Edited version of private ruling

Authorisation Number: 1011738920336

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Ruling

Subject: relocation and other expenses

Question 1

Are you entitled to a deduction for your relocation costs?

Answer

No.

Question 2

Are you entitled to a deduction for the total unreimbursed airfare costs for your travel to country A, B and C?

Answer

No.

Question 3

Are you entitled to a deduction for the airfare costs attributable to your flights to country A and B?

Answer

No.

Question 4

Are you entitled to a deduction for the unreimbursed airfare costs for your travel to and from country C?

Answer

Yes.

Question 5

Are you entitled to a deduction for any of the cost of flights for your family between Australia and country C?

Answer

No.

Question 6

Are you entitled to a deduction for taxes for entry into and exit from country A and country B?

Answer

No.

Question 7

Are you entitled to a deduction for the cost of your flights between country C and country D?

Answer

Yes.

Question 8

Are you entitled to a deduction for your accommodation costs while in country C?

Answer

No.

Question 9

Are you entitled to a deduction for the cost of travelling between home and your workplace?

Answer

No.

Question 10

Are you entitled to a deduction for the costs of passports for you and your family?

Answer

No.

Question 11

Are you entitled to a deduction for the costs of visas for you and your family?

Answer

No.

Question 12

Are you entitled to a deduction for travel vaccination costs?

Answer

No.

Question 13

Are you entitled to a deduction for the cost of health insurance for you and your family?

Answer

No.

Question 14

Are you entitled to a deduction for the cost of insurance on your country C accommodation?

Answer

No.

Question 15

Are you entitled to a deduction for the storage and packing costs?

Answer

No.

Question 16

Are you entitled to a deduction for the cost of redirecting your mail?

Answer

No.

Question 17

Are you entitled to a deduction for the language course undertaken by you and your spouse?

Answer

No.

Question 18

Are you entitled to a deduction for your suitcases?

Answer

No.

Question 19

Are you entitled to a deduction for the costs of your work related telephone calls and work related internet use?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2011

Year ended 30 June 2012

The scheme commenced on

1 July 2010

Relevant facts

You are living in country C for a period of sabbatical study leave.

You left Australia in December of the relevant year with stops in country A and B to meet with colleagues and a student and for personal travel.

Your meetings with collaborators in country A were prearranged before leaving Australia. One of your meetings went for about four hours, two days after you arrived in country A. Another planned meeting for the following day was cancelled at the last minute. You were in country A for four days. You allowed one day for jet lag. You worked on university matters from the hotel while in country A.

You arrived in country B for approximately three weeks. You planned to take samples in country B, however, the colleague who was to help you with this task was not available. You met with a student, who is commencing his PhD with you, for 2.5 hours. This meeting was to prepare him for the work he will need to do before he begins his studies with you. Most of the time in country B was related to private travel.

You arrived in country C in January of the relevant year.

After your stay in country C, you will have some personal travel and return to Australia in July of the relevant year.

The study is part of your work. The study will enable you to learn new techniques which can be applied to your research and work.

The study will also help in the development of your career and update your knowledge and skills in your field. This in turn will help you apply for and obtain research grants, attract students, increase the number and impact of your publications and maintain the high quality of your research team.

The research will also help you in future promotions. You are currently a senior lecturer and hope to be an Associate Professor in the near future.

You are travelling with your dependent spouse and two children.

Your employer will continue paying you your usual salary while overseas.

You will incur expenses for the following:

· storage of personal items for six months,

· boxes/accessories for packing personal items,

· cost of removalists to move personal items to storage,

· storage of car,

· travel vaccination for your spouse and children,

· visa application fees for you and your family,

· passports for you and your family,

· portion of airfares not paid for by your employer for you and your family,

· portion of country C accommodation not paid for by your employer,

· cost of compulsory insurance on accommodation,

· cost of language course for you and your spouse to help you communicate while in country C,

· cost of health insurance for yourself and family,

· cost of suitcases purchased specifically for the trip and unlikely to be useful for other trips as they are not of good quality,

· cost of internet/telephone connection to maintain communication with your Australian workplace including research students that you supervise,

· cost of public transport for weekdays between home and the laboratories where you will undertake the research,

· entry and exist taxes for country A and B for you and your family. These stopovers on your way to country C enable you to meet with work collaborators as well as collect some samples for your research in country C.

· your airfares and accommodation to travel from country C to country D to initiate a new collaborative research project, and

· cost of redirecting mail.

You hope to spend one to three weeks in country D, depending on the collaborative agreements that you are able to make, as well as progress on experiments that you are undertaking in country C. Before leaving Australia, you received an email from colleagues in country D inviting you to visit them. Your family will go with you to country D. You will be working Monday to Friday in country D and the weekends will be for private purposes.

You have a visa which is based on your work/project in country C. Based on your visa, your spouse and children obtained their visas.

You are keeping the relevant receipts, diary and documentation for substantiation purposes.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

Relocation and accommodation expenses

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 or are necessarily incurred in carrying on a business for the purpose of 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, or a provision of the ITAA 1997 prevents it.

A number of significant court decisions have determined that for an expense to be an allowable deduction:

· it must have the essential character of an outgoing incurred in gaining

assessable income or, in other words, of an income-producing expense

(Lunney v. FC of T; (1958) 100 CLR 478 (Lunney's case)),

· there must be a nexus between the outgoing and the assessable income so

that the outgoing is incidental and relevant to the gaining of assessable

income (Ronpibon Tin NL v. FC of T, (1949) 78 CLR 47 (Ronpibon's case)), and

· it is necessary to determine the connection between the particular outgoing

and the operations or activities by which the taxpayer most directly gains or

produces his or her assessable income (Charles Moore Co (WA) Pty Ltd v.

FC of T, (1956) 95 CLR 344; FC of T v. Hatchett, 71 ATC 4184).

The general rule is that relocation and moving expenses are not incurred in earning the assessable income but are a prerequisite to the earning of that assessable income in the same manner as travel expenses to and from work.

Taxation Ruling IT 2481 outlines the deductibility of travelling expenses of an employee moving to a new locality of employment and states that a deduction is not allowable. Where a taxpayer transfers from one locality to another, and incurs expenditure in moving from one place of residence to a new place of residence to take up the duties of the new position, that expenditure is not incurred in gaining or producing assessable income and is not deductible. The taxpayer is not travelling on his/her work, but is travelling to his/her work. Nor is the taxpayer travelling between two places of employment.

Taxation Ruling IT 2566 states that an employee who is travelling to commence employment duties at a new work location is not travelling on duty. The employment duties do not commence until the employee reports to work at the new location.

Taxation Ruling IT 2614 states that removal and relocation expenses to take up an appointment with a new or existing employer are not allowable deductions, even if an allowance or reimbursement is received. This is so whether the transfer is voluntary or at the employer's request.

This view is supported in the following cases:

In Fullerton v FC of T, 91 ATC 4983; (1991) 22 ATR 757, as a result of a reorganisation the taxpayer's position ceased to exist. In order to avoid retrenchment, he had no choice but to accept a transfer to a different location. The employer reimbursed a portion of the relocation expenses and the taxpayer claimed the remainder as a tax deduction. It was held that the expenditure on the taxpayer's domestic or family arrangements is not deductible, even though the expenditure had a causal connection with the earning of income.

In Case U91, 87 ATC 525, the taxpayer, a Commonwealth public servant, was transferred at the request of his employer from a State office to the central office of the department in Canberra. He was denied a deduction for expenses incurred in attempting to auction his house. It was held that the expenses were too remote from the income producing process to be incurred in gaining or producing assessable income.

Similarly in Case V31, 88 ATC 282, it was found that the relocation expenses were of a private and domestic nature and were therefore not deductible.

We acknowledge that your circumstances differ somewhat from the circumstances outlined in the above cases, however, the principles remain relevant.

Taxation Ruling TR 98/9 considers occasions where accommodation expenses and other travel expenses may have the essential character of an income-producing expense where the expenditure is incurred while away from home overnight on a work related activity or away from home overnight in connection with a self-education activity. Such expenses incurred may be deductible under section 8-1 of the ITAA 1997.

However, where a taxpayer is away for an extended period of time and has established a new home, the associated costs including accommodation and meals remain private in nature and are not deductible under section 8-1 of the ITAA 1997.

TR 98/9 lists the key factors to be taken into account in determining whether a new home has been established. They 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 (hotel, motel, 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.

TR 98/9 provides examples designed to illustrate factors and circumstances that are relevant in determining whether a taxpayer has established a new home in the new location. 

Example 1:     Elizabeth ordinarily lives with her parents in a country town outside Brisbane. She takes 4 months leave from her job to undertake a course of education at a training college in Brisbane. She shares a rented unit in Brisbane with two other students and returns to her parental home every weekend and during holiday periods.

The relatively short period of her stay in Brisbane and the frequency of her return visits to her parental home indicate that Elizabeth has not established a new home in Brisbane.

Example 2:     John, who is single, decides to undertake a 2-year course of study at a university in a city 250 kilometres from the town where he lives with his parents. He shares a rented house with some other students during this period and takes a casual job. He occasionally returns to the parental home on weekends. 

The length of time that John resides in the city, the long term nature of his accommodation and the fact that he has employment in the city indicate he has established a new home.

Example 3:     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.

In your case, you currently work and live in Australia. You are relocating to country C to study for several months. You are travelling with your family. You will be staying in accommodation with your family for this period. You will put your Australian car and personal items in storage for the period you are overseas.

These factors all lend weight to the conclusion that you will establish a new home in country C. Therefore, you are not entitled to a deduction for your relocation or accommodation expenses, as the expenses are not incurred in gaining or producing assessable income, but rather the expenses are a prerequisite to your study. The expenditure is inherently of a private or domestic nature and is not allowable under section 8-1 of the ITAA 1997.

Airfares

TR 98/9 states that airfares incurred on overseas study tours or sabbatical are an allowable deduction under section 8-1 of the ITAA 1997.

However, travelling to country A and B is not regarded as being travel on an overseas study tour or sabbatical and is not sufficiently connected to your income earning expenses. Your activities carried out in country A and B were largely private. The meetings carried out in these countries are regarded as incidental and do not change the private nature of this travel. These airfares and the associated expenses are regarded as a private expense and not an allowable deduction.

Therefore, you are allowed the portion of your unreimbursed airfare to country C and your return airfare from country C to Australia.

Travel expenses for your spouse and children

Your travel expenses would be deductible under section 8-1 of the ITAA 1997 if you were considered to be travelling in the performance of your duties. Expenses attributable to the travel of a family member will also be deductible if the family member performs substantial duties as your employer's employee or as your employee, and it is reasonable to conclude that the family member would still accompany you, even if he or she did not have a personal relationship with you. A deduction is not allowable where the family member simply accompanies you while you travel (section 26-30 of the ITAA 1997).

In your case, your family travelled with you for reasons other than in the performance of your research duties. The travel and accommodation costs associated with your spouse and children are considered private in nature and are not deductible under section 8-1 of the ITAA 1997.

Country D travel

The costs of travel between two places of employment as part of the same job are deductible. Also the cost in undertaking work related travel such as an interstate seminar is an allowable deduction.

In your case the travel to country D is directly in relation to your income earning activities. Your travel to and from country D is sufficiently connected to your assessable income and is regarded as work related travel. The cost of your travel to and from country D is therefore an allowable deduction. Similarly, a portion of your country D accommodation expenses that relate to your income earning activities is an allowable deduction.

Please note, as outlined above, the travel and accommodation expenses for your spouse and children while in country D are not an allowable deduction.

Travel between home and work

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 (Lunney's case and Taxation Ruling IT 112).

In Lunney's case, the Full High Court, in disallowing a deduction for travel expenses, 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. Williams, Kitto, and Taylor JJ stated:

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.

Lunneys case confirmed that:

· the essential character of expenditure incurred in travelling between home and work is of a private nature, and

· generally, the duties of a salary and wage earner will not commence until the arrival at a place of work and will cease on departure from work.

In considering the deductibility of travel expenses a distinction is made between travel to work and travel on work. It is only if the duties of the job require a taxpayer to travel that the taxpayers expenses can be deducted (Taylor v. Provan 1975 AC 194).

A deduction is generally not allowable for the cost of travel between home and work because the expenses are not considered to be incurred in producing assessable income. These expenses are incurred as a consequence of living in one place and working in another and any expenses incurred to enable a taxpayer to commence their income earning activities are therefore considered private in nature. The mode of transport, lack of suitable public transport, time of travel, distance of travel are all factors which do not alter the essential character of travel between home and work as private in nature. The cost of travel between home and work is generally incurred to put a person in a position to perform duties, rather than in the performance of those duties (Case V111 88 ATC 712, Taxation Ruling IT 2543).

In your case, you incur public transport costs between your home and work. Your research does not commence until your arrival at work and the expenditure incurred to travel between the two places is incurred to put you in a position to carry out your duties and not in the performance of your duties.

We acknowledge your circumstances however your circumstances do not alter the essential character of the expenses as being private in nature. As such, the cost of your travel between your home in country C and work is not deductible under section 8-1 of the ITAA 1997.

Visas and passport

The expenses associated with acquiring passports and visas relate primarily to the taxpayer's personal right to travel to an overseas destination. They closely parallel the costs associated with obtaining a driver's licence, which were characterised as being of a private nature (Case P55 82 ATC 253; 25 CTBR (NS) 824 Case 117).

While the holding of a passport and visa are required for you to travel overseas for your sabbatical, it does not follow that the costs are deductible. 

Expenditure in obtaining a passport and visa allows you to legally travel to different countries and is not sufficiently connected with your income earning activities. Furthermore, the associated expenses are considered to be private in nature. Accordingly no deduction is allowable under section 8-1 of the ITAA 1997. 

Health insurance and accommodation insurance

The meaning of incurred in gaining or producing assessable income was considered in Ronpibon's case where the High Court stated that:

For expenditure to form an allowable deduction as an outgoing incurred in gaining or producing assessable it must be incidental and relevant to that end. The words incurred in gaining or producing the assessable income mean in the course of gaining or producing such income.

It is a long standing principle that a taxpayer does not satisfy section 8-1 of the ITAA 1997 merely by demonstrating a casual connection between the expenditure and the derivation of income. What must be shown is a closer and more immediate connection. The expenditure must be incurred in gaining or producing your assessable income (Lunney's case). These principles have been affirmed by the High Court in Commissioner of Taxation v. Payne [2001] HCA 3.

Generally medical expenses have no direct connection to the gaining or producing of assessable income as the purpose of the expense is to keep the taxpayer healthy. There is insufficient connection to the gaining or production of assessable income for a deduction to be allowed as the expenditure is too remote.

In Taxation Determination TD 93/22, a professional sportsman was not entitled to a deduction for contributions to a private health fund, even though it was a condition of the employment that the person takes out the insurance. The cost of private health insurance was considered not to be sufficiently connected to the sporting activities that produced that income and was also a private expense.

In your case, you took out health insurance for yourself and your family while living overseas. The expenses incurred for the health insurance have no direct connection to the gaining or producing of your assessable income. The purpose of the expense is to cover you in case of an illness while you are overseas. There is insufficient connection to the gaining or production of your assessable income for a deduction to be allowed as the expenditure is too remote.

In addition, contributions for private health insurance can be characterised as being of a private nature. Therefore, you are not entitled to a deduction for contributions for health insurance under section 8-1 of the ITAA 1997.

Similarly, the cost of your insurance on your accommodation is not an allowable deduction. Whilst it is acknowledged that this insurance was compulsory, this does not change the nature of the expense. It remains that this insurance is not sufficiently connected to the earning of your assessable income. Also the insurance policy invariably covers items that are generally private in nature, for example, theft or damage. Therefore no deduction is allowable.

Vaccinations

In Mansfield v. FC of T 96 ATC 4001; (1995) 31 ATR 367, the Federal Court of Australia decided that expenses of a private or personal nature may be an allowable deduction where the working environment is sufficiently abnormal and unique as to make the essential character of the expenditure work-related rather than private in nature. However, whether such an expense is either private or work related involves questions of fact and degree, and something out of the ordinary is usually necessary for the essential character of the expenditure to be seen as work related.

Generally, a deduction is not allowable for the cost of vaccinations to protect against infectious diseases in the work place as this is a personal medical expense and, therefore, of a private nature.

Taxation Ruling TR 95/8 states that a deduction is not allowable for the cost of vaccinations to protect cleaners at risk from infectious diseases in the work place as the expense relates to a personal medical expense, and is therefore of a private nature.

Taxation Ruling TR 95/15 states that a deduction is not allowable for the cost of vaccinations to protect nursing employees against the risk of contracting infectious diseases in the work place as the expense relates to a personal medical expense, and is therefore of a private nature.

In your case, you incurred costs for travel vaccinations for your spouse and children. Even where vaccinations are compulsory, the essential character of the expense relates to a personal medical expense, and is therefore of a private nature. Also the expense is not incurred in earning your assessable income. Consequently, you are not entitled to claim a deduction for the cost of the vaccinations for your overseas travel under section 8-1 of the ITAA 1997.

Storage

While overseas, you have placed your personal items and car in storage. The costs incurred relate directly to the storage of these items and not to the derivation of your salary.

While your requirement for this storage may be seen to be a consequence of your work related sabbatical leave and overseas study, the expense remains private or domestic in nature. Accordingly you are not entitled to a deduction for the storage, boxes, packing or removalist expenses.

Similarly the cost of redirecting mail from Australia to country C for six months is regarded as a private expense and no deduction is allowable.

Language course

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 in the future, a deduction is allowable.

However, no deduction is allowable for self-education expenses if the study is to enable a taxpayer to get employment, to obtain new employment or to open up a new income-earning activity (whether in business or in the taxpayer's current employment). This includes studies relating to a particular profession, occupation or field of employment in which the taxpayer is not yet engaged. The expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income. They are incurred in getting, not in doing, the work which produces the income (High Court decision in FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541).

Paragraph 42 of TR 98/9 states:

If a course of study is too general in terms of the taxpayer's current income earning activities, the necessary connection between the self education expense and the income earning activity does not exist. The cost of self-improvement or personal development courses is generally not allowable, except in certain circumstances.

To determine whether your self education expenses are deductible, the essential character of the expenditure must be considered. It is necessary to determine whether there is a sufficient nexus between the expenditure and your current income-earning activities.

In your case, the course undertaken by you and your spouse was to help you communicate while living in country C, not to maintain or expand your knowledge and skill as an employee. Although the course helps you to converse with others while in country C, this does not in itself mean that the expenditure was incurred in gaining or producing your assessable income.  

Proficiency with the language is a general skill and not specific to your income earning activities. Furthermore the expenses are regarded as a private expense. Therefore, no deduction is allowable under section 8-1 of the ITAA 1997.

Suitcases 

In Case T78 86 ATC 1094 the Administrative Appeals Tribunal allowed a deduction to a barrister for airfares to attend a work-related course. However, the Tribunal held that his claim for travel insurance was expenditure of a private and domestic nature. Expenses such as insurance policies invariably cover items that are generally private in nature, for example illness, loss of baggage, and theft or damage to belongings.

Similarly, the cost of purchasing luggage is private in nature and not deductible. The expense remains private even though the suitcases were specifically purchased for this trip and may not be used again. You are therefore not entitled to a deduction for your suitcases under section 8-1 of the ITAA 1997 as the expenditure is private in nature.

Telephone and internet expenses

A deduction is allowable under section 8-1 of the ITAA 1997 for the cost of telephone calls and internet access made in the course of earning your assessable income.

These 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 cannot claim a deduction for the cost of connecting a telephone, mobile phone, pager or any other telecommunications equipment as it is a capital expense.

You need to ensure that you only claim the income producing use of the internet. You should keep a diary of the internet use to show your income producing hours as well as the private use by you and your family so that you can calculate the correct income producing portion.

Other deductions

A deduction is allowed for the cost of stationery and books used for your income producing activities.

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