Edited version of private ruling

Authorisation Number: 1011602665257

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Ruling

Subject: travel expenses

1. Are you entitled to a deduction for travel expenses up to the Commissioner's reasonable allowance amounts, without substantiation?

No.

2. Are you entitled to a deduction for travel expenses when you are receiving a living away from home allowance?

No.

This ruling applies for the following period

Year ended 30 June 2010

Year ended 30 June 2011

The scheme commenced on

1 July 2009

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You live in city A and were sent to city B by your employer to work on a project.

You work five days a week in city B then travel back to city A.

You also travel to different parts of the country working on different projects.

You keep a serviced apartment in city B because of the amount of time you are there.

You receive a living away from home allowance (LAFHA) each fortnight.

The LAFHA amounts are showing on your fortnightly payslip but are not included in your PAYG summary.

You have a travel diary showing the places worked during the year.

You do not have substantiation for all expenses relating to your travel.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Section 900-50

Income Tax Assessment Act 1936 Section 23L.

Reasons for decision

Summary

A LAFHA is not assessable to you. Therefore, you are not entitled to claim a deduction for your travel expenses as they are not incurred in earning your assessable income. As you do not receive an assessable travel allowance and are not entitled to a deduction, the exception from substantiation provisions have no application.

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.

A number of significant court decisions have determined that for an expense to be an allowable deduction:

· it must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income-producing expense (Lunney v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 11 ATD 404; (1958) 7 ATR 166 (Lunneys case)),

· there must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income (Ronpibon Tin N.L.Tongkah Compound N.L. v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 8 ATD 431; (1949) 4 AITR 236), and

· it is necessary to determine the connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces his or her assessable income (Charles v. Federal Commissioner of Taxation (1954) 90 CLR 598; (1954) 10 ATD 328; (1954) 6 AITR 85; Federal Commissioner of Taxation v. Hatchett (1971) 125 CLR 494; 71 ATC 4184; (1971) 2 ATR 557).

Expenditure on the daily necessities of life (for example, accommodation and food) are generally not deductible as it is not incurred in gaining or producing assessable income and is also considered to be private or domestic in nature.

Allowances such as travel allowances received by an employee from an employer are generally assessable income to the employee. However, an employee is not automatically entitled to a deduction for expenses incurred in relation to an allowance. The expenses must meet the criteria for deductibility under section 8-1 of the ITAA 1997 as well as meet the substantiation requirements.

In your case you received a LAFHA. A LAHFA is a fringe benefit under the Fringe Benefit Tax Assessment Act 1986.

Taxation Ruling MT 2030 provides guidance in relation to fringe benefits tax and LAFHA benefits.

Paragraph 35 of MT 2030 states that it is important that LAFHAs are distinguished from travelling allowances as they are subject to different taxation treatments. A LAFHA is a taxable fringe benefit, whereas travelling allowances form part of an employee's assessable income against which appropriate deductions may be allowed for the cost of meals, accommodation and incidental expenses incurred while the employee is travelling in the course of carrying out the duties of employment.

A LAFHA is paid where the employee has moved and taken up temporary residence away from his or her usual place of residence so as to be able to carry out employment duties for a time at the new (but temporary) workplace. In these cases, there is a change of job location and an actual change of residence to a place at or near that location.

The LAFHA is in the nature of compensation for additional expenses incurred together with other disadvantages suffered because the employee is required to live away from his or her usual place of residence in order to perform the duties of employment. Additional expenses do not include expenses for which the employee would be entitled to a deduction.

A travelling allowance is paid because the employee is travelling in the course of performing their job. When an employee is travelling in the course of carrying out their employment duties (for example, an interstate truck driver), the travel expenses are considered to be incidental to the carrying out of the employment function and therefore, do not have the character of being private or domestic expenses. In these situations, the employee does not change job locations but simply travels in order to carry out the requirements of the job.

Further, travelling allowances are often paid for comparatively short periods. As a general rule, where the period away does not exceed 21 days the allowance will be treated as a travelling allowance rather than a LAFHA.

Income derived by a taxpayer through the provision of a fringe benefit by an employer is not assessable income in the employee's hands by the operation of section 23L of the Income Tax Assessment Act 1936.

As you received a LAFHA, and this allowance is not included in your assessable income, you are not entitled to any deduction for your travel expenses. Your expenses are not incurred in earning assessable income. Therefore no deduction is allowable under section 8-1 of the ITAA 1997.

The exception from substantiation for travel allowance expenses provided by section 900-50 of the ITAA 1997 will only apply where you receive a bona fide assessable travel allowance. As a LAFHA is not a travel allowance for taxation purposes, the exception from substantiation provisions have no application, as no deduction is allowable in relation to this allowance.

It is also noted in Taxation Ruling 2004/6 that an amount for travel expenses that has been folded in as part of normal salary/wages is not considered to be an allowance. If a set amount is payable each fortnight regardless of the travel undertaken, the exception from substantiation does not apply.

Please note that if you were to receive a bona fide assessable travel allowance in relation to your travel to city B, your travel expenses are not incurred in earning your assessable income and would not be an allowable deduction. As city B is a normal work place for you, the travel to and from city B is private in nature and no deduction is allowable. The distance of the home to work travel does not alter the private nature of the travel. Similarly, the cost of your meals in city B are also a private expense.