Edited version of your written advice

Authorisation Number: 1013066483819

Date of advice: 4 August 2016

Ruling

Subject: Deductions

Question and answer

Are you entitled to a work related deduction for the cost of renting a property closer to your workplace food, incidentals and for a car to travel to your home and workplace?

No.

This ruling applies for the following periods:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You lived at your workplace in accommodation provided by your employer.

You were a contractor.

Your employer terminated your contract and you were made an employee.

As an employee you were responsible for your own accommodation, food, incidentals and travel.

You rented a unit to be closer to the work site and purchased a car so you could drive back to your usual home on your days off.

You worked X days on and X days off. It took you a day to get home to your usual home and a day to get back to your rented unit to commence work.

You tried to resign and your employer reinstated you as a contractor and your expenses were once again paid for by your employer.

Your usual home is a long distance from your workplace.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

According to section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997), you can deduct a loss or outgoing if it is incurred in producing your assessable income except where the outgoing is of a capital, private or domestic nature.

The courts have concluded that accommodation and meal expenses incurred while working away from home are essentially living expenses of a private or domestic nature and therefore are not deductible.

The expenses you incur enable you to stay in proximity to your work place. They are a prerequisite to the earning of assessable income and are not expenses incurred in the course of gaining or producing that income.

In the case Federal Commissioner of Taxation v. Charlton 84 ATC 4415; (1984) 15 ATR 711 (Charltons 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 expenses were 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.

This is supported by the decisions in Federal Commissioner of Taxation v. Toms 89 ATC 4373; (1989) 20 ATR 466 (Toms Case), where 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.

Your case is comparable to that of the taxpayers in Charltons case and Toms case. You live away from your workplace and incur expenses in renting private accommodation and utilities and for a car to travel from your workplace to your usual home on your days off.

Living at the workplace puts you closer to your work.

The fact that your employer was paying for these costs while you were a contractor and when you were an employee they became your responsibility does not make them deductable.

However these expenses are considered to be private in nature and are not deductible under section 8-1 of the ITA 1997.

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