Edited version of private advice

Authorisation Number: 1052201775928

Date of advice: 20 December 2023

Ruling

Subject: Rental deductions

Question

Can you claim a deduction for rent expenses you incurred while renting a property in Suburb Z?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You own an apartment in Suburb Y.

You rented the apartment out when you moved to another area in the same State.

The lease on the Suburb Y property was for several months.

Shortly after you moved you received a job offer in City Z.

You work part of the week in City Z and part of the week from home.

Because the lease on the Suburb Y property was still in effect, you rented a property in Suburb Z to reduce travel time to your place to employment on the days when you are required to work in City Z.

When the lease on the Suburb Y property expired, you moved back in to use it as your personal accommodation during the days you are required to work in City Z.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

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.

As a general rule, the cost of accommodation is not tax deductible, as it is essentially a living expense which is considered to be a private or domestic outgoing.

In Federal Commissioner of Taxation v. Green (1950) 81 CLR 313; (1950) 9 ATD 142; (1950) 4 AITR 471, the court said a taxpayer cannot deduct ordinary living expenses. It is true that such expenses are necessarily incurred if any income is to be earned or otherwise derived, but such expenses would be incurred whether income was earned or otherwise derived or not.

In Federal Commissioner of Taxation v. Charlton (1984) 84 ATC 4415, the taxpayer was a medical practitioner whose family home was in an inner Melbourne suburb. He was employed as a pathologist in the Bendigo Hospital, renting a small flat in Bendigo, staying there from Monday to Friday, and returning to Melbourne at the weekends whenever he could. He sought a deduction for the rent paid for the Bendigo flat for the four months from January to April 1978 on the basis that the flat rental was incurred in gaining or producing his assessable income under the predecessor to Section 8-1 of the ITAA 1997. Crockett J in the Supreme Court of Victoria held that the expenditure on rent for the period from January to April 1978 was dictated by private considerations, namely, the taxpayer's election to live in Melbourne and not in Bendigo where all his income-earning activities were carried out. In these circumstances, a deduction for the rental expenditure was not allowable.

Although your situation differs to the above cases, the principles are relevant and can be applied to your circumstances.

In your case, we accept that you were not able to move into your original residence in Suburb Y as it was still under lease, however, the rent expenses you incurred in Suburb Z during this time do not have a direct connection to you earning assessable income. The expenditure is also considered to be a private living expense. Therefore, you are not entitled to a deduction.

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