Ruling Compendium

It is submitted that there is a need to elevate the role of the general principles at paragraph 8 and 9 in the determination of whether particular transport expenses are incurred in the course of gaining or producing assessable income. This would mitigate the instance of applying any of the five factors in substitution for the principles identified by the Full Court in the John Holland decision.

The concern is that under the guidance of the draft Ruling, one or more of the factors in paragraph 11 of that Ruling may be applied in a manner that rigidly confines the determination of what will constitute part of, or incident of, employment of an individual.

Case law references should be included in footnotes, where applicable, to support the factors listed in paragraph 11.

The John Holland decision is a Full Federal Court decision which applied the principles from Lunney, Payne, and Day to a unique set of circumstances. The John Holland decision and the decision in The Roads and Traffic Authority of New South Wales v Commissioner of Taxation [1993] FCA 445 are footnoted at paragraph 12 of the final Ruling to express the other ways in which transport expenses may be referred to as expenses incurred in gaining or producing assessable income.

As was noted in the decisions in Day and Commissioner of Taxation v Cooper R.J. [1991] FCA 190 (Cooper) essential to the enquiry of whether a loss or outgoing is incurred in gaining or producing assessable income is what is productive of assessable income. This is what is stated in paragraphs 9 and 15 of the final Ruling.

It is agreed that the question of whether a transport expense is deductible must be answered by reference to the statutory test in section 8-1 of the ITAA 1997. This is made clear at paragraph 20 of the final Ruling which states '[t]he deductibility of employee transport expenses ultimately requires a judgment in any case about whether the expense is incurred in the course of gaining or producing assessable income.' For clarification, paragraphs 16 and 17 of the final Ruling have been added and when read together with paragraphs 18 and 19, they suggest a holistic (and not rigid) assessment of the relationship between the employment and the expense.

More information about each of the factors in paragraphs 16 and 17 has been included and the authority for the factors have been footnoted where relevant.

We agree that John Holland deals with a very particular class of facts to a narrow class of employees. However, John Holland does provide some guidance on when an employee may have commenced their duties which is why it has been referred to. Changes have been made to this discussion and paragraphs 16 and 17 of the final Ruling have been added for clarity.

For expenses to be deductible under section 8-1 of the ITAA 1997, they must be incurred in gaining or producing an employee's assessable income and not be capital, private or domestic in nature.

Where the travel occurs on work time, that is, after the commencement of the employee's duties and while they are engaged in their income-producing activity, it may assist to consider whether remuneration for the performance of the employee's duties has commenced, that is, whether the employee was paid for the time spent travelling. However, as stated above, it is agreed that is not the test of deductibility.

Paragraph 61 should also include reference about being on paid work time.

Although an employer's requirements do not determine deductibility, they are not irrelevant and will generally assist in ascertaining the proper scope of an employee's income-earning activities to determine whether the expense has been incurred in the course of earning assessable income. Furthermore, the fact that an employee incurs an expense on a voluntary basis (that is, not at the direction of their employer) does not necessarily preclude a deduction under section 8-1 of the ITAA 1997.

Example 3 of the Ruling concerns whether a work location is a regular place of work. The factors considered in John Holland, such as whether the employees were paid for the travel time and under the direction and control while they were travelling, were relevant in that case in determining whether Perth airport was a place of work.

Example 3 has been amended in the final Ruling for clarity.

Refer to the response to Issue 10 of this Compendium.

The concept has been variously expressed in rulings including TR 95/34, and IT 2543 Income tax: transport allowances: deductibility of expenses incurred in travelling between home and work as a 'normal work place', a 'usual place of employment' or simply as 'work'. 'Regular place of employment' is referred to by Dixon CJ in Lunney which is why the term regular was used as opposed to normal or usual. For clarity, footnote 33 has been added to the final Ruling.

Paragraph 27 and Example 2 at paragraph 31 of the final Ruling, the example at paragraph 33 of TR 95/34 and NT85/128-129 and Commissioner of Taxation [1987] AATA 495 (Case NT85/128-129) make it clear that you can have more than one regular place of work and travel to each of those regular places of work is not deductible. In Case NT85/128-129, Roach SM states at [12]:

It was argued for this Applicant that he too should be characterised as an itinerant worker even though for periods of several months in succession he had as a matter of routine but one place of employment for four days of the week and a second place of employment on a fifth day; and that at intervals of several months, there would be a change in the principal place of duty. Without more I am not satisfied that the Applicant should be categorised as an itinerant worker or that the Act authorises the deductions claimed, whether incurred as "additional expenditure" or otherwise.

It is a question of fact as to whether a place of work becomes a regular place of work. Having regard to the factors discussed at paragraphs 16 and 17 of the final Ruling (and having regard also to paragraph 32 of the final Ruling), the outcome in Example 3 of the Ruling is correct. For clarity, amendments have been made to Example 3 in the final Ruling.

Paragraphs 39 to 41 of the final Ruling address travel between work locations. In Example 3, Raj's home is not a work location as he does not commence work prior to leaving home so these paragraphs are not relevant. Example 3 has been amended in the final Ruling for clarity.

Example 4 of the Ruling involves a question of whether the workplace is a regular work location or not and involves only one day of travel to an alternative work location.

Example 7 of the Ruling involves a different issue where the question is not about regular place of work, but where the taxpayer is away from home overnight with one workplace close to home and at least one other distant.

Following the recent decision in Hiremani and Commissioner of Taxation [2020] AATA 1653, Examples 6, 7 and 8 have been updated in the final Ruling to make the 'choice' element clearer.

Personally, I would avoid using 'regular workplace' but if you do, you'd need to include a paragraph something like the following to avoid taxpayers inferring travel to an irregular workplace is automatically deductible:

This discussion is not suggesting that travel between home and an irregular workplace or one-off workplace is deductible. It depends on the circumstances. For example, if an employee is required by their employer to work at an alternative workplace in the same city or locality temporarily (for example, to relieve a staff member who is on leave), travel between the employee's home and the alternative work place is 'home to work travel' and is not deductible. This is despite the fact that the travel is not a product of where the employee has chosen to live and there may be no regularity or pattern to the travel.

Miscellaneous Taxation Ruling MT 2027 Fringe benefits tax: private use of cars: home to work travel (published on 18 September 1986) considers the deductibility of transport expenses incurred by an employee who has a regular place of employment and travels directly from home to an alternative location (referred to as an alternative work location in the final Ruling) which, for the period of the visit, constitutes a place of employment. For example, travelling from home to visit a client's premises that might be located at a point on or close to the normal route travelled by the employee to the office or alternatively in the opposite direction to the normal work route. Paragraphs 34 and 35 of MT 2027 state the following (emphasis added):

34. While the position is not free from doubt and is perhaps clearer in some of the instances cited in paragraph 30 than in others, it has been decided that the total journey from the employee's home to the client's premises and on to the office should be accepted as business travel. This approach is to be adopted where -

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the employee has a regular place of employment to which he or she travels habitually;

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in the performance of his or her duties as an employee, travel is undertaken to an alternative destination which is not itself a regular place of employment (i.e., this approach would not apply, for example, to a plant operator who ordinarily travels directly to the job site rather than calling first at the depot or to an employee of a consultancy firm who is placed on assignment for a period with a client firm); and

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the journey is undertaken to a location at which the employee performs substantial employment duties.

As an illustration of this last point, travel to an employee's place of employment would not be accepted as business travel where the employee merely performs incidental tasks en route such as collecting newspapers or mail. Similarly, for example, the fact that a dentist may call in at a dental laboratory to collect dentures, etc., enroute to the surgery at which he or she is employed would not result in the trip being accepted as constituting business travel.

35. The preceding principles apply equally to cases where an employee makes a business call in the afternoon and travels from there to home, rather than returning to the office.

Accordingly, for some time our view has been that employees can claim a deduction for transport expense incurred in travelling from home to an alternative work location provided it doesn't become a regular work location.

I note Example 10 of TR 2017/D6 (Brad). The terms 'significant part of the day' (Example 6 of TR 2017/D6) and 'reasonably requires an overnight stay away' (Examples 7 to 13 of TR 2017/D6) were used partly to avoid using subjective terms like 'very distant' - which may also be impacted by the type of transport used (air versus road).

How far is geographically distant referred to in paragraph 46 of the draft Ruling? One to two hours travel was not far enough in Example 3.

The matters listed in paragraph 20 are probably more relevant to the first question than the second, but in any case, the wider list of factors cited in the judgment of Pagone J in John Holland at [58] would be a better place to start.

In John Holland, the employees essentially had two regular places of employment, Perth Airport and the site in Geraldton. The travel in that matter was considered travel between workplaces rather than travel to work.

There is an important question of whether an employee can actually have more than one 'base' from which their trade, profession or occupation is carried on and the factors cited in the draft Ruling may not be sufficient to establish a second location as such a 'base'. It is also unlikely that terms of any employment agreement or contract that refer to more than one work location would have the effect of denying a single base from which an employee usually operates.

Refer to our response to Issue 9 of this Compendium.

In each case the travel may not be the primary activity for which the person is employed, but may be a necessary incident of the employment and undertaken in, and as part of, the employment for which the employee may be remunerated without specific reference to the travel.

Repetition of travel to a second location would not ordinarily cause that location to become a 'second or subsequent places of work'.

The reference by Pagone J in John Holland at [54] is to an employee travelling to different locations, not to the same location repeatedly. Further, the taxpayers described by Pagone J at [54] would be travelling overnight away from their home for work purposes. In such cases, the employee is travelling on work time from the time they leave home until the time they arrive back at home. Refer to Edmonds J in John Holland at [35] for another example of such travel.

Mr Chan was not employed on terms that required his attendance only at the project location but, rather, upon terms that required his attendance at an airport from which he was required to travel to the remote location in order to undertake the particular duties at that location. The requirement to attend at the airport was one arising from the particular nature of the tasks to be performed at remote locations. He was told, at employee briefings by management, as were all employees subject to the "fly in/fly out" basis, that his employer's code of conduct and other policies applied to him, and to the other employees, whilst travelling between Perth domestic airport and the project flight. Misbehaviour on flights "paid for by the company" could result in disciplinary action against him or other employees.

The terms under which Mr Chan was employed meant that his travel to the project locations occurred on work time. One of his duties of employment was to report at the airport (his regular work location) in order to travel to the remote project locations. His travel from his home to his regular work location (the airport) was not deductible. His employment duties commenced after he arrived at the airport. This is also supported by the fact that he could face disciplinary action if he misbehaved on the flight to the project location. His travel from the airport (his regular work location) to the project location (another work location) was travel between workplaces.

Refer to paragraphs 16, 17, 39 and 40 of the final Ruling.

It is difficult to see how Example 3 differs in nature from Example 6, particularly as Example 6 does not have a specified fixed time period for the once per fortnight meeting. The only difference seems to be the need to fly, and as other parts of the draft Ruling state, distance alone should not be a criterion.

Refer to paragraph 48 of the final Ruling.

For clarity, Examples 3 and 6 have been amended in the final Ruling.

While the position is not free from doubt, our long-standing view is that transport expenses incurred when travelling between home and an alternative work location are deductible. This is consistent with the approach in MT 2027 which recognises the point that, in spite of the fact that the employment duties will not generally commence until the employee arrives at the workplace, the expenditure from home to the alternative work location is deductible.

For clarity, Example 4 has been amended in the final Ruling.

The conclusion arrived at in Example 8 that Sue's travel to and from Melbourne was 'private' may not be the most likely outcome in ordinary work circumstances. Her travel differs from those in the case of Payne because it is not in between two places of unrelated income derivation. More information is needed about her leadership role and what activities she undertakes in Sydney, for example, how she interacts with Sydney-based personnel as part of her leadership role. In a senior position with a company with offices all around Australia, it is quite possible that the activities she carries out in Sydney are part of her role generally. Very seldom is any senior or other person located entirely in a single location when group activities are carried out in multiple locations. Company groups rarely work in geographic isolation. Therefore, in addition to the terms and conditions of Sue's employment, regard should be had to the 'whole of the operations of [her] business' and the 'bundle of tasks performed and duties to be observed' both taken from Melbourne and in Sydney. See [Pagone J's decision in John Holland at [58] and the quotation taken from Day.

More emphasis has also been placed on explaining that travel being necessary isn't always determinative of whether transport expenses are deductible.

The duties of a person's employment dictate whether there is a need to travel to two different offices. Generally, where the employee wants to work at a different location to where their job is located, as in Example 8, the employee will have to get agreement from their employer to do that. In Example 8, the employee's job is located in their employer's Melbourne office and the duties of her employment do not require her to undertake any work at the Sydney office. She chooses to work in the Sydney office with her employer's permission because she doesn't want to move to where her job is located, that is, it is convenient for her to work in Sydney. The example would be the same if the employee in Example 8 worked from home for convenience for a few days a week instead of going into the office. Accordingly, her travel to the Melbourne office is simply between her home and her regular place of work so it is not deductible.

This is different to employees whose duties require them to travel to another office. Accordingly, no agreement between the employer and employee is necessarily required.

The explanation around the travel being required by the duties of employment and the significance of choice in denying deductions has been amended in the final Ruling for clarification.

The purpose of Example 5 of the Ruling is to demonstrate that transport expenses incurred in travelling between a taxpayer's home and a regular place that is distant are not deductible where no other factors such as those identified in paragraphs 16 and 17 of the final Ruling are present.

Duy has a regular place of work in Rockhampton and in the performance of his duties travel is undertaken to an alternative destination which is not a regular place of work.

should have the words 'which is not a regular place of work' removed.

Narelle carries out her employment duties at multiple locations (the North Coast Office and the Sydney office and other offices) which require her to travel overnight/are a significant distance apart. The travel is relevant to the practical demands of carrying out her work duties and is undertaken at the request of her employer.

The situation described is covered by other content in the final Ruling, namely travel to an alternative work location (see paragraph 42 of the final Ruling) and transport expenses when travelling away from home for work (paragraphs 48 to 62 of the final Ruling) without the need to specifically consider direction and control.

Transit points have been addressed as a particular situation in which transport expenses can arise.

Example 10 of the draft Ruling has been omitted from the final Ruling. In its place paragraph 69 of the final Ruling sets out a non-exhaustive list of factors which may lead to a conclusion that transport expenses between a transit point and a work location are not incurred in gaining or producing an employee's assessable income and accordingly, would not be deductible. Footnote 57 has also been added to the final Ruling as a reminder that the requirements under section 8-1 of the ITAA 1997 and the principles outlined in paragraphs 15 to 19 of this final Ruling remain key in determining the deductibility of transport expenses.

The examples referencing direction and control simply state whether a person is under 'direction and control', rather than explaining how or why this has occurred.

The final Ruling should include an example to illustrate how an employer and employee should evidence that the employee is under the direction of the employer when they are driving to a distant worksite. There would be relatively less documentary evidence available than in the case where the employee was flying to such a destination. We suggest that reasonable evidence could include the requirement to use an employer-provided vehicle, or other specified vehicle type for safety reasons, a requirement to transport colleagues at the same time, and an obligation to take breaks at specified intervals and record these in a journey log.

As per paragraph 67 of the final Ruling, an employee being under the direction and control of an employer does not alone determine whether an employee is entitled to claim a deduction for transport expenses. The need to be under the direction and control must be explained by the duties of employment and the need to travel for work.

Example 9 of the Ruling states that Brian is under the direction and control of his employer because all his employer's workplace policies and procedures apply to him.

At paragraph 67 of the final Ruling, footnote 52 states:

In this context, 'direction and control' means the employee is subject to their employer's orders or directions, whether or not those orders or directions are exercised during the period of travel (Stevens v Brodribb Sawmilling Co Pty Ltd [1986] HCA 1, per Mason J).

The evidence required to demonstrate that an employee is under the direction and control of their employer will vary. For example, in some cases the terms of the employee's employment contract will be sufficient whereas in others it may be the terms of the relevant Award or enterprise bargaining agreement. Further, the evidence an employee may require is not a question to be addressed in this Ruling.

Mr Chan was found to be performing one of the activities required of him to perform his duties upon his arrival at Perth airport. Example 10 of the draft Ruling has been omitted from the final Ruling. In its place paragraph 69 of the final Ruling sets out a non-exhaustive list of factors which may lead to a conclusion that transport expenses between a transit point and a work location are not incurred in gaining or producing an employee's assessable income and accordingly, would not be deductible. Footnote 57 has also been added to the final Ruling.

While we acknowledge the inconsistency with the FBT legislation, this Ruling is about whether an employee's transport expenses are deductible under section 8-1 of the ITAA 1997. Expenses that are deductible are 'otherwise deductible' for FBT purposes but specific FBT exemptions must be considered separately.

There has been no change to the ATO view on when transport expenses are private. Accordingly, it is considered that this Ruling should not impact on the amount of FBT payable in respect of transport expenses going forward.

It appears these factors have been drawn from John Holland. However, in that case these factors were just some of the relevant factors, but were not expressed to be determinative factors to the case outcome.

In Example 10, the nature of the work, the remoteness of the location, the style of the accommodation, the limited availability of accommodation and the lack of choice in being able to live and work at the location should all be taken into account and, in our view, the travel between Perth and Geraldton should be otherwise deductible.

Being paid for travel time is only one of the factors considered in John Holland as to whether the travel expenses are deductible or not and not be determinative on its own. It should also be recognised that the employees in John Holland were given the option to relocate to Geraldton and chose not to, though other employees who work 'fly-in fly-out' may not have that option available to relocate.

... the nature of Brian's work at different locations in Western Australia for relatively short periods of less than 12 months explains why Perth airport, in the context of his circumstances, is a transit point

in Example 9 of the draft Ruling is not justified. It is not mentioned in John Holland.

the employee's duties can be construed as having substantively commenced at their home (or another private location) and the employee is required to travel on to a regular place of work to continue those particular duties.

the travel to the workplace is not part of a normal journey to work that would have occurred within a few hours if the employee had not been called and had begun their duties at home (or another private location) anyway.

Paragraph 42 of the final Ruling also addresses travel from an employee's home to a client's premises, that is, an alternative work location.

It is noted the requirements under section 8-1 of the ITAA 1997 and the principles outlined in paragraphs 15 to 19 of the final Ruling along with the full facts and circumstances of the specific working arrangement in place must always be considered in totality in determining the deductibility of the transport expenses incurred.

Further clarification is required surrounding the term 'secure' in the context of secure area, particularly as this draft Ruling seems to indicate that where a secure area is provided at a workplace to store equipment, then the transport will not be found to be deductible.

It is recommended that TR 2017/D6 be withdrawn and that the ATO's views on the treatment of expenses relating to transport be consolidated into a single ruling and that the guidance provided on the residual issues be included in a separate ruling. This will remove the confusion and ambiguity faced by employers needing to make an assessment on deductibility of travel expenses. The need to simplify the draft Ruling and TR 2017/D6 into one ruling is particularly important given that we understand another ruling, separate to the one covering meals, accommodations and incidentals is coming in 2020.

Relocation travel

The inclusion of this section is questionable give that it is appropriately covered in TR 2017/D6 (and expected to be included in the upcoming living away from home ruling). Providing only one paragraph of high-level guidance with limited application to a taxpayer's circumstances is unhelpful. As such it is recommended that this section be updated to refer to TR 2017/D6.

'Special demands' travel

This was a new concept referenced substantially in TR 2017/D6 and is absent from this draft Ruling. Instead this draft Ruling refers to being within the duties of employment and relevant to the practical demands of carrying out the work duties.

It has been decided that given the range of issues to be addressed, it is preferable to deal with them across two separate products.

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drive-in drive-out travel scenarios, including consideration as to whether the reimbursement of actual expenses and/or a cents per kilometre reimbursement are deductible

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examples involving salaried employees where being paid separately for their travel time is not relevant

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travel to multiple places of casual employment

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scenarios under which a domestic employee is requested by their employer to take a secondment into another role with a different group entity on a part time basis (being two weeks per month) with travel required interstate, or

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scenarios where a traveller is based outside Australia and undertakes work both inside and outside Australia in different roles within the same group of entities. This should include consideration of the comments at paragraph 33 of the draft Ruling with respect to transport costs incurred for different employers and the interaction with section 25-100 of the ITAA 1997.

The final Ruling already considers employees on salary who are not necessarily paid per hour for their travel time.

Travel to multiple places of casual work is home to work travel. Alternatively, travel directly from one casual workplace to another casual work place (for another employer) may be deductible under section 25-100 of the ITAA 1997.Employees requested by their employer to take up a secondment into another role with a different group entity requiring interstate travel and employees based outside Australia who undertake work both inside and outside Australia in different roles within the same group of entities are not considered to be common arrangements. Accordingly, they will not be addressed in the final Ruling. Advice on these arrangements can be obtained by applying for a Private Ruling.

The general principles along with the factors at paragraphs 16 and 17 of the final Ruling should be considered when determining whether transport expenses for such employees are deductible.

A draft Practical Compliance Guideline will be issued at the same time as the draft Ruling on the deductibility of accommodation and food and drink is issued to address the 21-day rule.

Collating the necessary information and applying the criteria in the draft Ruling would contribute significantly to the FBT compliance costs that employers incur. This is against the background of the Board of Taxation having recently conducted an inquiry into opportunities for reducing FBT compliance costs.