Edited version of your private ruling

Authorisation Number: 1012563183633

Ruling

Subject: Travel expenses

Question 1

Is the entity entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for travel expenses incurred?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

The scheme commences on:

1 July 2009

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The entity provides services to clients. The entity's business premises and the principal's residence are the same.

The entity employs full-time and part-time workers.

The entity won a contract in another town. The contract requires the principal to work on site and access internal data. To reach work the principal has been driving from their place of business and residence. The trip took considerable time to travel.

The principal then rented an apartment in the town and was driven to and from work. The entity's motor vehicles were used for this trip.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1.

Reasons for decision

Summary

The entity is entitled to a deduction under section 8-1 of the ITAA 1997 for travel expenses incurred, as the travel has been undertaken for the purpose of enabling its principal to engage in income producing activities.

Detailed reasoning

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.

Travel expenses incurred by a taxpayer which are incidental and relevant to the derivation of their assessable income are deductible under section 8-1 of the ITAA 1997.

Travel expenses incurred in the course of the taxpayer's work or business operations are deductible in accordance with general principles: Garrett v FCT (1982) 12 ATR 684; FCT v Genys (1987) 19 ATR 356. Travel expenses may include motor vehicle expenses (including parking fees and tolls)

In Taxation Ruling IT 2199 (IT 2199), the Commissioner indicates that travelling expenses between places of employment and/or places of business are not deductible if one of the places is the taxpayer's residence. This general rule is then qualified in the following paragraphs by indicating that, where a taxpayer's home constitutes a base of business operations, the travelling expenses may be deductible. However, the Commissioner indicates that he is unable to lay down any general rule but, instead, provides illustrations of the circumstances in which a deduction will be allowed.

IT 2199 states as follows:

3. … It is that the travel between the two places of employment or business must be for the purpose of engaging in the income producing activities. This is of particular importance where one of the places of employment or business is the home of the taxpayer.

4. …

5. …

6. It is necessary that (the income producing activity carried on at the taxpayer's home should constitute an employment or business. It is not sufficient that a room in the home is used in association with an employment or business conducted elsewhere. It is rare for a home to represent a place of employment. The more usual situation is for a self-employed person to use his home or part thereof as a base of business operations. Examples which come to mind are house painters, plumbers, electricians, etc. Furthermore, it is not uncommon for traders to live on the same premises as their stores and it is frequently the case that medical practitioners will conduct their practices from surgeries located at their homes.

7. In many instances it will be readily apparent that the cost of travel between the home based employment or business and an employment or business located elsewhere is part and parcel of the income producing activities and allowable as an income tax deduction. In the Garrett case, for instance, the taxpayer lived at A where he conducted both a medical practice and a farm. He also conducted medical practices in other centres from which he derived significant amounts of income. The Court found that travel between the various centres was part of the operations by which the taxpayer produced his assessable income and its cost was an allowable deduction.

Subsequently, in the course of discussing car fringe benefits in Miscellaneous Taxation Ruling MT 2027, the Commissioner provides the following summary of the contents of IT 2199 at para 23 (emphasis added).

· Travel directly between two places of employment, two places of business or a place of employment and a place of business, will generally be accepted as business travel where the person does not live at either of the places and the travel has been undertaken for the purpose of enabling the person to engage in income-producing activities.

· The position is less clear where the person lives at one of the places said to be a place of employment or business - it is then necessary to look closely at the requirement that the income-producing activity carried on at the person's home is such as to constitute the home as a place of employment or business.

· For this purpose, it is not sufficient that a room in the home is used in association with an employment or business conducted elsewhere.

· It is rare for a home to represent a place of employment.

· The more usual situation is for a self-employed person to use his or her home or part of it as a base of business operations (for example, painters, plumbers, electricians) and, in these circumstances, travel between the home and another place of employment or business will be accepted as business travel where it is part and parcel of the income-producing activities.

That is, travel between a taxpayer's residence and a place of employment/business is not deductible unless the residence is a base of business operations and an income-producing activity is undertaken in conjunction with the travel. However, travel from a residence in the foregoing circumstances to an unrelated employment engagement is not part of the income-producing activities of the base of operations and therefore is not deductible.

In this case

The entity's business premises and base of business operations were at the residence of the principal. To reach work the principal had to drive from their residence home office project locations.

The principal was dropped and picked from the town. The travel was from the entity's business business premises to project locations in the other town.

In Taxation Ruling IT 2199, claims for income tax deduction for expenses incurred in travelling directly between two places of employment, two places of business or a place of employment and a place of business should be allowed where the travel has been undertaken for the purpose of enabling the taxpayer to engage in income producing activities.

The cost of car travel used by a taxpayer in the course of their duties, may be deductible under section 8-1of the ITAA 1997, where these expenses have a sufficient nexus with gaining or producing of assessable income. To be deductible under section 8-1 of the ITAA 1997, the expenditure must be incurred in gaining or producing the assessable income, but expenditure which is essentially of a private nature is not deductible

It is considered that the travel expenditure incurred by the entity to drop and pick the principal is relevant and incidental to the earning of income. The travel undertaken by the principal was travel in the course of their duties and it was earning of the entity's assessable income and it was expenditure incurred in, or in the course of, gaining or producing assessable income. As such the requisite connection between the expense and the earning of income does exist.

Consequently, the company is entitled to a deduction under section 8-1 of the ITAA 1997 for travel expenses.

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