Edited version of your written advice

Authorisation Number: 1051271558818

Date of advice: 28 August 2017

Ruling

Subject: Work related travel expenses

Question 1

Are you entitled to a deduction for accommodation, meal and incidental expenses incurred when travelling for work?

Answer

Yes

This ruling applies for the following periods:

year ended 30 June 2017

year ending 30 June 2018

year ending 30 June 2019

year ending 30 June 2020

year ending 30 June 2021

The scheme commences on:

1 July 2016

Relevant facts and circumstances

You are employed as the Managing Director and Executive Officer of an ASX listed company, Company A.

Company A is a national aggregation network of professional services situated in a number of locations in Australia.

You are employed for a period of X years unless terminated earlier by either party.

Your primary place of work as stated in your employment contract is your home office located in City X.

Your role is a national role and you are required to work at other locations on a regular basis.

The head office of Company A is located in City Y.

You undertake travel within and outside Australia as necessary in the performance of your duties.

You are not entitled to additional remuneration for such travel however reasonable travel expenses for approved travel will be reimbursed by your employer.

You are required to visit the offices of the Company A network, as well as the head office in City Y on a regular basis for various board meetings with Executive staff of Company A weekly.

On average you spend X days per week in the City Y Office.

Due to the frequency and regularity of your work related travel to City Y and your preference to stay in home-like accommodation, rather than a hotel or motel, you have rented an apartment in City Y in which you stay in when you are working in City Y.

The rent for the City Y apartment is more than $500 per week.

You do not use the City Y apartment for private purposes and your family does not visit you in City Y and stay in the apartment. The apartment is left vacant when you are not using it.

The reasonable travel expense rates based on your annual salary to travel to City Y is more than $250 per night for accommodation.

Your family resides in the City X home.

You negotiated your salary to enable you to rent the apartment rather than being reimbursed for hotel expenses.

When you visit other offices in the Company A network they are generally day trips, except for travel to City Z which generally requires you to fly in the night before ahead of early morning meetings the following day.

In addition to your role at Company A you have been appointed to various positions to unrelated roles.

Your role with Company B requires you to attend regular board meetings in City Y, on average for X evenings per month and you are remunerated for this role. You attend to your role and prepare for board meetings from your home office in City X.

Your role with Organisation C requires you to attend board meetings for generally 1 to 1.5 days per month, primarily in City Y. It is also expected that the Organisation C board will meet in Melbourne approximately X times per year. You are remunerated for this role.

You have been provided with a corporate credit card and a transport card by Company A. All travelling expenses have been incurred on the corporate credit card or the transport card.

You keep records for your meals and incidentals expenses.

You do not receive a travel allowance.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1, and

Income Tax Assessment Act 1997 subdivision 900-B.

Reasons for decision

Summary

Your accommodation, incidental and meal expenses are deductible as you are required to work away from home and stay away overnight because of travel undertaken in the course of performing your work activities.

Detailed reasoning

An employee can deduct a travel expense under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) to the extent that:

● they incur the expense in gaining or producing their assessable income, and

● the expense is not of a capital, private or domestic nature.

Co-existing work locations travel

Paragraphs 43 to 45 of Draft Taxation Ruling TR 2017/D6 Income tax and fringe benefits tax: when are deductions allowed for employees' travel expenses? describe the circumstances where there would be co-existing work locations or an alternative work location.

Co-existing work locations travel involves travel which can be attributed to the employee having to work in more than one location. This is the case where:

● the travel is directly between work locations, or between home and an alternative work location, and

● it is reasonable to conclude that the travel is undertaken in performing the employee's work activities because of the requirement to work in more than one location.

For the purposes of 'co-existing work locations travel', an alternative work location is a work location other than a regular work location near the employee's home. Travel in this category is attributable to the employee having to work in more than one place, rather than their choice about where to live.

As you are required to attend the head office in City Y on a weekly basis it is accepted you have an alternative work location, in addition to your regular work location at your home office in City X.

Deductibility of accommodation, incidental and meal expenses

Paragraphs 50 to 54 of TR 2017/D6 set out the requirements for accommodation, meal and incidental expenses to be deductible.

It is a question of fact whether an expense for accommodation, meals or incidentals is incurred in gaining or producing assessable income or is of a private or domestic nature.

Subject to paragraph 60 of TR 2017/D6, employee expenditure for accommodation, meal and incidentals is of a private or domestic nature. This includes the ordinary costs of maintaining a home and consuming food and drink to go about their daily activities, such as to attend work (Lunney and Hayley v. Commissioner of Taxation (1958) 100 CLR 478 (Lunney), FCT v. Cooper (1991) 29 FCR 177; 91 ATC 4396 (Cooper)). These costs are preliminary to the work, and are not incurred in the course of performing those activities.

Likewise, where accommodation, meal and incidental expenses are incurred by an employee in relocating to a place of work or in living away from home to work, they are preliminary to the work and not deductible (FCT v. Toms (1989) 20 ATR 466, 89 ATC 437 (Toms)).

The private or domestic nature of these expenses often reflects a choice the employee has made. This includes an employee's choice about where to live.

Accommodation, meal and incidental expenses are incurred by an employee in performing an employee's work activities, and are therefore deductible, only where:

(a) the employee's work activities require them to undertake the travel

(b) the work requires the employee to sleep away from home overnight

(c) the employee has a permanent home elsewhere, and

(d) the employee does not incur the expenses in the course of relocating or living away from home.

Required to travel

Expenses an employee incurs on accommodation, meals and incidentals are not deductible under section 8-1 unless the work requires the employee to be away from home. In many situations, it can be concluded from the nature of the work and scope of the employee's duties that the travel is required without referring to the specific terms of employment.

Travel undertaken because of an employee's choice, such as where to live, is not usually incurred in gaining or producing the employee's assessable income and has a private or domestic character. However, if travel by an employee is required in performing their work duties or work activities, little regard is given to a choice the employee may have had which would have avoided or reduced the need for the travel.

You live in City X and work primarily from your home office, as is stated in your employment contract. You are required to travel to multiple locations both domestically and internationally on a regular basis. You are required to attend board meetings and meet with the Chairman of Company A on a weekly basis in City Y. You are therefore required to travel for work.

Required to sleep away from home

The accommodation, meal and incidental expenses are only deductible to the extent that the work requires the employee to sleep away from home. Where an employee is required to stay away from home overnight for work, such expenses that would otherwise be private have an employment-related character.

'Sleep away from home' does not describe the activities of employees who:

● are on duty while sleeping at a workplace near their home - for example, a hostel worker, care worker or overnight supervisor at a boarding school, or

● choose to sleep near their workplace, rather than returning home between their work shifts.

The requirement to sleep away from home overnight is a practical test that considers the circumstances of the work and the need for employees to have sufficient rest to perform their duties effectively. An employee's choice to return home and avoid staying away overnight does not affect the character of their expenditure if an overnight stay is reasonably required from a practical point of view.

When you travel to City Y it is generally for X days per week. It would be impractical for you to return home to City X each night you are in City Y. Therefore you are required to sleep away from home. Similarly when you travel to City Z the night before meetings and stay overnight, it would be impractical for you to travel any later than the night before, necessitating an overnight stay in City Z.

Permanent home elsewhere

Expenditure on accommodation, meals and incidentals is only deductible where the employee has a permanent home elsewhere. Where an employee has a transient lifestyle with no fixed place of residence, such costs are of a private or domestic nature.

For these purposes, 'permanent home' is the residential accommodation where the employee ordinarily lives when not temporarily absent for work and where they intend to return to live immediately after the work travel.

Indicators that residential accommodation is an employee's permanent home include the employee's ownership or possession of the premises and occupation of the premises by members of the employee's family.

You have a permanent home located in City X. Your family do not accompany you to City Y or any other location where you travel for work. It is accepted you have a permanent home elsewhere.

Not relocating or living away from home

Expenditure on accommodation, meals and incidentals is only deductible where the employee is travelling in performing their work activities and not living away from home.

Relocating or moving to live away from home for work is preliminary to work. The costs of doing so are not incurred in performing an employee's work activities. Such expenses also have a private or domestic nature, often reflecting the employee's choice about where to live.

Expenditure on accommodation, meals and incidentals by an employee who is living away from home is likewise of a private or domestic nature.

Whether an employee is living away from home depends on the facts of each case. Relevant factors as set out in paragraph 72 of TR 2017/D6 are:

(a) the time spent working away from home

(b) whether the employee has a usual place of residence at a previous location

(c) the nature of the accommodation, and

(d) whether the employee is, or can be, accompanied by family or visited by family or friends.

Time spent working away from home

The longer an employee spends working away from home, the more likely that the employee is living away from home. Whether an employee is considered to be travelling in performing their duties or living away from home depends on the circumstances. The time period is just one factor.

'Time spent working away from home' means the time the employee spends working away at a particular work location. Where an employee works at one location for an extended period, that period is not broken by short trips they take from that location. However, where an employee works at different locations for extended periods, each period is considered separately.

You spend the majority of your time working at your home office in City X. You are required to travel to City Y on a weekly basis but generally for only X days at a time and other locations around Australia on an as required basis.

Whether the employee has a usual place of residence at a previous location

Whether an employee is living away from their 'usual place of residence' usually involves a choice between two places of residence - where the employee is living at the time and the location of the work.

An employee is only living away from home where it is reasonable to conclude that they intend to return to their previous location after work at the new location ceases. An employee who has permanently left their previous location is not living away from home but has relocated.

Indicators that an employee has a usual place of residence at a previous location include the employee's ownership or possession of premises at that location and occupation of the premises by members of the employee's family.

As discussed above you have a usual place of residence in City X where your family resides and you live in when you are not travelling to meet your work requirements.

The nature of the accommodation

The nature of an employee's accommodation while working away from home is relevant, but does not determine whether the employee is travelling in performing their duties or living away from home.

An employee may live and make their home in any kind of accommodation, including huts and caravans. If the accommodation has amenities common in a home, such as an equipped kitchen and laundry, this would support the view that the employee is living away from home.

Where an employee works away from home for a considerable period and, for that period, stays in settled accommodation (such as a house, unit or apartment), this would support the view that they are living away from home.

While the apartment you have rented is home-like, we accept that this is due to convenience and in practical terms ease of having a base when you are required to travel to City Y for work. When you travel to other locations and are required to stay overnight you stay in hotels, which would support that you are not living away from home.

Whether the employee is or can be accompanied by family or visited by family or friends

An employee working away from home for an extended period who is accompanied by their family is likely to have relocated, and is therefore not living away from home.

The transfer of family belongings to the new location or the employee's children attending school at the new location would support this conclusion. In this case, accommodation and living costs at the new location are of a private nature and are not deductible.

By contrast, an employee may be living away from home if family members accompany them for a short stay after which the family members return to live at the family's permanent home, while the employee continues to work on at the temporary location.

Although there is no restriction to your family joining you, it would be impractical as you travel to City Y for up to X days per week, whereas your family reside and go about their daily lives in City X.

Therefore we do not consider you to be living away from home. You are considered to be travelling for work when you are staying in the City Y apartment, or for any other necessary work travel within or outside Australia.

Reasonable to claim rent on apartment

The rent you incur is more than $500 a week on the City Y apartment. You travel to City Y weekly and on average you are there for X days per week. The ATO’s reasonable travel expenses rate for accommodation in City Y for your annual salary is more than $250 per night.

If you were to stay in suitable commercial accommodation for the periods you are in City Y would be estimated at X nights x $X = $X per week. As the amount you spend to rent the apartment in City Y is not disproportionate to the cost of suitable accommodation for the periods you are required to be in City Y the rent you pay is deductible as a travel expense.

Incidental and meal expenses

Your incidental and meal expenses are also deductible as you are required to work away from home and stay away overnight because of travel undertaken in the course of performing your work activities. As you do not receive a travel allowance you are required to keep records of your incidental and meal expenses and are unable to rely on the substantiation exemption provided for in subdivision 900-B of the ITAA 1997.

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