Edited version of private advice

Authorisation Number: 1051533413541

Date of advice: 20 June 2019

Ruling

Subject: Travel expenses incurred for removing a tenant

Question

Are the travel expenses paid for your tenant deductible?

Answer

No

This ruling applies for the following period:

Year ended 30 June 2018

The scheme commences on:

1 July 2017

Relevant facts and circumstances

You have a rental property.

You inherited this property.

The same tenant has been in this property for a considerable period of time.

When you inherited this property the tenant was in the property.

In 20XX, the rent had become unmanageable and you asked the tenant whether you could help them find more suitable accommodation.

After a number of years you determined that they would not be able to raise the funds to carry out their wish.

You offered to pay for their travel to remove them from the property.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 subsection 8-1(a)

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

Reasons for decision

Summary

The travel expenses for the tenant are not deductible. They are a considered a private expense.

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.

Generally, travel related to your rental property is not considered deductible.

Incurred "in" gaining or producing means incurred "in the course of" gaining or producing assessable income. In Ronpibon Tin NL & Tong Kah Compound NL v Federal Commissioner of Taxation (1949) 78 CLR 47 (Ronpibon), the High Court explained at [57]:

it is both sufficient and necessary that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income or, if none be produced, would be expected to produce assessable income.

In Federal Commissioner of Taxation v Payne (2001) 202 CLR 93, the High Court, referring to Lunney v FCT, said:

The principle which had to be applied in that case, and must be applied in this, is one which limits the allowance of a deduction for outgoings to those outgoings that are incurred in the course of deriving assessable income. It is a principle which excludes outgoings which, although incurred forthe purpose of deriving assessable income, are not incurred in the course of doing so.

Application to your circumstances

The expenditure would not be directly related to earning assessable income. It is not incurred, in the course of deriving assessable income. Your intention in incurring the expense is to facilitate the removal of the tenant who had been underpaying rent. You didn't want to pursue legal proceedings to do this. Therefore you chose a more humane way by paying for the tenant to go back to their home country. It may be argued it was for the ultimate purpose of deriving assessable income, such as putting a new tenant in property. However this still doesn't mean it was incurred in the course of deriving assessable income, which would be your rental income.

The expense is better characterised as a private expense. The connection is too general or tenuous to allow a deduction for any portion of the cost.

Accordingly you are not entitled to a deduction under section 8-1 of the ITAA 1997

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