Edited version of private ruling

Authorisation Number: 1011680768002

This edited version of your ruling will be published in the public Register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. Contact us at the address given in the fact sheet if you have any concerns.

Ruling

Subject: Work-related travel expenses

Question 1

Is the reimbursement by the taxpayer to her employer of a percentage of the total cost of return air travel during the period an allowable deduction to the taxpayer under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Advice/Answers

Yes.

This ruling applies for the following period

01 July 2010 - 30 June 2011.

The scheme commenced on

01 July 2010.

Relevant facts

You travelled overseas to attend a work-related conference.

According to your itinerary you spent 11 days involved in work-related activities, 8 days travelling for work-related activities, 4 days were unavoidable delays, and 15 days were spent on personal leave.

You will reimburse your employer for a percentage of the cost of the return airfares.

You travelled for three weeks to attend the work-related conference and work-related activities.

You had a two week holiday after attending the conference and the work-places.

You have stated that if there was no holiday component added, you would still be undertaking the trip.

You have stated that the work-related trip was scheduled well before any private component was added to your itinerary as the trip was approved in principle by your employer.

You completed a travel diary as required by section 24 and defined in subsection 136(1) of the Fringe Benefits Tax Assessment Act 1986.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

Summary

Your airfares will be deductible as a work-related expense under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) if the private purpose (your holiday) was incidental to the main income-earning purpose.

It is determined that the full cost of airfares would be income tax deductible under section 8-1 of the ITAA 1997 in the hands of the employee. The full cost is deductible based on the dominant purpose. The trip was undertaken in gaining or producing assessable income and the private element was incidental to the dominant purpose.

Therefore, the reimbursement by you to your employer of 42% of the total cost of return air travel is an allowable deduction to you under section 8-1 of the ITAA 1997.

Detailed reasoning

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) states that:

8-1(1)

You can deduct from your assessable income any loss or outgoing to the extent that:

(a) it is incurred in gaining or producing your assessable income; or

(b) it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income.

8-1(2)

However, you cannot deduct a loss or outgoing under this section to the extent that:

(a) it is a loss or outgoing of capital, or of a capital nature; or

(b) it is a loss or outgoing of a private or domestic nature;…

Section 8-1 contains two 'positive limbs' or tests. The first positive limb is available to all taxpayers and the second limb it is only available to taxpayers that are carrying on a business.

To be deductible under the first limb, a loss or outgoing must be relevant or incidental to gaining or producing assessable income (Ronpibon Tin NL v. FCT (1949) 78 CLR 47; 8 ATD 431).

The 'essential character' test, namely, that to be deductible under the section a loss or outgoing must have the essential character of an income-producing expense, (Lunney & Hayley v. FCT (1958) 100 CLR 478; 11 ATD 404).

Taxation Ruling TR 98/9 (TR 98/9) contains the Commissioner's view on 'Income tax: deductibility of self-education expenses'.

Paragraph 17 of TR 98/9 states:

An expense is deductible under section 8-1 when it has the essential character of an income-producing expense. The essential character is to be determined by an objective analysis of all the surrounding circumstances. There are circumstances where apportionment under section 8-1 is required. For example, if a study tour or attendance at a work-related conference or seminar is undertaken for income-earning purposes and for private purposes, it is appropriate to apportion the expenses between the purposes. If the income-earning purpose is merely incidental to the main private purpose, only the expenses which relate directly to the former purpose are allowable. However, if the private purpose is merely incidental to the main income-earning purpose, apportionment is not appropriate.

Upon examination of your activities during your trip to attend the conference and provide training sessions and conduct meetings at universities it is evident that these are income-producing activities.

An example of apportionment between business use and private use is provided at paragraph 70 of TR 98/9:

70. Example: Francesco, a paediatrician, has 2 equal purposes when he decides to attend a five-day international conference on paediatrics in Singapore followed by a seven-day holiday in Thailand. The conference package is $2,500 ($1,000 return air fare, $500 for the cost of the conference and $1,000 for accommodation and meals at the conference venue). Francesco paid another $2,000 for accommodation, meals and car hire for a 7 day holiday in Thailand. Francesco is allowed a deduction of $1,500 for the conference cost and the accommodation and meals expenses at the conference. Only half of the return air fare ($500) is allowed as the expense was incurred for two equal purposes, one income-earning and the other private. The other expenditure of $2,000 relating to the holiday in Thailand is private in nature and not allowable as a deduction.

In your case it is apparent that the purpose of your trip was to attend a work-related conference, attend to work-related activities at universities, and to have a private holiday.

Therefore it must be determined whether or not apportionment is appropriate for the airfares.

Apportionment

Taxation Ruling TR 98/9 acknowledges the above, discusses the apportionment of travel expenses, but adds at paragraph 64:

If the purpose of a study tour or attendance at a work-related conference or seminar is the gaining or producing of income, the existence of an incidental private purpose does not affect the characterisation of the related expenses as wholly incurred in gaining assessable income.

The dominant purpose for the overseas travel undertaken by the employee was to:

· Attend a conference.

· Deliver training sessions, attend meetings, and undertake administrative duties at universities.

Other factors include:

· The employee travelled with her husband who paid his own way.

· No additional airfare costs were incurred by the employer. The same cost would have been incurred even if the employee did not stop-over for his holidays

· All private expenses were paid by the employee from her own after-tax earnings.

Conclusion

It is determined that the full cost of airfares would be income tax deductible under section 8-1 of the ITAA 1997 in the hands of the employee. The full cost is deductible based on the dominant purpose. The trip was undertaken in gaining or producing assessable income and the private element was incidental to the dominant purpose.

Therefore, the reimbursement by you to your employer of 42% of the total cost of return air travel is an allowable deduction to you under section 8-1 of the ITAA 1997.