Edited version of your written advice

Authorisation Number: 1051460206203

Date of advice: 27 November 2018

Ruling

Subject: Travel Expenses – transport, accommodation, meals and incidentals

Question

Can you deduct the costs of your flights, accommodation, utilities and general living expenses you incurred whilst on work rotations?

Answer

No

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You commenced your graduate position with your employer based at location X

An email from the Graduate Program Manager to you stated:

…graduates based regionally have the option of participating in a 3 month rotation in a metro location…which will be funded ($X budget payable into your account and taxed at nominal rate). This budget is to be utilised for all costs related to relocation and accommodation. You will be responsible for organising your own living arrangements for the rotation period…

Further information provided said:

● $X paid to each Graduate…and taxed at the appropriate rate, leaving the Graduate with the balance to support their living arrangements and travel requirements for the rotation

● …Regionally based Graduates have the option of completing a second…rotation however, this would be self-funded

● All Graduates have the option of completing a rotation outside of their…location, however this will be self-funded (unless meet the requirements for a funded rotation…)

You completed two rotations at different locations. You worked at location Y for a period of time. You worked at location Z for a period of time.

After you completed your rotations you moved back to location X permanently and worked for the same employer.

Prior to the rotations you lived in the family home at location X

Prior to living with your family you lived in location Z whilst completing your studies. Prior to this you lived in the family home at location X.

At the beginning of your first rotation in location Y your employer transferred you a once-off payment. Your payslip for the pay period shows the payment with the description “Special Payment Transfer Expenses”. On the same payslip you also received a per kilometre non-taxable allowance.

Your once-off payment was included in your gross payments on your PAYG payment summary.

Your employer did not pay for flights or other costs directly nor did they reimburse your costs.

Your employer did not require you to provide them with any tax invoices or other evidence for the expenses you incurred.

You have bank statements that show your living expenses such as your flights, food, utility bills and rent expenses whilst you were on your rotations.

You have tax invoices for your return flights from location Z to location Y.

In location Y you rented a five bedroom share house. The property was furnished aside from the bedroom furniture.

You incurred lease expenses for your accommodation in location Z, which was a two bedroom apartment. The property was furnished aside from the bedroom furniture.

You did not classify your time in location Y or Z as a change to your permanent abode.

Your letter of offer from your employer says:

You acknowledge and agree that the remuneration we pay you under this individual arrangement satisfies any entitlement to remuneration you may have otherwise had under our EA or any applicable law.

In the Individual Arrangement section of your letter of offer it states that certain sections of the EA will not apply to you, being Meal allowance, Car allowance, Travel on business, Hours of Work, Shift work and Annual leave.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 paragraph 8-1(2)(b)

Reasons for decision

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.

Draft taxation ruling TR 2017/D6 Income tax and fringe benefits tax: when are deductions allowed for employees’ travel expenses? (TR 2017/D6) sets out the general principles for determining whether an employee can deduct travel expenses under section 8-1 of the ITAA 1997.

A travel expenses is an expense relating to transport (airline, train, car etc.) and accommodation, meal and incidental expenses of an employee when they travel away from home for work (paragraph 2 of TR 2017/D6).

Travel to start work is not required by the work activity but is preliminary to the work (paragraph 23 of TR 2017/D6).

It is only in limited circumstances that an employee’s accommodation expenses are deductible, as generally, accommodation expenses are of a private or domestic nature. An employee’s ordinary costs of maintaining a home are of a private or domestic nature and are not deductible. Such costs are preliminary to work and are not incurred in performing work activities, in the same manner as travel expenses to and from work are preliminary to work and are not incurred in performing work activities (paragraph 15 of TR 2017/D6). These expenses are incurred to enable an employee to commence their income earning activities and are therefore considered private in nature.

The costs of relocating for work or living away from home to work are preliminary to work and are not deductible (paragraphs 16, 49 and 52 of TR 2017/D6), regardless of whether commencing new employment or transferring permanently or temporarily within an existing employment. The costs of relocating or living away from home are not incurred in performing an employee’s work activities. They are of a private or domestic nature and reflect an employee’s choice about where to live (paragraph 53 of TR 2017/D6). This is the case even though a taxpayer may, as a matter of practicality, need to incur the expenditure to earn assessable income.

It is also the case that an employee is not entitled to deduct an expense simply because they receive an allowance or other payment for that expense. The nature of the expense and its connection to the income producing activities determine whether the expense is deductible (paragraph 14 of TR 2017/D6).

Example 16 of TR 2017/D6 involves an employee working at a different location for an extended period of four months. In this case the accommodation was not deductible. This was because the taxpayer was staying away from their permanent home at one work location for an extended period, in home-like accommodation and they were not travelling regularly for work.

In the case Federal Commissioner of Taxation v. Charlton 84 ATC 4415; (1984) 15 ATR 711 (Charlton’s Case), the taxpayer was employed in Bendigo. He rented a flat in Bendigo while maintaining a permanent family home in Melbourne. The taxpayer claimed that the rental expenses were incurred in the production of assessable income. Crockett J stated at 84 ATC 4419-4420:

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.

Application to your circumstances

Your case is comparable to example 16 in TR 2017/D6 in that the distance between your normal place of residence in location X and the location Y and Z is what necessitated you having to stay away from home. You were not living in location Y and Z in the course of your work. Rather, you were living there so that you could work. The costs relating to the temporary relocation were not incurred in performing your work activities. The travel expenses were preliminary to the work and not deductible.

The principle from Charlton’s Case, that expenses for accommodation near the workplace while maintaining a residence elsewhere are private in nature, is also applicable to your case. You temporarily lived away from your home in location X to undertake rotations of your Graduate program in locations Y and Z. While in locations Y and Z, you rented accommodation in which to live and you continued to maintain your room in your parent’s home in location X, to which you returned upon the completion of your rotations.

Your rental expenses were incurred as a result of your choice to complete the graduate rotations and therefore move to locations Y and Z to gain closer proximity to your workplaces. The expenses were not incurred in the actual performance of your work duties. The expenses you incurred were expenses of a private or domestic nature.

As a general rule, expenditure on meals and incidentals while working away from home are not allowed as a deduction (paragraph 52 of TR 2017/D6). These costs are essentially 'living expenses' of a private or domestic nature. The fact that income cannot be earned unless certain expenses are necessarily incurred is not determinative of deductibility.

In your case, your transport, accommodation, meal and incidental expenses are considered to be of a private and domestic nature. Accordingly, you are not entitled to a deduction for your expenses under section 8-1 of the ITAA 1997, as the expenses were not incurred in gaining or producing assessable income and were expenses of a private or domestic nature (paragraph 8-1(2)(b) of the ITAA 1997).

Further Information

In your application you included your understanding that you were engaged in itinerant work whilst on rotation. Some information on itinerancy and its’ application to your circumstances is included below.

Itinerancy

Taxation Ruling TR 95/34 Income tax: employees carrying out itinerant work - deductions, allowances and reimbursements for transport expenses (TR 95/34) provides guidelines for establishing whether an employee is carrying out itinerant work. The ruling states that the following characteristics are indicators of itinerancy:

1. travel is a fundamental part of the employee's work

2. the existence of a 'web' of work places in the employee's regular employment, that is, the employee has no fixed place of work

3. the employee continually travels from one work site to another. An employee must regularly work at more than one work site before returning to his or her usual place of residence

4. other factors that may indicate itinerancy (to a lesser degree) include:

● the employee has a degree of uncertainty of location in his or her employment (that is, no long term plan and no regular pattern exists)

● the employee's home constitutes a base of operations

● the employee has to carry bulky equipment from home to different work sites

● the employer provides an allowance in recognition of the employee's need to travel continually between different work sites.

Continual travel refers to the frequency with which an employee moves from one work site to another. It envisages that the employee regularly works at more than one work site before returning to his or her usual place of residence.

Another factor that may indicate itinerancy, to a lesser degree, is if the employee has a degree of uncertainty of location in his or her employment. The element of uncertainty of location is generally another distinct characteristic of itinerant employment. 'Uncertainty' in this context, relates only to uncertainty of location, and not to uncertainty of employment. This can be contrasted with a worker who has a fixed place of employment and is aware of the location of the work place.

Whilst the above characteristics are not exhaustive, they provide guidelines for determining whether an employee’s work is itinerant. It is considered that no single factor on its own is necessarily decisive.

Your situation

You do not work at more than one location on any given day. Your duties commence when you start your day at a fixed location and finishes at the end of the day. Your duties do not require you to go from one location to another in the one day/week/month. Accordingly, it is considered that travel is not a fundamental part of your work and it cannot be considered that you have a web of work places. Continuous travel between work sites is not considered a part of your regular employment duties. You know the location you are required to work. You do not have a degree of uncertainty of location in your employment.

Therefore you were not engaged in itinerant work for the ten months you were on rotation.

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