Edited version of private ruling

Authorisation Number: 1011684256498

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Ruling

Subject: relocation expenses

Question

Are you entitled to a deduction for your relocation costs?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

You are relocating interstate to study a course that is not available in your home state.

he course is related to your current self employment.

You will continue to work during your studies.

You currently rent a place in city A. This rental agreement will end and you will rent a place in city B for the two year duration of the course.

You hope to return to city A on the completion of your studies however, this will depend on the availability of jobs.

You will incur expenses in relocating.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

Summary

Your relocation expenses are not considered to be expenses incurred in gaining or producing your assessable income. Rather, these expenses are considered to be private in nature and therefore not an allowable deduction.

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 or are necessarily incurred in carrying on a business for the purpose of 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, or a provision of the ITAA 1997 prevents it.

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. FC of T; (1958) 100 CLR 478 (Lunney's 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 NL v. FC of T, (1949) 78 CLR 47), 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 Moore Co (WA) Pty Ltd v.

FC of T, (1956) 95 CLR 344; FC of T v. Hatchett, 71 ATC 4184).

The general rule is that relocation and moving expenses are not incurred in earning the assessable income but are a prerequisite to the earning of that assessable income in the same manner as travel expenses to and from work.

Taxation Rulings IT 2481 outlines the deductibility of travelling expenses of an employee moving to a new locality of employment and states that a deduction is not allowable. Where a taxpayer transfers from one locality to another, and incurs expenditure in moving from one place of residence to a new place of residence to take up the duties of the new position, that expenditure is not incurred in gaining or producing assessable income and is not deductible. The taxpayer is not travelling on his/her work, but is travelling to his/her work. Nor is the taxpayer travelling between two places of employment.

IT 2566 states that an employee who is travelling to commence employment duties at a new work location is not travelling on duty. The employment duties do not commence until the employee reports to work at the new location.

IT 2614 states that removal and relocation expenses to take up an appointment with a new or existing employer are not allowable deductions, even if an allowance or reimbursement is received. This is so whether the transfer is voluntary or at the employer's request.

This view is supported in the following cases:

In Fullerton v FC of T, 91 ATC 4983; (1991) 22 ATR 757, as a result of a reorganisation the taxpayer's position ceased to exist. In order to avoid retrenchment, he had no choice but to accept a transfer to a different location. The employer reimbursed a portion of the relocation expenses and the taxpayer claimed the remainder as a tax deduction. It was held that the expenditure on the taxpayer's domestic or family arrangements is not deductible, even though the expenditure had a causal connection with the earning of income.

In Case U91, 87 ATC 525, the taxpayer, a Commonwealth public servant, was transferred at the request of his employer from a State office to the central office of the department in Canberra. He was denied a deduction for expenses incurred in attempting to auction his house. It was held that the expenses were too remote from the income producing process to be incurred in gaining or producing assessable income.

Similarly in Case V31, 88 ATC 282, it was found that the relocation expenses were of a private and domestic nature and were therefore not deductible.

We acknowledge that your relocation expenses were not incurred by you as an employee however the above principles are also relevant in your circumstances.

Taxation Ruling TR 98/9 considers occasions where accommodation expenses and other travel expenses may have the essential character of an income-producing expense where the expenditure is incurred while away from home overnight on a work related activity or away from home overnight in connection with a self-education activity. Such expenses incurred may be deductible under section 8-1 of the ITAA 1997.

However, where a taxpayer is away for an extended period of time and has established a new home, the associated costs including accommodation and meals remain private in nature and are not deductible under section 8-1 of the ITAA 1997.

TR 98/9 lists the key factors to be taken into account in determining whether a new home has been established. They include:

· the total duration of the travel

· whether the taxpayer stays in one place or moves frequently from place to place

· the nature of the accommodation (hotel, motel, long term accommodation)

· whether the taxpayer is accompanied by his or her family

· whether the taxpayer is maintaining a home at the previous location while away, and

· the frequency and duration of return trips to the previous location.

TR 98/9 provides examples designed to illustrate factors and circumstances that are relevant in determining whether a taxpayer has established a new home in the new location. 

Example 1:     Elizabeth ordinarily lives with her parents in a country town outside Brisbane. She takes 4 months leave from her job to undertake a course of education at a training college in Brisbane. She shares a rented unit in Brisbane with two other students and returns to her parental home every weekend and during holiday periods.

The relatively short period of her stay in Brisbane and the frequency of her return visits to her parental home indicate that Elizabeth has not established a new home in Brisbane.

Example 2:     John, who is single, decides to undertake a 2-year course of study at a university in a city 250 kilometres from the town where he lives with his parents. He shares a rented house with some other students during this period and takes a casual job. He occasionally returns to the parental home on weekends. 

The length of time that John resides in the city, the long term nature of his accommodation and the fact that he has employment in the city indicate he has established a new home.

Example 3:     Katherine travelled overseas for 6 months to study at a university in Germany. She was accompanied by her husband and three children. An apartment suitable to accommodate the family was rented for the period of her stay and the family home in Australia was rented out.

The relevant factors are the period of time away, the renting of the family home and staying in one place with her family. These factors indicate that a new home was established in Germany.

In your case, you currently work and live in city A. You are relocating to city B to study for two years. You will be renting a property in city B for this period. You will not keep your rented property in city A during this time.

These factors all lend weight to the conclusion that you will establish a new home in city B. Therefore, you are not entitled to a deduction for relocation expenses you incur as the expenses are not incurred in gaining or producing assessable income, but rather the expense is a prerequisite to your study. The expenditure is inherently of a private or domestic nature and is not allowable under section 8-1 of the ITAA 1997.

The Commissioner does not allow a deduction for your relocation expenses. It is acknowledged that the course is not offered in city A however, this does not change the deductibility of your expenses. Your relocation expenses remain private in nature and are therefore not deductible.

Please note, we have not addressed your other self education expenses. A deduction is not allowable for self education expenses if the study is to open up a new income earning activity. Please refer to TR 98/9 for further details. This ruling and other relevant information is available on the Australian Taxation Office website. If you still have doubt in relation to the deducitiblity of your self education expenses, you may request a further private ruling on this matter.