Edited version of your written advice

Authorisation Number: 1051266837304

Date of advice: 14 August 2017

Ruling

Subject: Work-related expenses

Question 1

Are you entitled to claim a deduction for the cost of rental accommodation in City B?

Answer

No

This ruling applies for the following periods:

Year ended 30 June 20XX

The scheme commences on:

Month A 20XX

Relevant facts and circumstances

You are a medical professional.

Your main residence is in City A.

On Month A 20XX, you commenced providing services on contract as a medical professional to a hospital in City B. Your contract is for two (2) years and it can be extended by mutual agreement.

As a contract medical professional, you are required to fix your own mistakes at your own costs. You have professional indemnity insurance.

You charge the hospital based on the complexity of the work completed by sending invoices.

You are on an emergency roster which involves attending to emergency admissions immediately after the patients arrive at the hospital.

These patients often require treatment within a short period of time.

These patients require ongoing management to assess their progress. This requires multiple assessments during the day and night.

You also treat elective patients who require ongoing management of their progress after operations as their condition can deteriorate rapidly within a short period of time.

It was not practical for you to commute from your home in City A to the hospital due to the long distance between those locations and you are sometimes required to be present at the hospital within 15 minutes of being notified.

You rented accommodation two (2) kilometres from the hospital and live there during the days that you are working.

On your days off, you travel back to your home in City A. Your main residence in City A was not rented out and was available to you at all times.

You have received a personal services business determination advising that the personal services income rules do not apply.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1.

Reasons for decision

Section 8-1 of the Income Tax Assessment Act 1997 allows a deduction for all outgoings to the extent to which they are incurred in gaining or producing assessable income, or are necessarily incurred in carrying on a business for that purpose. However, a deduction is not allowable for outgoings that are of a capital, private or domestic nature.

Generally, accommodation expenses while working away from home is not allowed as a deduction. These costs are essentially ‘living expenses’ of a private or domestic nature. The fact that income cannot be earned unless these expenses are incurred is not determinative of deductibility.

This principle was derived by the High Court in Lunney v. FC of T (1958) 100 CLR 478 the Full High Court laid down the principle that for a deduction to be allowable it is not enough for the expenditure to be an essential prerequisite to the derivation of assessable income. In that case it was held that the costs incurred by a taxpayer in travelling to the place where they work are expenses incurred in order to enable them to earn income but are not expenses incurred in the course of earning that income.

The issue of expenses incurred in relation to accommodation near the workplace while maintaining a family residence in another location was considered in FC of T v. Toms 89 ATC 4373; (1989) 20 ATR 466 (Toms' Case).

In Toms' Case, the taxpayer was a logging contractor who during the working week lived in a caravan in a bush camp 108 kilometres from his family home in Grafton. He claimed it was too far to travel each day to his work in the forest, so that it was necessary to establish a caravan at the camp. He would return home on weekends. He claimed the costs of maintaining his caravan and other living expenses such as the cost of heating and lighting. The Federal Court considered that the caravan was rendered necessary as much by the taxpayer's choice of the place of his residence in Grafton as by his choice of employment in the forest, and its purpose was to enable him to retain his residence at Grafton although employed in the forest. It was held that the expenses incurred in relation to the temporary accommodation near the workplace while maintaining a family residence in another location were dictated not by his work but by private considerations, and therefore were not deductible.

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 as he worked Monday to Friday in Bendigo, 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.

You incur expenses for rental accommodation in City B even though you have a main residence in City A because you need to be readily available to perform your duties at short notice. Your circumstances are considered to be comparable to those in Toms’ Case and Charlton’s Case because 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. Additionally, the expenses are considered to be private in nature as they are incurred due to your choice to retain a main residence in City A and work in City B.

Therefore, you are not entitled to a deduction for the rental accommodation expenses under section 8-1 of the ITAA 1997.

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