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Ruling

Subject: Relocation allowances

Question 1

Is the relocation allowance you received assessable?

Answer

Yes.

Question 2

Are you entitled to a deduction for relocation expenses?

Answer

No.

This ruling applies for the following period

Year ending 30 June 2013

The scheme commenced on

1 July 2012

Relevant facts

You are relocating from City A to City B for your job on request of your employer.

Your employer is offering a once off payment to assist with the costs of relocation.

You are not relocating immediately and you are yet to make payments for removalists, shipping your car and flights for you and your pets.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 6-5

Income Tax Assessment Act 1997 Section 15-2

Income Tax Assessment Act 1997 Section 6-10.

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Assessable income

Sections 6-5 and 6-10 of the Income Tax Assessment Act 1997 (ITAA 1997) provide that the assessable income of a resident taxpayer includes ordinary income and statutory income derived directly or indirectly from all sources.

Section 15-2 of the ITAA 1997 includes in a persons assessable income all allowances provided in respect of, or for or in relation directly or indirectly to, any employment.

Paragraph 12 of Taxation Ruling IT 2614 provides that an allowance is a payment of a definite predetermined amount to cover an estimated expense. It is an amount contributed towards the defraying of a particular type of expense an employee incurs, and is made regardless of whether the employee incurs more or less than the amount of the allowance.

In your case you have been requested to relocate interstate by your employer. As a result, you will incur expenses such as removalist costs, shipping of your motor vehicle and flights interstate for you and your pets.

In order to assist in the defraying the costs incurred, your employer is offering a once off relocation allowance. 

This allowance:

· is a definite predetermined sum

· could be more or less than the expenses incurred

· is paid to assist in defraying the cost of your expenses, and

· is paid in connection with your employment.

As such, the payment it is considered an allowance for the purposes of section 15-2 of the ITAA 1997 and assessable to you.

Relocation expenses

Section 8-1 of the 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.

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.   

Such expenses are considered not to have the necessary connection with the derivation of assessable income, and are of a private or domestic nature. Therefore no deduction is allowable.

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