Edited version of your written advice

Authorisation Number: 1051249725114

Date of advice: 11 July 2017

Ruling

Subject: Work related expenses: travel deductions

Question 1

Are you able to claim a deduction for the cost of travel between location A and location B?

Answer

No

This ruling applies for the following periods:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You run a business in location B and have been doing so since 20XX.

You used to live in location B, but have relocated to location A, in December 20XX due to immediate family health reasons.

You have a regular client base in location B.

You receive the majority of your work by phone, email and text, which you organise into appointments.

The appointments are organised on a daily basis to coincide with clients and your own work schedule.

You attain new clients by way of phone, email and text.

When you travel to location B for work you stay at relatives’ houses and/or your work van.

When your work is concluded in location B, you generally drive your van to the parking lot near the location B airport and leave it there whilst you travel to your home in location A.

You have an office in your home that you use to: complete paperwork; book appointments; organise work schedules; reply to phone calls, texts and emails; as well as general office work.

All of the physical activities for your business are completed in location B.

When you travel to work you generally fly to location B airport, then collect your van from the parking lot and travel to your first job of the day.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Detailed reasoning

General deductions

Section 8-1 of the Income Tax Assessment Act 1997 (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.

In considering the deductibility of travel expenses, a distinction is made between travel to work and travel on work. It is only if the duties of the job require a taxpayer to travel that the taxpayer's expenses can be deducted.

A deduction is generally not allowable for the cost of travel between home and a taxpayer’s normal workplace as it is considered private in nature. The cost of such travel is generally incurred to put the taxpayer in a position to perform their duties or profession, rather than in the performance of those duties (paragraph 77 of Taxation Ruling TR 95/34).

Lunney v. Commissioner of Taxation [1958] ALR 225; 1958 0311H HCA; 100 CLR 478; (1958) 11 ATD 404; (1958) 32 ALJR 139 (Lunney's case) introduced what is now regarded as the essential character test. This test requires that for an expense to be deductible, it must have the essential character of a business or income producing expense. The taxpayer in this case sought to deduct the cost of travelling from his home to his work. The expenses were disallowed as being private and domestic, establishing the broad principle that costs incurred because of living in one place while working in another cannot be regarded as deductible. The reasons given by the High Court were twofold.

The fact that certain expenditure, such as travelling to work, must be incurred in order to be able to derive assessable income, does not necessarily mean that the expenditure is incidental and relevant to the derivation of assessable income. It is a prerequisite to the earning of assessable income rather than being incurred in the course of gaining that income.

The essential character of the travel to and from work is that of a private and domestic nature, related to personal and living expenses as part of the taxpayer's choice of where to live, in choosing to live away from and what distance from work.

Taxation Ruling TR 95/34 provides that there is an exception to the above rule where a taxpayers work is itinerant in nature. A number of cases elaborate on the deductibility of home to work travel for itinerant workers.

In the case of Taylor v Provan [1975] AC 194 Lord Wilberforce stated:

'To do any job, it is necessary to get there: but it is settled law that expenses of travelling to work cannot be deducted against the emoluments of the employment. It is only if the job requires a man to travel that his expenses of that travel can be deducted, i.e. if he is travelling on his work, as distinct from travelling to his work. The most obvious category of jobs of this kind is that of itinerant jobs, such as a commercial traveller. …But for this doctrine to apply, he must be required by the nature of the job itself to do the work of the job in two places: the mere fact that he may choose to do part of it in a place separate from that where the job is objectively located is not enough.’

In the case of Federal Commissioner of Taxation v Genys (1987) 17 FCR 495; 87 ATC 4875; (1987) 19 ATR 356, Northrop J quotes Brightman J’s statement of this principle in Horton v Young [1972] 1 Ch 157:

''...where a person has no fixed place or places at which he carries on his trade or profession but moves continually from one place to another, at each of which he consecutively exercises his trade or profession on a purely temporary basis and then departs, his trade or profession being in that sense of an itinerant nature, the travelling expenses of that person between his home and the places where from time to time he happens to be exercising his trade or profession will normally be, and are in the case before me, wholly and exclusively laid out or expended for the purposes of that trade or profession. I have used the adverb "normally" because every case must to some extent depend on its own facts.'

There are a number of cases that have considered how the ordinary principles of deductibility apply to the expenses incurred in financing, holding and maintaining accommodation by a taxpayer for work. See Federal Commissioner of Taxation v Charlton (1984) 71 FLR 107; (1984) 15 ATR 711; 84 ATC 4415; and Federal Commissioner of Taxation v Toms (1989) 20 ATR 466; 89 ATC 4373. The prevailing principle derived from these cases is that where a taxpayer’s expenses are incurred because of a choice they made about where to live, the expenses are of a private or domestic nature and are not, therefore, deductible.

Application to your circumstances

You have been running a business in location B since 20XX. The work is carried out at the client’s premises. The time that you spend at each client’s premises varies from job to job.

Your jobs are organised by appointments via phone, text and email. All of your clients are in location B. You do not perform any contract basis work; it is all completed on an ad hoc basis as bookings are made.

You moved to location A in December 20XX due to immediate family health reasons. You continue to run the business in location B and travel between your home in location A and location B as work demands. When you travel to location B, you stay with relatives or in your van.

When you travel from location B to location A, you leave your van at the carpark at location B airport.

In applying the essential character test as established in Lunney’s case, we consider that the travel between location A and location B is private in nature. Your circumstances can be distinguished from home to work travel undertaken by itinerant workers as considered in TR95/34. We consider that the expenses you incur arise as a direct result of your decision as to where to live and what distance from your business activities; distinct from expenses that are incurred due to the nature of your business. As the travel between location A and location B is private in nature, you are not entitled to a deduction under section 8-1 of the ITAA 1997.

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