Edited version of your written advice

Authorisation Number: 1012699033979

Ruling

Subject: WRE - travel expenses

Question 1

Are the expenses incurred in traveling overseas deductible under section 8-1 of the (ITAA 1997?

Answer

No

This ruling applies for the following period(s)

Income year ended 30 June 2014

The scheme commences on

1 July 2013

Relevant facts and circumstances

You are employed by a company that provides equipment for primary producers.

Your employer organised an overseas trip for its clients:

• to meet with primary producers overseas

• to visit the factories of the companies that produce the goods you sell, and

• to visit tourist attractions.

You attended the trip as a representative of your employer and as tour co-ordinator. Your duties on the trip included the following:

• organising head counts every time you got on busses and flights

• organising tickets for excursions

• organising restaurants

• organising the booking and signing in off hotels

• co-ordinating with the bus driver to be in places at set times for pick up and drop off.

Your employer did not contribute anything towards the trip as they were in a poor financial position. You agreed to pay your own way as opposed to cancel the trip after your clients had already booked and paid.

As per company policy you took annual leave to attend the overseas trip.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

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, or a provision of the ITAA 1997 prevents it.

A number of significant court decisions have determined that for an expense to be an allowable deduction:

• it must have the essential character of an outgoing incurred in gaining

assessable income or, in other words, of an income-producing expense

(Lunney v. FC of T; (1958) 100 CLR 478,

• there must be a nexus between the outgoing and the assessable income so

that the outgoing is incidental and relevant to the gaining of assessable

income (Ronpibon Tin NL v. FC of T, (1949) 78 CLR 47, and

• it is necessary to determine the connection between the particular outgoing

and the operations or activities by which the taxpayer most directly gains or

produces his or her assessable income (Charles Moore Co (WA) Pty Ltd v.

FC of T, (1956) 95 CLR 344; FC of T v. Hatchett, 71 ATC 4184).

To determine whether your expenses are deductible, the essential character of the expenditure must be considered. It is necessary to determine whether there is a sufficient nexus between the expenditure and your current income-earning activities.

Overseas Travel - Self Education

Taxation Ruling TR 98/9 considers occasions where travel expenses may have the essential character of an income-producing expense. Whilst the ruling discusses self-education expenses the principles contained in it are relevant to your situation.

TR 98/9 explains that airfares and travel expenses incurred on overseas study tours or sabbatical may be deductible if the necessary connection with a person's income producing activity exists.

However, TR 98/9 explains that if the subject of the self-education is too general in terms of the taxpayer's income-earning activities, the necessary connection between the expense and the income earning activity does not exist.

In Case W73 89 ATC 659 (Case W73), a husband and wife, both junior members of the NSW Police, travelled overseas for more than three months. Prior to touring USA and Europe, they wrote to various police stations in places they intended to visit hoping to speak to people who could provide information on law implementation. On their return it was found that some of their expenditure was designed to and did lift their performance in a critical area of their work. A deduction was allowed for their travel expenses.

Case M51 80 ATC 352 (Case M51) involved a husband and wife who were partners in a sugar cane farming business. They went overseas on a three week 'Sugar and Pineapple Tour' organised by the Farmers and Graziers Co-operative Company Ltd. Members of the tour spent most of the time sightseeing, although they did visit some farming areas. The taxpayer's expenditure was not deductible as the tour was similar to an ordinary excursion trip, except that it had a small bias in favour of people having a rural interest. The fact that they gained many useful insights on sugar cane growing and probably picked up some useful ideas, did not mean that the expenditure was incurred in gaining or producing assessable income.

Taxation Ruling IT 2198 deals with allowable deductions for voluntary expenditure incurred by employee taxpayers. Paragraph 13 states that the Taxation Boards of Review have seen a number of teachers seeking income tax deductions for overseas travelling expenses. Most of the claims were rejected because the teachers were not able to establish a positive connection between the overseas travel and the performance of their duties of employment as teachers. In the ultimate the claims have been based on a general proposition that the overseas travel has made the taxpayers better able to carry out their duties which, of itself, is not sufficient to enable the expenditure to be allowed as a deduction.

In Case R94 84 ATC 628 a college librarian was not allowed overseas travel expenses in making a study tour of China organised by the Library Association. The benefits derived by the taxpayer might have made her a better librarian, but the nexus between the outgoings and deriving assessable income was too remote. The taxpayer voluntarily made the trip and the expenditure was essentially of a private nature.

Overseas Travel - On Work

The Commissioner's view on the deductibility of teacher's work related expenses is set out in Taxation Ruling TR 95/14. While the ruling and subsequent discussion and authorities relate to teachers attending overseas trips with students we consider that those situations are comparable to you attending the overseas trip on behalf of your employer and co-ordinating the trip with clients.

Some factors that would be considered in determining the relevance of these trips to an employee teacher's employment would include the purpose of the trip, the activities undertaken, and the duties of the employee teacher while on the trip. The purpose of the trip and the activities undertaken should have an educational benefit and be related to the curriculum or syllabus of the school.

It would also be expected that the employee teacher participates in the task of supervising students. If the trip does not have a direct connection to the syllabus of the school, an employee teacher's supervisory role would not be sufficient to make the employee teacher's expenses deductible.

In Case R42 84 ATC 357; (1984) 27 CTBR (NS) Case 97, a lecturer at a college of advanced education was allowed a deduction after he was able to demonstrate that his expenses in accompanying a group of trainee students on a trip to Fiji were incurred in the course of his duties. He demonstrated that the excursion formed part of the official college program; was compulsory for all students, and that staff involved in teacher-education courses were expected, as part of their employment, to participate in various out-of-college activities.

Application to your situation

Although many of the above cases involve employee teachers, the principles are relevant in your situation and the circumstances of your case can be compared to the above decisions. It is acknowledged that the travel provided you with first-hand knowledge, but it does not in itself mean that the expenditure is incurred in gaining or producing your assessable income. The trip may broaden your knowledge of industry practices and the products you sell. However, as with the cases quoted above, the courts have held that these reasons alone are not enough to demonstrate a sufficient connection between the travel and your income-producing activities.

The tour was largely marketed at your employer's clients. While the trip included spending time visiting your supplier's factory, the remaining time was spent touring. The fact that your tour included trips to your supplier's factories and meetings with overseas primary producers does not change the nature of your expenses into work related expenses. While we acknowledge the benefits of attending the trip, the knowledge to be gained from your trip is not considered to be incurred in the course of gaining your assessable income. There are many experiences and places of interest which may be relevant to your employment however this does not automatically mean that the associated expenses are deductible.

Your case can be distinguished from Case W73 as there is no evidence to show that your travel lifted your performance in a critical area of your work. The facts of your case are more comparable to Case M51. Your tour was favourable to primary producers and organized by your employer, however, it is largely a sightseeing tour.

In your case, even though your employer may have encouraged you to attend, in light of the fact that they did not contribute to the travel and required you to take annual leave to attend, it must be considered that it was not a requirement of your employment to participate in the overseas travel. We consider that much like travel for a teacher which is outside of the curriculum, your travel is outside of the expectations and duties of your employment. Consequently you situation will be distinguishable from Case R42 where there was an expectation that staff would participate as part of their employment in those duties.

Even though the trip may provide some benefits, the expenses are not deductible. Although you performed duties as a co-ordinator and represented you employer on the trip, the essential character of the trip is recreational in nature and not specifically related to your income earning activities. It is considered that there is not a sufficient connection between your travel expenses and your income earning activities. Accordingly, the costs you incurred in relation to your travel are not deductible under section 8-1 of the ITAA 1997.

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