Edited version of private ruling

Authorisation Number: 1011655876148

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Ruling

Subject: Travel, accommodation and meals

1. Are you entitled to a deduction for the cost of travel between City A and City B?

No.

2. Are you entitled to a deduction for the cost of accommodation and meals in City B?

No.

This ruling applies for the following period

Year ended 30 June 2007

Year ended 30 June 2008

Year ended 30 June 2009

Year ended 30 June 2010

Year ended 30 June 2011

The scheme commenced on

1 July 2006

Relevant facts

You are a consultant in your own private practice and work from home in City A for three days per week.

You are employed in City B as an employee consultant for two days per week.

You stay overnight in City B and incur accommodation and meal expenses.

Your work over the two days per week includes work in City B, Cities C and D.

You travel by train, taxi or car from your home in City A to City B.

The employer provides you with a car for travel on the two days you work for them.

The employer pays you an amount in recompense for the travel from your home in City A to City B and return, equivalent to four hours of your hourly rate of pay. This amount is included as part of your normal salary on your PAYG payment summary.

While travelling to City B, you write notes and reports and may also answer phone calls.

Your employer does not require you to be 'on call'.

Your employer does not require you to work at your home, although you sometimes do.

You do not carry bulky equipment as part of your employment.

You have kept the relevant documents to substantiate your expenses.

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 all losses and outgoings to the extent to which they are incurred in the course of gaining or producing assessable income, but are not allowable to the extent that they are of a capital, private or domestic nature.

A deduction is generally not allowable for the cost of travel by an employee between home and their normal workplace as it is considered to be a private expense.

Certain expenditure is incurred in order to be in a position to be able to derive assessable income, for example, unless one arrives at work it is not possible to derive income. This does not mean that the expenditure is incurred in the course of gaining or producing assessable income. Rather, the expenses are incurred to enable the taxpayer to commence income earning activities.

This was the view taken by the High Court in Lunney v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 11 ATD 404; (1958) 7 ATR 166 (Lunney's Case). Williams, Kitto and Taylor JJ stated that:

It is, of course, beyond question that unless an employee attends at his place of employment he will not derive assessable income and, in one sense, he makes the journey to his place of employment in order that he may earn his income. But to say that expenditure on fares is a prerequisite to the earning of a taxpayer's income is not to say that such expenditure is incurred in or in the course of gaining or producing his income.

In Lunney's Case the High Court found that the expenses in travelling from home to work did not have a connection with the activities carried out by the taxpayers to earn their income. It was accepted that although the travel expenses were necessary and a prerequisite to earning income, the travel itself was not an activity that earned the income.

However, there are situations where it has been accepted that travel by employees from home to work is deductible. Taxation Ruling IT 2543 summarises these situations as follows:

(a) the taxpayer's home constitutes a place of employment and travel is between two places of employment or business

(b) the taxpayer's employment can be construed as having commenced before or at the time of leaving home

(c) the taxpayer has to transport by vehicle bulky equipment necessary for employment

(d) the taxpayer's employment is inherently of an itinerant nature

(e) the taxpayer is required to break his or her normal journey to perform employment duties (other than including incidental duties such as collecting newspapers, mail, and so on) on the way from home to the usual place of employment, or from the place of employment to home.

In your case, you do not carry bulky equipment, your work is not itinerant and your journey is not broken to perform employment duties. Therefore, we need to discuss if your circumstances meet any of the other situations.

Home constitutes a place of employment

Taxation Ruling IT 2199 discusses travelling expenses between place(s) of employment and/or place(s) of business, including the situation where one of the places of business is the home of the taxpayer. The Commissioner considers that the cost of travel between home and another place of business is deductible in the more usual situation of a self-employed person who uses the home or part thereof as a base of business operations.

However, in your situation, you conduct your private practice from home. Your employment is a separate income earning activity to the employment which is based in City B. Therefore, this situation does not apply to your circumstances.

Your employment can be construed as having commenced before or at the time of leaving home

A taxpayer's employment can be construed as having commenced before or at the time of leaving home such as the computer consultant in FC of T v. Collings 76 ATC 4254; (1976) 6 ATR 476 who was required to attend to the computer difficulties of her employer's customers from her home either over the telephone or through a computer terminal.

While it is accepted that you choose to write notes and reports and answer phone calls while travelling to work and that you are paid for the time you are travelling, as in Lunney's Case you are travelling to work and not on work. Additionally, as your private practice work is undertaken from your home office on separate days to your employment, you are not travelling between two places of employment. Rather, you have two distinctly different work locations. Therefore, the nature of the travel itself remains private in nature and no deduction is allowable.

Accommodation and meal expenses

Generally, accommodation expenses incurred by an employee who lives away from home to carry out the duties of his employment will not be deductible. Expenses of this nature have been found to be private or incurred before or after the activity of earning assessable income.

This is supported by the decision in FC of T v. Toms 89 ATC 4373; (1989) 20 ATR 466 (Tom's case), where the Federal Court held that expenses incurred in relation to accommodation near the work place while maintaining a family residence in another location were not an allowable deduction as they were considered to be private expenses.

In the case FC of T v. Charlton 84 ATC 4415; (1984) 15 ATR 711 (Charlton's Case), the taxpayer was a pathologist employed to carry out autopsies for the local coroner in Bendigo. He rented a flat in Bendigo while maintaining a permanent family home in Melbourne, located approximately 150kms away. There was evidence that there was difficulty in finding motel accommodation in Bendigo and the taxpayer was reluctant to make the round trip back to Melbourne without rest. The taxpayer claimed that the rental expenses were incurred in the production of assessable income.

Justice Crockett of the Supreme Court of Victoria allowed the Commissioner's appeal and ruled:

The Commissioner contends (correctly in my view) that, if the taxpayer should choose to reside so far from the place where it is necessary for him to be in order to gain his income that he, not only needs to incur expense in travelling to that place but, also to incur expense in the provision to him of some accommodation transitory or discontinuous in its use and secondary to or temporarily supplemental of his actual home, then that expense, too, is for the same reason non-deductible.

The taxpayer's election to live in Melbourne and not in Bendigo meant that the rental expended on the flat in order to enable him to secure accommodation in which to recuperate from the rigours of travel and the nature of his work was an expenditure dictated not by his work but by private considerations.

Your accommodation expenses arise out of your choice to stay in City B instead or returning home at the end of the first day. As in Tom's case and Charlton's Case, the cost of accommodation and meals in City B are private and domestic nature, which are incurred to enable you to work in City B. They are not incurred during the actual performance of your work, that is, during the production of assessable income, and as such are not deductible under section 8-1 of ITAA 1997.