Edited version of private advice

Authorisation Number: 1051534076073

Date of advice: 09 July 2019

Ruling

Subject: Self-education expenses

Question 1

Is the cost of your flights to undertake the unpaid secondment deductible?

Answer

Yes

Question 2

Are your accommodation and food expenses incurred while undertaking the unpaid secondment deductible?

Answer

No

This ruling applies for the following period:

Year ended 30 June xxxx

The scheme commences on:

01 July xxxx

Relevant facts and circumstances

You commenced an overseas unpaid X month secondment in City Z while employed in Australia.

You had accrued leave over a number of years and took this leave during the period of the secondment.

Your employer supported and encouraged the secondment.

The secondment was a full-time position that was similar to your role with your employer in Australia but you also received significant mentoring.

Your accommodation while living in Australia consists of a rented room which remained vacant while you were overseas. You do not reside with a spouse or family.

During the secondment you lived in rented residential accommodation. You moved once during your secondment.

You did not travel outside of City Z or undertake any sightseeing or tours during the secondment.

Since returning to your employer after the secondment, you were afforded opportunities and responsibilities that you were not previously due to the experience and connections you had gained. You also obtained a promotion shortly after your return.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Question 1

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for a loss or an outgoing to the extent to which it is incurred in gaining or producing assessable income, except where the loss or outgoing is of a capital, private or domestic nature.

Taxation Ruling TR 98/9 Income tax: deductibility of self-education expenses discusses the circumstances under which self-education expenses are allowable as a deduction.

Although your secondment expenses are not expenses incurred in relation to an educational course, conference or seminar, the principles in TR 98/9 are relevant in considering the deductibility of your secondment expenses.

TR 98/9 states that a deduction is allowable for self-education expenses if a taxpayer's current income-earning activities are based on the exercise of a skill or some specific knowledge and the subject of the self-education enables the taxpayer to maintain or improve that skill or knowledge. A deduction is also allowable if the self-education leads to, or is likely to lead to, an increase in a taxpayer's income from his or her current income-earning activities in the future.

In your case you undertook an unpaid secondment overseas. It is accepted that the secondment maintained and enhanced the skills and knowledge that are required in the performance of your current employment activities. Also, it is accepted that the secondment led to an increase in your income from your current income-earning activities as you obtained a promotion shortly after your return from the secondment.

As there is the necessary connection between the secondment and your current income-earning activities you are entitled to claim a deduction for your secondment expenses under section 8-1 of the ITAA 1997 if they are not private or domestic in nature.

The cost of your flights you incurred in order to undertake the secondment are not private or domestic in nature and therefore this expense is deductible.

However, accommodation and meal expenses are inherently private and domestic in nature and therefore the deductibility of these expenses requires further consideration (see below).

Question 2

In general, accommodation expenses are considered private expenses and consequently are not deductible. Court decisions and decisions of the Administrative Appeals Tribunal/Board of Review provide an independent view and confirm this.

The Federal Court decision in Federal Commissioner of Taxation v. Toms 89 ATC 4373; (1989) 20 ATR 466, held that expenses incurred in relation to accommodation near the work place while maintaining a residence in another location, were not an allowable deduction as they were considered to be private expenses. Although the expenditure must be incurred in order to put one in a position to be able to derive assessable income, it does not necessarily mean that the expenditure is incurred in the course of gaining or producing that income.

Although expenditure on accommodation and meals ordinarily has the character of a private or domestic expense, TR 98/9 states that:

the occasion of the outgoing may operate to give the expenditure the essential character of an income producing expense. An example is where the expenditure is incurred while away from home overnight on a work-related activity... Where a taxpayer is away from home overnight in connection with a self-education activity, accommodation and meals expenses are deductible under section 8-1.

However, TR 98/9 goes on to state that expenditure on meals and accommodation incurred while undertaking a self-education activity will not be deductible where the taxpayer has established a new home. In these circumstances, the accommodation and meal expenses are considered to retain their inherently private nature.

In your case, although your stay overseas was not long-lasting, it is still considered that X months is a significant period. Also, the type of accommodation you lived in while in City Z was similar to your accommodation while in Australia. You moved to another location during the secondment but this would not be seen as an abnormal living arrangement. The nature of your day to day life in City Z was similar to that Australia in that you lived in rented residential accommodation and worked on a full-time basis. As you did this for a significant period it is considered that you were living in City Z during your time there rather than travelling on a short term basis. Therefore, the accommodation and meal expenses you incurred while living in City Z are considered to have maintained their inherently private nature and are consequently not deductible. It is acknowledged that you did not sublet your rented room in Australia while you were overseas but it is not considered that this is enough to outweigh the other factors that point to you having a home in City Z while you lived there.

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