Edited version of your written advice

Authorisation Number: 1051251497492

Date of advice: 25 July 2017

Ruling

Subject: Travel and accommodation

Question

Are you entitled to a deduction for your overseas travel, accommodation and associated expenses?

Answer

No.

This ruling applies for the following periods

Year ended 30 June 2016

Year ended 30 June 2017

Year ended 30 June 2018

The scheme commenced on

1 July 2015

Relevant facts

You are a teacher at an Australian college, and live in the same suburb.

You have been offered employment at an international school overseas teaching your subject areas, during your college vacation period, as well as the pupil free week before school resumes in Australia.

You will be teaching overseas for two weeks, then have a two week break while they are on holidays, then a further two week’s teaching overseas.

You will be on holiday from your current employment for the first 4 weeks you are away, and have been granted special leave for the rest of the time.

During the two week break you will travel to another area overseas for your own enrichment and self-fulfilment.

You will be teaching under the IB (International Baccalaureate) system.

In order to improve your specialised teaching you must show evidence to your state College of Teachers of ongoing professional development.

Teaching in another country/cultural setting is one aspect of professional development which is looked upon very favourably.

Your own school administrative team see that this experience will be a valuable asset to the school, to have someone who can report to staff on specialised teaching in another country, under the IB system.

Your school has released you from the pupil free week before commencement of term to complete the work overseas.

You may achieve promotion as a result of your time teaching overseas.

Your main reason is to gain skills and experience while working in a third culture school system for your professional development.

You hope to be able to use all of your skills in this time teaching overseas.

You have already, or will incur expenses for flights, transport, accommodation, food, vaccinations, malaria medications, health insurance, police checks, visa application charges and preparatory courses for teaching IB.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

Summary

Your travel expenses are not considered to have a sufficient connection to your employment duties and the gaining or producing of your assessable income. Therefore no deduction is allowable for your overseas travel and accommodation expenses.

You have temporarily relocated to an overseas location to work. The expenses you incurred for accommodation while living away from home are of a private nature.

The expenses are a prerequisite to the earning of assessable income. They are incurred in order to enable you to earn income but are not incurred in the course of gaining or producing that income; therefore, they are not deductible.

Detailed reasoning

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, 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.

Accommodation and food expenses are ordinarily not deductible as they are private and domestic in nature.

An exception is where a taxpayer is travelling in the course of performing their work duties, for example, an interstate truck driver who travels away from home overnight. In these types of cases, the accommodation, meal and incidental expenses incurred while the taxpayer is travelling are incidental to the proper carrying out of their employment function and cease to be of a private and domestic nature.

However, it is important to distinguish taxpayers who travel in the course of carrying out their employment duties from taxpayers who are living away from home. In the latter case, the taxpayer moves and takes up temporary residence away from their usual place of residence so as to be able to carry out employment duties for a time at the new (but temporary) workplace.

For taxpayers who are living away from home, there is a change of job location and a temporary change of residence to a place at or near that location. For example, an employee who is transferred for three months to an office in another city and takes up temporary accommodation in that city whilst maintaining their own usual place of residence would be in this category. In this type of situation, the accommodation, meal and incidental expenses incurred while the person is living away from their usual home do not cease to be private and domestic in nature. That is, they are considered to retain their character as living expenses rather than becoming work related expenses.

Miscellaneous Taxation Ruling MT 2030 discusses the difference between travelling on work and living away from home for work. It states that taxpayers who are travelling on work normally do so for comparatively short periods.

In your case, you will be working overseas for two weeks, and then have a two week break followed by a further two weeks employment. It is considered that for this period you will be living away from home for work rather than travelling on work. That is, it is not considered that travel was a part of your actual work duties. Rather, your work location will have changed and you choose to take up temporary residence near your new work location. Therefore, your accommodation and food expenses are considered to retain their character as living expenses. As these expenses are private and domestic in nature, a deduction is not allowable.

Flights and Travel

Certain expenditure is incurred in order to be in a position to be able to derive assessable income, for example unless one 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. Rather, the expenses are incurred to enable the taxpayer to commence income earning activities (Lunney & Hayley v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 11 ATD 404; (1958) 7 AITR 166).

Generally accommodation and travel expenses incurred by a person, who lives away from home in order to carry out employment duties at the place of employment, will not be deductible. Expenses of this nature are private, or incurred before or after the activity of earning assessable income.

Taxation Ruling IT 2614 examines the deductibility of relocation expenses. The ruling states that expenses incurred in relocating to take up an appointment with a new or existing employer are not allowable deductions as they are private or domestic in nature. This is so, regardless of whether an allowance has been paid, or if the relocation was involuntary. Taxation Ruling IT 2481 also discusses this expense. At paragraph 9 the ruling states the expenditure is not incurred in gaining or producing income and is not deductible as the taxpayer is not travelling on work, but to work.

The issue of expenses incurred in relation to accommodation near the work place while maintaining a family residence in another location has been considered by the courts on a number of occasions.

In the case Federal Commissioner of Taxation v. Charlton 84 ATC 4415; (1984) 15 ATR 711 (Charlton’s 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 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 decision 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 circumstances are considered to be comparable to those in Charlton’s case and Toms’ case. During the relevant weeks your place of employment will be oversea and you have made a choice to move away from your family home in Australia to work overseas. Any accommodation, travel, and other expenses you may incur to stay overseas will be incurred to put yourself in a position to perform your duties and not in the actual performance of those duties.

Your accommodation, travel, and other expenses are considered to be of a private or domestic nature and are not deductible under section 8-1 of the ITAA 1997.

Similarly your transport to and from the school overseas is private in nature and not deductible.

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.

It is acknowledged that the overseas teaching is favourable for your ongoing professional development, and is recognised and looked upon favourably by your employer and the state authority, but this does not in itself mean that the expenditure is incurred in gaining or producing your assessable income. The trip may broaden your knowledge and benefit you as a teacher. However, these reasons alone are not enough to demonstrate a sufficient connection between the expenses and your income-producing activities. There are many experiences and places of interest which may help a teacher however this does not automatically mean that the associated expenses are deductible. Virtually any experience and the acquisition of any knowledge will contribute to the individuals own development with consequent benefit to the employment duties.

The travel to the other overseas location for the two week vacation break is not sufficiently connected to your assessable income.

Although your employer supported your travel, it is considered that there is not a sufficient connection between your travel expenses and your income earning activities. Therefore the associated expenses are not deductible under subsection 8-1 of the ITAA 1997.

The courses you will undertake will better equip you to teach in the IB system, 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.

Also if a course helps you to get employment and is carried out before the relevant job commences, the expense is incurred at appoint too soon and is not incurred in doing the work. Therefore no deduction is allowed.

Visas

The expenses associated with acquiring visas relate primarily to the taxpayer's personal right to travel to an overseas destination. They closely parallel the costs associated with obtaining a driver's licence, which were characterised as being of a private nature (Case P55 82 ATC 253; 25 CTBR (NS) 824 Case 117).

While the holding of a visa is required for you to travel overseas, it does not follow that the costs are deductible. Expenditure in obtaining a visa is not sufficiently connected with your income earning activities as a teacher. Furthermore, the associated expenses are considered to be private in nature. Accordingly no deduction is allowable under section 8-1 of the ITAA 1997.

Similarly, the cost for police checks is not an allowable deduction.

Health insurance

It is a long standing principle that a taxpayer does not satisfy section 8-1 of the ITAA 1997 merely by demonstrating a causal connection between the expenditure and the derivation of income. What must be shown is a closer and more immediate connection. The expenditure must be incurred in gaining or producing your assessable income (Lunney’s case). These principles have been affirmed by the High Court in Commissioner of Taxation v. Payne [2001] HCA 3.

Generally medical expenses have no direct connection to the gaining or producing of assessable income as the purpose of the expense is to keep the taxpayer healthy. There is insufficient connection to the gaining or production of assessable income for a deduction to be allowed as the expenditure is too remote.

In Taxation Determination TD 93/22, a professional sportsman was not entitled to a deduction for contributions to a private health fund, even though it was a condition of the employment that the person takes out the insurance. The cost of private health insurance was considered not to be sufficiently connected to the sporting activities that produced that income and was also a private expense.

In your case, similarly, the expenses incurred for health insurance have no direct connection to the gaining or producing of your assessable income. The purpose of the expense is to cover you in case of an illness while you are overseas. There is insufficient connection to the gaining or production of your assessable income for a deduction to be allowed as the expenditure is too remote. In addition, contributions for private health insurance can be characterised as being of a private nature. Therefore, you are not entitled to a deduction for contributions for health insurance under section 8-1 of the ITAA 1997.

Vaccinations

Generally, a deduction is not allowable for the cost of vaccinations or medications to protect against infectious diseases in the work place as this is a personal medical expense and, therefore, of a private nature.

Taxation Ruling TR 95/15 states that a deduction is not allowable for the cost of vaccinations to protect nursing employees against the risk of contracting infectious diseases in the work place as the expense relates to a personal medical expense, and is therefore of a private nature.

In your case, although vaccinations and medications may be recommended or required for your overseas travel, the expense is private in nature and therefore no deduction is allowable under section 8-1 of the ITAA 1997.

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