Edited version of your written advice

Authorisation Number: 1012977280296

Date of advice: 29 February 2016

Ruling

Subject: Relocation and rental expenses

Question 1

Are you entitled to a deduction for your relocation costs?

Answer

No.

Question 2

Are you entitled to a deduction for your rent expenses?

Answer

No.

This ruling applies for the following period

Year ended 30 June 20XX

The scheme commenced on

1 July 20XX

Relevant facts

You were preselected for a government seat.

At the time you were living with your family outside the electorate.

During the campaign, other candidates were advertising that you were not a suitable candidate as you were not local and did not understand the constituents' needs.

You and your family moved to live in the relevant electorate. You incurred moving expenses.

You were paying weekly rent for a period.

You have since purchased a house in the electorate and live there.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 25-60.

Reasons for decision

Relocation and rental expenses

Expenses incurred in contesting an election for membership of Parliament are deductible under section 25-60 of the Income Tax Assessment Act 1997 (ITAA 1997).  

The Commissioner's view on the deductibility of election expenses incurred by Members of Parliament is outlined in Taxation Ruling TR 1999/10 Income tax and fringe benefits tax: Members of Parliament - allowances, reimbursements, donations and gifts, benefits, deductions and recoupments. The principles in TR 1999/10 are relevant in your circumstances.

As highlighted in paragraph 158 of TR 1999/10, for a deduction to be allowable, the expenditure must be 'incurred in contesting an election' and it must be of a type that a Member would incur to further his or her chances of being elected to a Parliament.

Paragraph 163 of TR 1999/10 provides a non-exhaustive list of the types of expenses typically incurred in contesting an election. These include advertising and promotional expenses incurred during the election period, expenses of printing electoral material that is used in the election period and travel and accommodation costs associated with the campaign.

Travel and accommodation costs associated with the campaign include costs of being away overnight to attend a function or meeting in the course of the campaign.

However, where a taxpayer is away for an extended period of time and has established a new home, the associated costs including accommodation and meals remain private in nature and are not deductible.

A deduction is not allowable for expenses incurred merely because a candidate incurs them during the period of time they are contesting the election, for example where a candidate incurs normal household expenditure (paragraph 164 of TR 1999/10).

In your case, your incurred costs in relocating you and your family and paying rent for you and your family during the campaign.

Paragraph 275 of TR 1999/10 states that a deduction is not allowable under section 8-1 of the ITAA 1997 for losses or outgoings incurred when a Member changes their residential location as they are not incurred in the course of work related activities and in any case are private or domestic in nature. Expenses for temporary board and lodging are not allowable deductions.

Taxation Ruling IT 2481 Income tax: travelling expenses of an employee moving to a new locality of employment outlines the deductibility of relocation expenses and states that a deduction is not allowable. Where a taxpayer transfers from one locality to another, and incurs expenditure in moving from one place of residence to a new place of residence to take up the duties of the new position, that expenditure is not incurred in gaining or producing assessable income and is not deductible. The taxpayer is not travelling on his/her work, but is travelling to his/her work. Nor is the taxpayer travelling between two places of employment.

Taxation Ruling IT 2566 Income tax: deductibility of travelling expenses of employee, spouse and family incurred by employer in relocating the employee states that an employee who is travelling to commence employment duties at a new work location is not travelling on duty. The employment duties do not commence until the employee reports to work at the new location.

Taxation Ruling IT 2614 Income tax and fringe benefits tax: employee expenses incurred on relocation of employment states that removal and relocation expenses to take up an appointment with a new or existing employer are not allowable deductions, even if an allowance or reimbursement is received. This is so whether the transfer is voluntary or at the employer's request.

This view is supported in the following cases:

In Fullerton v FC of T, 91 ATC 4983; (1991) 22 ATR 757, as a result of a reorganisation the taxpayer's position ceased to exist. In order to avoid retrenchment, he had no choice but to accept a transfer to a different location. The employer reimbursed a portion of the relocation expenses and the taxpayer claimed the remainder as a tax deduction. It was held that the expenditure on the taxpayer's domestic or family arrangements is not deductible, even though the expenditure had a causal connection with the earning of income.

In Case U91, 87 ATC 525, the taxpayer, a Commonwealth public servant, was transferred at the request of his employer from a State office to the central office of the department in Canberra. He was denied a deduction for expenses incurred in attempting to auction his house. It was held that the expenses were too remote from the income producing process to be incurred in gaining or producing assessable income.

Similarly in Case V31, 88 ATC 282, it was found that the relocation expenses were of a private and domestic nature and were therefore not deductible.

Although your situation differs to the above cases, the principles are relevant and it remains that your relocation costs were not incurred in contesting the election.

Whether a person moves to the electorate before or after being elected is not material. Either way, relocation expenses are not election expenses for the purposes of section 25-60 of the ITAA 1997.

Similarly, as highlighted in paragraph 197 of TR 1999/10, costs associated with a Member's home are normally of a private or domestic nature.

Expenditure on the daily necessities of life (for example, accommodation) is generally not deductible as it is not incurred in gaining or producing assessable income and is also considered to be private or domestic in nature.

Exceptions to this are where you are undertaking work related travel and are required to stay away overnight. However, no deduction is allowable if a taxpayer is merely maintaining accommodation close to their usual work location.

Certain expenditure is incurred in order to be in a position to be able to derive assessable income, for example, unless a person 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 (Case V111 88 ATC 712).

In Federal Commissioner of Taxation v. Toms 20 ATR 466; 89 ATC 4373 (Toms case), 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 Federal Court disallowed the forest workers deduction for the cost of maintaining a caravan and other living expenses. The taxpayer's family home in Grafton was some 108 kilometres from the base camp so he lived in the caravan during the week and returned to the family home on weekends. The caravan was rendered necessary as much by the taxpayer's choice of the place of his residence in Grafton as by his employment in the State forest, and its purpose was to enable him to retain his residence in Grafton although he was employed in the State forest. Had he lived at a town closer to the forest, there is no question the caravan would have been unnecessary.

As highlighted in Toms case, accommodation and living expenses near a person's work place is regarded as private in nature and not an allowable deduction. Even where a job transfer or placement is not voluntary, and the position of the new placement is some distance away from a previous work place, this does not change the nature of the expenses. They are not incurred in earning assessable income.

The above principles can be applied to your circumstances.

Your choice to reside in the electorate with your family is not an expense incurred in contesting the election. The connection between your rental expenses and your campaign activities is too remote. It is more in the nature of household expenses and private and domestic in nature. Even though the expenditure had a causal connection with your election campaign, the expenditure is inherently of a private or domestic nature and not an election expense for section 25-60 of the ITAA 1997 purposes.

Therefore, you are not entitled to a deduction for your relocation or accommodation expenses, as the expenses are inherently of a private or domestic nature and are not costs regarded as election expenses 'incurred in contesting an election'.

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