Edited version of your private ruling

Authorisation Number: 1012554357483

Ruling

Subject: Relocation expenses

Question 1

Are you entitled to a deduction for airfares for you and your family to travel to and from overseas to take up a new position?

Answer

No

Question 2

Are you entitled to a deduction for accommodation for you and your family while working overseas?

Answer

No

Question 3

Are you entitled to a deduction for loss of income in taking up an overseas position?

Answer

No

This ruling applies for the following period

Year ended 30 June 2013

The scheme commenced on

1 July 2012

Relevant facts

In early 2012 you were required to relocate overseas from Australia, where you took up a contract in a particular profession.

The intention was to gain the necessary skills and experience to take on your future role in your particular profession.

You were employed in Australia prior to commencing the arrangements overseas.

As part of your training to become a specialist in the field, you were encouraged by your current employer to complete this arrangement overseas.

You and your employer agreed that once the overseas placement was complete that you would be re-employed in your particular profession. In fact your re-employment was contingent upon completion of the overseas arrangement.

Your dependant spouse and children accompanied you on the trip overseas.

You and your family departed Australia for a 12 month period.

As part of the relocation overseas you rented a house.

The cost the airfares and rent was fully paid by you.

You were not paid a living away from home allowance and were not reimbursed for the accommodation and airfares.

In taking up the overseas position, your gross salary had decreased.

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, or relate to the earning of exempt income.

Airfares

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.  

This view is supported in various cases where the Commissioner's decision to disallow deductions for relocation expenses was challenged in the Courts or at the Administrative Appeals Tribunal (AAT).

In Case P8, 82 ATC 45; (1982) 25 CTBR (NS) Case 73, the taxpayer moved from the United States of America to Australia to take up a university appointment. The university contributed a specified amount towards the removal expenses. The removal expenses in fact exceeded the specified amount and the taxpayer claimed a deduction for the difference.  It was held that no deduction was allowable. The removal expenses were a prerequisite to the earning of the taxpayer's assessable income from the university and were not incurred in the course of gaining or producing that income. 

In your case, you have incurred the cost of airfares to take up your new position overseas. These expenses are not incurred in gaining or producing your assessable income. Rather, they are a prerequisite to earning that income. Also, the expenses are of a private nature.

Therefore, you are not entitled to a deduction for the cost of airfares for you and your family.

Accommodation expenses

Certain expenditure is incurred in order to be in a position to be able to derive assessable income, for example unless one 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. Rather, the expenses are incurred to enable the taxpayer to commence income earning activities (Lunney & Hayley v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 11 ATD 404; (1958) 7 AITR 166).

In your case your place of work for the duration of this period is considered to be overseas and you travelled overseas to commence your employment duties. The accommodation expenses incurred by you enable you to stay in close proximity to your work.

These expenses are a prerequisite to the earning of your assessable income and are not expenses incurred in the course of gaining or producing that income. They are living expenses and have been incurred for private and domestic purposes.

Therefore, you are not entitled to a deduction for the expenses incurred in relation to your accommodation.

Loss of income

There is no provision under the Income Tax Assessment Act 1997 to provide a deduction for a reduction in income, whether voluntary or involuntary.

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