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Ruling

Subject: Accommodation and meal expenses

Question

Are you entitled to a deduction for accommodation or food expenses?

Answer

No.

This ruling applies for the following periods

Year ended 30 June 2012

Year ended 30 June 2013

The scheme commenced on

1 July 2011

Relevant facts and circumstances

You are a beneficiary of a Trust.

You will also be an employee of the Trust, however as the Trust is currently making losses, they are unable to pay you a weekly wage.

You have negotiated a contract with an agency.

The agency engages the Trust to perform work at various sites for a set period.

The current contract requires you to work in city A for three months. This contract may be renewed.

You may in the future get other work at various company sites. The period of each work contract may range from a couple of weeks to months.

Initially you travelled from your home in city B to city A each day for work. However you then got accommodation in city A and stayed there during the week. You then returned to your home in city B on the week ends.

Your family does not go with you to city A.

You do not receive an allowance in relation to your accommodation or food expenses.

You incur accommodation and food expenses while living in city A.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Income Tax Assessment Act 1997 Division 900.

Reasons for decision

Allowable deductions

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 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 (Lunneys 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), 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).

A deduction is only allowable if an expense:

§ is actually incurred,

§ meets the deductibility tests, and

§ satisfies the substantiation rules.

Accommodation and meal expenses

Expenditure on the daily necessities of life (for example, accommodation and food) are generally not deductible as it is not incurred in gaining or producing assessable income and is also considered to be private or domestic in nature.

Exceptions to this are where you are undertaking work related travel and are required to stay away overnight. However, no deduction is allowable if a taxpayer is merely maintaining accommodation close to their usual work location for convenience. The fact that income cannot be earned unless certain expenses are necessarily incurred is not determinative of deductibility.

Certain expenditure is incurred in order to be in a position to be able to derive assessable income, for example, unless a person arrives at work it is not possible to derive income. This does not mean that the expenditure is incurred in the course of gaining or producing assessable income (Case V111 88 ATC 712).

In Federal Commissioner of Taxation v. Toms 20 ATR 466; 89 ATC 4373 (Toms case), the Federal Court held that expenses incurred in relation to accommodation near the work place, while maintaining a family residence in another location, were not an allowable deduction as they were considered to be private expenses. The Federal Court disallowed the forest workers deduction for the cost of maintaining a caravan and other living expenses. The taxpayer's family home in Grafton was some 108 kilometres from the base camp so he lived in the caravan during the week and returned to the family home on weekends. The caravan was rendered necessary as much by the taxpayer's choice of the place of his residence in Grafton as by his employment in the State forest, and its purpose was to enable him to retain his residence in Grafton although he was employed in the State forest. Had he lived at a town closer to the forest, there is no question the caravan would have been unnecessary. 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.

Your situation is similar to Toms case. In your case, you incurred accommodation expenses at your work sites as a result of your normal residence being elsewhere and your employment being at the work site. The accommodation expenses were incurred to put you in a place where you are closer to your place of employment. The work site was your normal place of work for the relevant period. Although you may have more than one normal place of employment, each work site is regarded as a normal place of work. The accommodation expenses incurred were not related to the actual performance of your duties. They are more a convenience and a prerequisite to the earning of assessable income and are not expenses incurred in the course of gaining or producing that income. Furthermore, the essential character of the expense is of a private or domestic nature. Accordingly, you are not entitled to a deduction for the accommodation expenses under section 8-1 of the ITAA 1997.

Similarly, your meal expenses are private in nature and not a work related expense. Therefore you are not entitled to a deduction for the costs of your meals.

Substantiation

Division 900 of the ITAA 1997 outlines the substantiation rules for work expenses. As you have not incurred any deductible accommodation or meal expenses, the substantiation provisions are not relevant. Therefore any substantiation exceptions for domestic travel allowance expenses contained in these provisions have no application in your circumstances. It follows that Taxation Ruling TR 2004/6 and Taxation Determinations TD 2011/17 and the reasonable amounts for accommodation and food have no application in your case.

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