1012385619187 | Legal database

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Authorisation Number: 1012385619187

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Ruling

Subject: Relocation expenses

Question

Are you entitled to a deduction for relocation expenses?

Answer

This ruling applies for the following period:

Year ended 30 June 2011

The scheme commenced on:

1 July 2010

Relevant facts and circumstances

During the 2010-11 income year you were offered a new job in City Z. You were living in City Y at the time.

During the time that you were negotiating your salary package, City Y was experiencing a natural disaster.

You were offered $X to cover the costs of your relocation. The amount was high due to the fact that with such short notice, and with no transportation companies able to move in or out of City Y due to the natural disaster, you donated many of your possessions. The $X was intended to help cover the replacement costs of these items and the additional costs you incurred in taking up the employment offer.

You were of the understanding that this amount was paid to you as a fringe benefit reimbursement and was not taxable.

Your employer subsequently reported this amount as an allowance. No tax was withheld from this amount.

You estimate that the costs you actually incurred in relocating were $X.

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.

Taxation Ruling IT 2614 examines the deductibility of relocation expenses. The ruling states that expenses incurred in relocating to take up an appointment with a new or existing employer are not allowable deductions as they are private or domestic in nature. This is so, regardless of whether an allowance has been paid, or if the relocation was involuntary.

Taxation Ruling IT 2481 also discusses this expense. At paragraph 9 the ruling states the expenditure is not incurred in gaining or producing income and is not deductible as the taxpayer is not travelling on work, but to work. This is consistent with the view in the Federal Court case Fullerton v. FC of T 91 ATC 4983; 22 ATR 757 (Fullerton's case).

In Fullerton's case, it was held that the shortfall between the costs of relocation and the employer's partial reimbursement was not a loss or outgoing incurred in the gaining or producing of income, notwithstanding that the relocation was in response to the changing necessities of work.

In your case, you incurred relocation expenses to take up a new employment position. The expenses were higher than normal as natural disaster that occurred in City Y meant that you were unable to transport your belongings at the time. As a result you donated a number of your possessions with the intention of replacing them when you relocated to City Z. Accordingly, your employer provided you with assistance with relocation expenses in the form of an allowance. You estimate that the expenses you incurred were considerably less than the amount that you received.

The relocation expenses were not incurred in gaining or producing of your assessable income; they were incurred to put you in a position to earn that income. They are a prerequisite to earning assessable income and are additionally of a private nature. Accordingly, you are not entitled to a deduction for relocation expenses under section 8-1 of the ITAA 1997.

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