Edited version of your written advice

Authorisation Number: 1051304405533

Date of advice: 6 November 2017

Ruling

Subject: Work related expenses-accommodation

Question 1

Are the rental costs for the apartment eligible as a deduction?

Answer

No

Question 2

Are the outgoings such as water rates and gas, incurred for the apartment eligible as a deduction?

Answer

No

Question 3

Are you entitled to claim a proportion of expenses for electricity and internet as running expenses in relation to your home workplace?

Answer

Yes

This ruling applies for the following periods

Year ended 30 June 2017

Year ended 30 June 2018

Year ended 30 June 2019

Year ended 30 June 2020

The scheme commenced on

1 July 2016

Relevant facts

You are a company director and employee with your main residence in a capital city.

You have been employed by this employer for over 6 years.

The head office of the company is situated interstate.

You agreed with other company members that you would have to pay for the rental of the apartment that you stay at the city where the head office of the company is situated, rather than the company pay for more expensive hotel accommodation. Due to cost, you have leased the apartment. As part of your employment agreement you spend a lot of time travelling.

You spend approximately 4 months of the year in the city where your principal place of residence is located, 5 months in the city where the company head office is located, and the rest of the time overseas.

While in the head office city you spend 6 hours per day, 6 days per week working at the apartment.

There is a dedicated home office space within the apartment for work purposes.

There is a dedicated computer for work use at the apartment.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Summary

The costs you incur for accommodation expenses while working in the head office city are of a private nature and are incurred as a consequence of having your home in one place and working in another. Therefore, they are not incurred in gaining or producing your assessable income and are not deductible. You may claim a proportion of the electricity and internet costs for work related activity undertaken at your apartment.

Detailed reasoning

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 are private in nature and are not deductible. 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 work place 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 forest worker 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.

This is supported in the case Federal Commissioner of Taxation v. Charlton 84 ATC 4415; (1984) 15 ATR 711 (Charlton’s Case), where 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.

In your case, you incur expenses for accommodation due to having your home in one city and your employment elsewhere. The expenses would not be incurred but for the distance of your work place from your family home, however the expenses are a prerequisite to the earning of assessable income. That is, they are incurred in order to put you in a position to be able to earn income but are not incurred in the actual course of gaining or producing that income. Also, the expenses are considered to be private in nature as they are incurred due to your choice of where you live and where you work.

It is acknowledged that the expense is compulsory; however this does not change the nature of the expenses.

Your circumstances are considered to be comparable to those in Charlton’s case and Toms’ case. From the information provided it is clear your place of employment for 5 months of the year will be in the head office city and you have made a choice to move away from your family home interstate to work in the head office city. Any accommodation, gas and water expenses you may incur to stay in the head office city will be incurred to put yourself in a position to perform your duties and not in the actual performance of those duties.

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

A deduction is therefore not allowable for your accommodation expenses. You have a regular place of work where you work for five months of the year. You are not considered to be travelling on work and therefore your accommodation and expenses are not deductible.

Electricity and internet expenses

Taxation Ruling TR 93/30 is about home office expenses. In your case it is considered that you are entitled to claim a deduction for the running expenses in relation to the home workspace that is actually incurred through the income producing activities which are carried out there.

Running expenses are the increased costs of using facilities within your home because of your work activities. Running expenses include electricity and internet costs.

You are entitled to claim a deduction for the running expenses in relation to the home office that is actually incurred through the income producing activities which is additional to the private expenditure.

That is you should apportion your running expenses for the room to exclude any hobby or private purpose.

To calculate running expenses, the Commissioner accepts a diary kept for a period of four weeks in order to establish the pattern of use for the relevant period in an income year.

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