Edited version of your written advice

Authorisation Number: 1013112240982

Date of advice: 9 November 2016

Ruling

Subject: Income tax - deductions - overseas travel expenses

Question 1

Are the travel, accommodation and meal expenses incurred in travelling overseas deductible under section 8-1 of the Income Tax Assessment Act 1997 ('ITAA 1997')?

Answer

Yes. The expenses are deductible to the extent that:

(1) The expenditure was incurred in gaining or producing your assessable income; and

(2) The expenditure can be substantiated in accordance with the relevant provisions in

Division 900 of the ITAA 1997.

This ruling applies for the following period:

1 July 201X to 30 June 201X

Relevant facts and circumstances

You are employed as a professional for a relevant department. You are required to act for the relevant department and its agents and servants in legal dispute.

You are currently involved in a legal matter in which the relevant department is a defendant.

One of the parties to the action no longer resides in Australia and you were required to travel to XYZ to interview the party, take notes and examine relevant documents.

You and your spouse flew to City X in XYZ where you stayed for a week whilst you interviewed the party involved in the legal matter.

Once you had completed the interviews, you took the opportunity to take X weeks leave and to enjoy a vacation with other family members. You and your spouse then flew back to Australia.

Although you were directed to travel to XYZ by your employer, you did not receive a travel allowance. As such, all expenses associated with the travel were incurred by you, including return air fares, costs of accommodation and meals in City X and train and taxi fares to see the interviewee.

In support of your claims you have provided:

● A letter from your employer explaining why it was necessary to travel to XYZ to conduct the interview

● Departmental Intrastate, Interstate and Overseas Travel Policy.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Section 26-30

Income Tax Assessment Act 1997 Division 900

Income Tax Assessment Act 1997 Section 900-5

Income Tax Assessment Act 1997 Section 900-10

Income Tax Assessment Act 1997 Section 900-15

Income Tax Assessment Act 1997 Section 900-20

Income Tax Assessment Act 1997 Section 900-105

Income Tax Assessment Act 1997 Section 900-110

Income Tax Assessment Act 1997 Section 900-115

Income Tax Assessment Act 1997 Section 900-120

Income Tax Assessment Act 1997 Section 900-125

Income Tax Assessment Act 1997 Section 900-130

Income Tax Assessment Act 1997 Section 900-145

Income Tax Assessment Act 1997 Section 900-150

Income Tax Assessment Act 1997 Section 900-155

Reasons for decision

Deductibility of losses or outgoings under section 8-1 of the ITAA 1997

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.

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

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

Travel expenses are only deductible under section 8-1 of the ITAA 1997 if the expenditure satisfies the requirements of the provision, in particular: (a) that the expenditure is incurred in gaining or producing the taxpayer's assessable income, and (b) that the expenditure is not capital, private or domestic.

It is generally accepted that expenses incurred in travelling in the course of a person's employment are deductible under section 8-1 of the ITAA 1997.

Taxation ruling TR 98/9 (Income tax: deductibility of self-education expenses) sets out the guidelines on the apportionment of expenses incurred where only part of the travel is work related. Where the private purpose is more than incidental to the business purpose the general rules to be used are set out in paragraphs 65 and 66 of TR 98/9:

65. Both Ronpibon Tin NL (78 CLR at 59; 8 ATD at 437) and Fletcher and Ors (173 CLR at 16; 91 ATC at 4957; 22 ATR at 621) recognise there are at least two kinds of expenditure that require apportionment under section 8-1. The first is expenditure in respect of a matter where distinct and severable parts are devoted to gaining income and other parts are devoted to some other end. If a study tour or work-related conference or seminar was mainly devoted to a private purpose, such as having a holiday, and the gaining or producing of income was merely incidental to the private purpose, only those expenses directly attributable to the income-earning purpose would be allowable.

66. The second kind of apportionable expenditure is a single outlay that serves both an income-earning purpose and some other purpose indifferently. While the High Court recognised that there can be no precise arithmetical division in such cases, it said there must be some fair and reasonable division on the facts of each case. For example, if a study tour or work-related conference or seminar is undertaken equally for income-earning purposes and private purposes, it would be appropriate to apportion the expenses equally between the purposes.

Application to your circumstances

Although the primary purpose of your travel was work related, there was also a significant private component to the travel. Whilst in XYZ you took the opportunity to take leave and have a holiday. Therefore we consider the following expenses would be deductible under section 8-1 of the ITAA 1997:

● The cost of your return airfare from Australia to XYZ,

● Train and taxi fares (travel to interview witness),

● 50% of the costs of your accommodation in City X, and

● Cost of breakfast, lunch and dinners in City X.

It should be noted these expenses are only deductible if the substantiation rules in Division 900 of the ITAA 1997 are satisfied. The substantiation requirements are explained below.

Section 26-30 of the ITAA 1997 - no deduction for relative's travel expenses

You cannot deduct under this Act a loss or outgoing you incur, insofar as it is attributable to your ^*relative's travel, if:

(a) you travelled in the course of performing your duties as an employee, or in the course of carrying on a ^*business for the purpose of gaining or producing your assessable income; and

(b) your relative accompanied you while you travelled.

Where a taxpayer travels in the course of performing his or her duties as an employee or in the course of carrying on a business, subsection 26-30(1) of the ITAA 1997 denies a deduction for the travel expenses incurred by the taxpayer to the extent those expenses are attributable to a relative who accompanies the taxpayer.

Division 900 of the ITAA 1997 - the substantiation provisions

Section 900-10 of the ITAA 1997 states that, in order to deduct certain types of losses or outgoings, the taxpayer must substantiate them in accordance with the relevant provisions:

To deduct certain types of losses or outgoings, you need to substantiate them under this Division.

Where expenses are incurred in travelling for the purposes of deriving salary or wages, the relevant substantiation provisions are in Subdivision 900-B of the ITAA 1997 ('work expenses').

In addition, where your travel involves being away from your place of residence for six or more nights in a row, a travel record must also be kept in accordance with Subdivision 900-F of the ITAA 1997. The Commissioner considers that a travel diary is an appropriate travel record for this purpose.

You need to keep travel records if your expense is for travel that involves you being away from your ordinary residence for 6 or more nights in a row.

The travel may be within or outside Australia. Subdivision 900-F tells you about travel records.

The purpose of a travel record is to show which of your activities were undertaken in the course of producing your assessable income, so that your losses or outgoings, or portions of them, can be attributed to income producing purposes. Section 900-150 of the ITAA 1997 sets out the particulars to be included in a travel record:

900-150(1)  

You record an activity by specifying in a diary or similar document:

(a) the nature of the activity;

(b) the day and approximate time when it began;

(c) how long it lasted;

(d) where you engaged in it.

An activity must be recorded before it ends, or as soon as possible afterwards. Each entry must be in English.

Written evidence requirements

Under section 900-115 of the ITAA 1997 a taxpayer is required to obtain from the supplier of the goods or services that constitutes the expense a document containing the following information:

● the name or business name of the supplier of the goods or service,

● the amount of the expense,

● the nature of the goods or service,

● the day the expense was incurred, and

● the day the document was made out.

The document does not necessarily have to be a receipt or an invoice. The document must be in English or, if the expense was incurred in a country outside Australia, in a language of that country. For example, credit card receipts may be acceptable to substantiate expenses if they contain the particulars required by subsection 900-115(2) of the ITAA 1997.

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