Edited version of your private ruling

Authorisation Number: 1012562521964

Ruling

Subject: Deductibility of Accommodation and Meal Expenses

Question 1

Would the employee be able to claim an income tax deduction under section 8 of the Income Tax assessment Act (ITAA 1997) for any expenses incurred on hotel accommodation and meals where the employee's principal place of residence, principal place of employment and the other work-related location where the employee is required to work are all in the same city?

Answer

No

Question 2

Is there a rule within either the Income Tax assessment Act ITAA 1936 or the Income Tax assessment Act ITAA 1997 that determines whether the proximity of the employee's principal place of residence is too close to a work-related location other than their principal place of employment for section 900-30 of 1TAA apply as business travel?

Answer

No

This ruling applies for the following periods:

01/07/2013-30/06/2014

Relevant facts and circumstances

The employee's principal place of residence is in city X. The employee's principal place of employment (i.e. office) is also in city X which is 30km away or a 40 minute drive.

The employee is requested by their employer to travel to a location within city X for a work-related function where the employee is required to attend the work-related function location early in the morning and finish late at night for a couple of weekdays.

The work-related function location is 30km away or a 40 minute drive from the employee's principal place of residence. Given the early morning start and late night finish of the work-function, the employee checks into a hotel near the work-related function to ensure they get to the location on time and won't have to travel home late at night.

It is not a requirement by the employer that the employee stay overnight at the hotel, it is optional

The employer agrees to reimburse the employee for their hotel accommodation and meals costs.

The work related function details:

Purpose of function and description of the function's activities

The function was a trade show. The employer used the show as a promotional tool to showcase their products and answer product enquiries from attendees.

The morning start time and evening end time of function

Required to be at the venue between 7:30am and Sam to setup. Finish at 10pm for close down.

Types of meals provided

Ordinary meals on offer from the a Ia carte menu of the hotel restaurant and room service.

The travel was from home to hotel and back to home from the hotel.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Subsection 8-1(1)

Income Tax Assessment Act 1997 Subsection 8-1(2)

Income Tax Assessment Act 1997 Subdivision 900-B

Income Tax Assessment Act 1997 Subdivision 900-D

Income Tax Assessment Act 1997 Section 900-30

Income Tax Assessment Act 1997 Section 900-95

Reasons for decision

Question 1

Summary

Your expenses on hotel accommodation and meals are not deductible as they are considered private in nature because it was not necessary to incur the expenditure in order to be able to carry out your employment duties. The expenditure was the result of a personal choice to stay overnight at the hotel.

Detailed Reasoning

The deductibility of work relates expenses by an employee falls for consideration under section 8-1 Income Tax Assessment Act 1997 (ITAA 1997).

The issue in your circumstances is whether the expenditure on the hotel accommodation and the meal are deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA1997)).

Section 8-1 (ITAA1997) provides for what is allowable as a deduction against assessable income. This section states:

(1) You can deduct from your assessable income any loss or outgoing to the extent that:

(a) it is incurred in gaining or producing your assessable income; or

(b) it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income.

(2) However, you cannot deduct a loss or outgoing under this section to the extent that:

(a) it is a loss or outgoing of capital, or of a capital nature; or

(b) it is a loss or outgoing of a private or domestic nature; or

(c) it is incurred in relation to gaining or producing your exempt income; or

(d) a provision of this Act prevents you from deducting it.

As an employee the relevant paragraph of subsection 8-1 (1) of the ITAA 1997 is paragraph (a), as the employee is not carrying on a business.

Note: Section 8-1 of the ITAA97 is the former section 51 of the Income Tax Assessment Act 1936 (ITAA 1936), as amended, expressed in simplified terms.

Accommodation and meal expenses

Accommodation expenses are usually not deductible, as it is an outgoing that is of a private or domestic nature. There are several cases that can be cited as authority for this conclusion. These include Federal Commissioner of Taxation v Charlton (1984) 71 FLR 107; 15 ATR 711; 84 ATC 4415 (Charlton's case). In this case, the taxpayer was a pathologist employed to carry out autopsies for the local coroner in Bendigo. He rented a flat in Bendigo while maintaining a permanent family home in Melbourne, located approximately 150kms away. There was evidence that there was difficulty in finding motel accommodation in Bendigo and the taxpayer was reluctant to make the round trip back to Melbourne without rest. The taxpayer claimed that the rental was incurred in the production of assessable income.

Justice Crockett of the Supreme Court of Victoria allowed the Commissioner's appeal and ruled:

The Commissioner contends (correctly in my view) that, if the taxpayer should choose to reside so far from the place where it is necessary for him to be in order to gain his income that he, not only needs to incur expense in travelling to that place but, also to incur expense in the provision to him of some accommodation transitory or discontinuous in its use and secondary to or temporarily supplemental of his actual home, then that expense, too, is for the same reason non-deductible.

The taxpayer's election to live in Melbourne and not in Bendigo meant that the rental expended on the flat in order to enable him to secure accommodation in which to recuperate from the rigours of travel and the nature of his work was an expenditure dictated not by his work but by private considerations.

Therefore the expense of accommodation was considered private and domestic in nature and would not be deductible under section 8-1 (ITAA1997).

Another case of relevance is U49, 87 ATC 337, heard by the Administrative Appeals Tribunal. In this case, the taxpayer was employed by the New South Wales Department of Agriculture. His position was abolished and he was assigned to a new position that required work in the field but was headquartered in Newcastle. The taxpayer maintained his family home in a northern suburb of Sydney, but thought it was impractical to commute. He paid for board and lodging for weekdays in Newcastle and claimed the accommodation expenses as a deduction under section 51(1) (Income Tax Assessment Act 1936 (ITAA1936)).

Senior Member McMahon held that:

As a matter of legal logic, there is no difference in principle between the rent paid for the taxpayer's dwelling house and the amount paid for his board and lodging. The fact that he maintained his principal establishment for the housing of his family does not change the character of the monies paid for his accommodation and sustenance elsewhere. They continue to be private and domestic. Furthermore in this case they are not relevant to the earning of assessable income.

An application of the principles discussed in Lunney v. Commissioner of Taxation, 100 CLR 478 leads to the conclusion that the expenses of living away from home are not expenses that are incurred in the interests of the employer; they are incurred as a consequence of the employee's decision to maintain his usual abode in a place remote from his place of work. Thus, not only can it be said that the taxpayer's board and lodging were private and domestic expenses, it seems to me that such expenditure is not in any relevant sense incurred for the purposes of earning assessable income. It is properly characterised as a personal or living expense.'

In the case of the Federal Commissioner of Taxation v Toms 20 ATR 466; 89 ATC 4373, 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 purpose of your staying overnight at the hotel and not returning home is one of convenience and personal choice to avoid travelling relatively early in the morning and relatively late at night. That is, the expenditure was not essential for the purpose of gaining or producing your assessable income. The essential character of the expenditure is therefore of a private nature and not an incident of your employment. Additionally, though not a deciding factor, the overnight stay at the hotel was not a requirement by the employer but was optional and a matter of personal choice.

Accordingly, you are not considered to be on work related travel overnight. Therefore the required nexus between the accommodation and meal expenditure and the derivation of assessable income does not exist under section 8-1 of the ITAA and the expenses are not deductible.

Question 2

Detailed Reasoning

If an expense for food and accommodation would be deductible under section 8-1 of the ITAA 1997, section 900-30 of the ITAA 1997 has no rule (provision) that would deny a deduction for that food and accommodation expense due to the proximity of one's residence to a work related location.

The taxpayer in question is an employee and not carrying on a business. Therefore the relevant record keeping provisions are those contained in subdivision 900-B and not 900-D of the ITAA 1997. Therefore the relevant section for consideration is 900-30 and not 900-95 of the ITAA 1997. Section 900-30(i) of the ITAA 1997 states 'A work expense is a loss or outgoing you incur in providing your salary and wages'.

As the taxpayer is an employee then section 900-30 and not section 900-95 is the relevant provision for consideration

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