Edited version of your private ruling

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Ruling

Subject: Overseas travel expenses

Question

Are you entitled to a deduction for your overseas travel expenses?

Answer

No.

This ruling applies for the following period

1 July 2010 to 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:

· the application for private ruling

· the sponsorship contract

· additional information provided.

You are employed part-time as a teacher.

During holidays you work on a casual basis in filed related to your employment.

You travelled overseas to undertake a mountain climbing activity.

You have had a personal interest in mountaineering since undertaking a mountaineering course some years ago.

Your expenses in relation to your overseas travel included airfares, accommodation, meals and protective clothing.

You consider that at least 80% of these expenses were incurred for income-producing purposes, with the remainder being private.

You applied for and were awarded an assessable sponsorship for your overseas travel.

Your employer supported your overseas travel by scheduling your roster around your absences. As a part-time employee you did not have to apply for leave to undertake the travel.

Your employer supported your overseas travel because they are planning to develop a trip to the same overseas destination. During your overseas travel you made contacts to aid in this venture.

Your employer considers the overseas travel to have greatly enhanced your skills based on the added expertise, knowledge and experience gained from such travel as well as attaching additional credibility to, and reputation of the nature, scope and depth of the skills staff team.

You contend that during your overseas travel you acquired and practiced many of the skills you instruct and assess in your employment.

You have given presentations of your overseas travel to students and have had speaking engagements on the lecture circuit.

You aim to acquire more corporate speaking opportunities where you will present your story to corporate clients.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Summary

You are not entitled to a deduction for all of the expenses you incurred for your overseas travel as the expenses are considered to be private in nature. The dominant purpose for your trip was to undertake a personal mountain climbing activity. The connection between the expenses you incurred and your employment is merely minor and incidental to the main purpose of your expedition. However, as you received assessable income directly related to your overseas travel, it is considered fair and reasonable to allow deductions for the expenses you incurred up to the amount of assessable income received.

Detailed reasoning

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, or relate to the earning of exempt income.

Taxation Ruling 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.

However, if the subject of the self-education is too general in terms of your income-earning activities, the necessary connection between the self-education expense and the income-earning activity does not exist.

A deduction is also not allowable if self-education expenses are incurred to enable a taxpayer to open up a new income-earning activity, whether in business or in the taxpayer's current employment. The expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.

In Case U109 87 ATC 657, the taxpayer was a science teacher who specialised in geology and was the head of the school science department. He undertook a 17 day trip to Indonesia organised by a natural museum history society of which he was a member. During the course of the trip he visited several volcanoes and other geological sites, and attended a geological congress. He also visited some tourist attractions. The taxpayer took many slides of the geological sites and prepared a taped commentary which he used in his skills on his return.

The Administrative Appeals Tribunal examined previous court decisions dealing with teachers who had claimed for the cost of overseas travel. It concluded that the general principle in these cases was that, the fact that the taxpayer may have been a better teacher after the travel, was not enough to demonstrate a sufficient connection between the travel and their income earning activities.

While some taxpayers are fortunate in finding personal and recreational satisfaction in their field of endeavour, any apparent connection between the self-education activity and the profession in which a person is employed is not sufficient to confer deductibility on the expenses.

In your case, you incurred expenses to undertake the mountain climbing activity. Although you may have used some of the skills and knowledge utilised in your employment during your travels, and arguably become a better teacher as a result, this reason alone is not enough to demonstrate a sufficient connection between the overseas travel and your employment.

The main purpose of your overseas travel was to achieve a personal milestone. The connection between your overseas travel and your employment is not sufficient as the mountain climbing activity is too general in terms of your employment, or alternatively private in nature. Any connection between the expenses you incurred and your employment is merely minor and incidental to the main purpose of your travel.

In addition, you have, and aim to acquire more, corporate speaking opportunities directly related to your trip. While the travel may lead to these corporate speaking opportunities, you did not derive income from this type of activity prior to your expedition. The expenses you incurred for the overseas travel are not deductible on this basis as the expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income from your income earning activities at that time

As such, you are not entitled to a deduction for the expenses you incurred to undertake your overseas travel against your employment income. However, you also received sponsorship income which was directly related to your overseas travel. If you had not undertaken the overseas travel you would not have received this income.

Taxation Ruling TR 95/33 provides that where it is concluded that the disproportion between an outgoing and the relevant assessable income is essentially explained by reference to the independent pursuit of some other objective (for example, for private purposes), then the outgoing must be apportioned between the pursuit of assessable income and the other objective (Fletcher v. Federal Commissioner of Taxation (1991) 173 CLR 1; 91 ATC 4950; (1991) 22 ATR 613).

In your case it is considered fair and reasonable to allow deductions for the expenses you incurred for your overseas travel up to the amount of assessable income received directly from the trip.

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