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Subject: Interest expenses

Question

Are you entitled to a deduction for interest expenses on an investment unit used for your accommodation while working away from home?

Answer

No

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

Due to being unable to find employment in your home town of City A, you found alternative employment in City B.

Initially you worked from your home, but this proved impractical so you ended up spending two to three days a week in the City B office.

The distance was too far for you to travel each day so you were forced to look for accommodation.

Rather then pay for accommodation, you decided to keep your investment unit at City B off the rental market and live in it and save the cost of alternate accommodation.

You are incurring interest expenses for this unit.

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.

As a general rule, expenditure on meals and accommodation while working away from home is not allowed as a deduction. These costs are essentially 'living expenses' of a private or domestic nature. The fact that income cannot be earned unless certain expenses are necessarily incurred is not determinative of deductibility. The costs of maintaining a second home in a place the taxpayer regularly visits on business are unlikely to be deductible.

In FC of T v. Toms 89 ATC 4373; (1989) 20 ATR 466 the Federal Court disallowed a forest worker's deduction for the cost of maintaining a caravan and other living expenses. The taxpayer incurred the expenses in providing temporary accommodation at the base camp because the taxpayer had chosen to reside at a place far from the worksite. These expenses were dictated not by work but by private considerations.

In your case, you have chosen to take your investment unit off the rental market and live in it. You have taken this action to save the expense of alternative accommodation while working away form your home.

You have incurred interest expenses for accommodation due to having your home in one town and your employment in another town. Whilst the expenses would not be incurred but for the distance of your work place from your family home, the expenses are a prerequisite to the earning of assessable income. That is, they are incurred in order to put you in a position to be able to earn income but are not incurred in the actual course of gaining or producing that income. Also, the expenses are considered to be private in nature as they are incurred due to your choice of where you live and where you work.

A deduction is therefore not allowable for your interest expenses.

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