assessable income. It is a prerequisite to the earning of assessable income rather than being incurred in the course of gaining that income.

The essential character of the travel to and from work is that of a private and domestic nature, related to personal and living expenses as part of the taxpayers choice of where to live, in choosing to live away from and what distance from work.

There are exceptions where travel between home and work are deductible, for example where you transport bulky tools and equipment, your home is a base of employment and you commence your duties prior to leaving home, or you regularly work at more than one site each day before returning home.

The general principles established in Lunneys case have been followed in many subsequent cases and would hold equally for the travel expenses in your case. That is, the travel expenses are a prerequisite to the earning of your income and are not expenditure incurred in the course of gaining or producing income. Your circumstances do not meet any of the exceptions which would allow your travel expenses to be deductible.

The travel expenses you have incurred are not considered to be as a result of your income earning activities. The expenses are incurred by you in putting yourself in a position where you can perform your duties, rather than in the performance of your duties. Therefore you are not entitled to deduction for the travel expenses you incur.

Self-education expenses

TR 98/9 discusses the circumstances under which self-education expenses are allowable as a deduction. A deduction is allowable for self-education expenses if a taxpayer's current income earning activities are based on the exercise of a skill or some specific knowledge and the subject of the self-education enables the taxpayer to maintain or improve that skill or knowledge (Federal Commissioner of Taxation v. Finn (1961) 106 CLR 60, (1961) 12 ATD 348).

Similarly, if the study of a subject of self-education objectively leads to, or is likely to lead to, an increase in a taxpayer's income from his or her current income earning activities, a deduction is allowable.

Travel expenses

TR 98/9 provides that, subject to the general tests under section 8-1 of the ITAA 1997 being met, travel expenses to and from an educational institution may be deductible.

An educational institution is, as stated in Paragraph 134 of TR 98/9, an institution or organisation, or a dedicated part of it, whose primary function is to provide systematic instruction, teaching or schooling in a subject, skill or competency. This view is supported by the decision of the No 2 Board of Review in Case M11 80 ATC 78; 23 CTBR (NS) Case 97. There, L C Voumard (Member) relied on Barry v. Hughes [1973] 1 All ER 537, where it was said that an educational establishment was one whose primary function was that of education.

The study you undertake whilst completing your apprenticeship is done at your place of employment, which does not meet the criteria above to be classed as an educational institution. Whilst we acknowledge your specific circumstances, your travel expenses are not sufficiently connected to your income earning activities and furthermore are regarded as private in nature. Therefore you are not entitled to claim the airfares to and from city A as a self-education expense.

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