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Ruling

Subject: Deductions for car expenses

Question and answer:

Are you entitled to claim work related car expenses?

No.

This ruling applies for the following period:

Year ended 30 June 2012

The scheme commences on:

1 July 2011

Relevant facts and circumstances

You graduated as a medical doctor from a university in city X.

You commenced working at the city X hospital and then completed a placement at the city Y Hospital.

Your employer provided accommodation for you while you worked in city Y.

You received a travel allowance equating to two return trips between city X and city Y from your employer.

You established shared rental accommodation in city X prior to the period you worked in city Y and have maintained this accommodation since then.

You became ill while working in city Y and you travelled back to your accommodation in city X on a regular basis to be cared for.

Following the city Y placement you returned to your accommodation in city X and had several weeks leave. You then returned to work in city X.

You have claimed a deduction for work related car expenses on your income tax return equating to X return trips between city X and city Y.

You state that you believe that you are able to claim a deduction for work related car expenses as you travelled between your home and an 'alternative workplace' as discussed in Miscellaneous Tax Ruling MT 2027 Fringe benefits tax: private use of cars: home to work travel.

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 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.

A deduction is only allowable under the general principles outlined in section 8-1 of the ITAA 1997 where the expense has actually been incurred. There must be a connection between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income.

In considering the deductibility of car expenses there is a distinction between travel to work and travel on work. It is settled law that expenditure incurred in travelling to and from the normal workplace is not deductible as it is not incurred in, or in the course of, gaining or producing the assessable income (Lunney & Hayley v. Federal Commissioner of Taxation (1958) 100 CLR 478).

The general rule, as discussed in Taxation Ruling IT 112 Deductibility of travelling expenses between residence and place of employment or business is that travel between home and a person's regular place of employment or business is ordinarily private travel. While travel to work is a necessary pre-requisite to earning income, it is not undertaken in the course of earning that income. Any expenses related to such travel are incurred at a point too soon to have the necessary connection with gaining or producing assessable income.

The payment of a travel allowance by an employer to an employee does not grant an automatic right to claim car expenses as a deduction.

Generally, you can claim car expenses for the cost of travelling:

· if you need to carry bulky tools or equipment that you used for work and can't leave it at your workplace (for example, an extension ladder or cello);

· from your home to different places of work if you undertake itinerant work;

· directly between two separate workplaces (for example, when you have a second job);

· from your normal workplace to an alternative workplace while still on duty, and back to your normal workplace or directly home (for example, a client's premises); or

· from your home to an alternative workplace for work purposes and then to your normal workplace or directly home.

Travelling from your home to an alternative workplace for work purposes is discussed in the section 'Business trip on way to or from work' (paragraphs 28 to 36) of Miscellaneous Tax Ruling MT 2027 Fringe benefits tax: private use of cars: home to work travel (MT 2027).

Whilst the issue of what constitutes an alternative workplace will be dependant on the individual facts of the case, the features that may be taken into consideration as to what will characterise an alternative workplace are discussed in paragraphs 28 to 36 of MT 2027 and include: 

· the short term or temporary duration of the work undertaken there;

· the irregularity of the visits to the place; and

· the absence of any regular pattern of travel to the place.

An example of these characteristics is where an employee in the normal course of his/her daily duties travels from home to visit clients or customers, and then travels on to his/her normal workplace or directly home.

MT 2027 provides three principles for determining whether expenses incurred in travel from home to an alternative workplace are deductible. These three principles are:

· the employee has a regular place of employment to which he or she travels habitually;

· in the performance of his or her duties as an employee, travel is undertaken to an alternative destination which itself is not a regular place of employment; and

· the journey is undertaken to a location at which the employee performs substantial employment duties.

In your case, you worked as a doctor in city X and then completed a placement in city Y. You had accommodation in city X and your employer provided you with accommodation when you worked in city Y. You worked full shifts, days or weeks at each place while you were based at each place. For example, when you worked in city X you did not work part of the day or week at city Y, and when you worked in city Y you did not work part of the day or week in city X. City Y was your normal place of work during your placement there. You had accommodation nearby and in the normal course of your employment you travelled directly to work and back again each day.

In terms of the three principles provided in MT 2027, the City Y hospital was your regular place of employment while you were placed there and you did not travel to any alternative destination to perform substantial employment duties while you worked there.

The trips you made between city X and city Y were private in nature and were not incurred in gaining or producing assessable income. Therefore, you are not entitled to a deduction for car expenses relating to this travel on your income tax return.

Further issues for you to consider:

You need to lodge an amendment to your income tax return to remove the deduction for car expenses you claimed.

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