Edited version of private ruling

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Ruling

Subject: Deduction-travel expenses

Question

Are you entitled to a deduction for travel expenses between town A and city A?

Answer:

No.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

You live in city A.

You moved to town B.

You commenced employment with a business in city A while residing in town A.

Your employer does not have a place of employment in town A.

You work remotely from your home office located in town A.

You work a number days a month at home and then travel to city A to work at your employer's office for a number of days a month.

You are not required to be on call by your employer

You carry personal items and a number of work items when travelling from home to your place of work in city A.

You are not reimbursed or receive a travel allowance from your employer for your travel expenses.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1.

Income Tax Assessment Act 1997 section 25-100.

Income Tax Assessment Act 1997 subsection 25-100(3).

Reason 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 gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature.

Travel between home and work
Expenses of travelling between home and work are generally not deductible as the expenditure is of a private nature. The distance travelled or the frequency of such travel does not change the nature of the travel.

In Lunney v. Federal commissioner of Taxation (1958) 100 CLR 478, the Full High Court, in disallowing a deduction for travel expenses, held that the costs incurred by a taxpayer in travelling to the place where they work, are expenses incurred in order to enable them to earn income but are not expenses incurred in the course of earning that income. Williams, Kitto, and Taylor JJ stated at page 499:

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. Whether or not it should be so characterised depends upon considerations which are concerned more with the essential character of the expenditure itself than with the fact that unless it is incurred an employee or a person pursuing a professional practice will not even begin to engage in those activities from which their respective incomes are derived.

They went on to point out that taxpayers 'have, within limits, the right to choose where their homes shall be so that a taxpayer's daily journeys between his home and place of work are rendered necessary as much by his choice of a locality for his residence as by his choice of employment or occupation. And indeed the purpose of such journeys is, at least, as much to enable him to reside at his home as to attend his place of work or business'.

In addition, travel expenses incurred by an employee who lives in one place but takes up employment in another place will not be deductible (Federal Commissioner of Taxation v Charlton (1984) 71 FLR 107; 15 ATR 711; 84 ATC 4415). Expenses of this nature have been found to be private or incurred before or after the activity of earning assessable income.

In considering the deductibility of travel expenses a distinction is made between travel to work and travel on work. It is only if the duties of the job require a taxpayer to travel that the taxpayers expenses can be deducted (Taylor v. Provan 1975 AC 194).

However there are situations where it has been accepted that travel by employees from home to work is deductible. These are if:

· the taxpayer's employment is inherently of an itinerant nature 

· the taxpayer has to transport by vehicle bulky equipment necessary for employment  

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

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

· 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, etcetera.) on the way from home to the usual place of employment, or from the place of employment to home.

The first and fifth circumstances are not relevant in your case; however, the second, third and fourth circumstances are relevant and are discussed below.

Application to your circumstances

In your case, you have made a personal choice to move from city A to relocate to town A. The need for the travel has arisen as a result of your personal choice to live in town A and to undertake employment in city A. You work a number of days per month in town A and as a consequence of your employment you are required to travel from your home to city A to undertake work for your employer.

Your employer considers you are not travelling in the course of your employment when you travel to city A as this is reflected in the fact your employer does not pay you an allowance or reimburse your travel expenses. Although this fact is not decisive it does not support your case for allowing a deduction for travel expenses.

There is no indication you are required to commence your employment before leaving home to travel to city A. In addition, your home is not considered a place of employment as you have a place of employment in Penrith to carry out your duties.

Bulky equipment

The courts have considered whether a deduction for the cost of travel between home and work may be allowable as a deduction if a taxpayer is required to carry bulky equipment. A deduction is only allowable if: 

· the cost is attributed to the transportation of the bulky equipment rather than private travel between home and work

· the transportation of the equipment is essential and is not done as a matter of personal choice or convenience, and

· there is no secure storage provided at the workplace.

The question of what constitutes bulky equipment was considered in Crestani v. Federal Commissioner of Taxation 98 ATC 2219; (1998) 40 ATR 1037. In that case, the toolbox in question measured 56cm x 25cm x 28cm and weighed approximately 27kg. The Administrative Appeals Tribunal (AAT) in that case decided that the toolbox was sufficiently cumbersome to be considered bulky. The opinion of the AAT was the toolbox was not easy to lift and could not be carried for any distance and that public transport was not a viable option. 

In Case 43/94 94 ATC 387; AAT Case 9654 (1994) 29 ATR 1031 a flight sergeant with the Royal Australian Air Force was denied a deduction for the cost of transporting his flying suit and other items used for work purposes. The items were carried in:

· a duffle bag measuring 75cm long x 55cm wide x 50cm deep and weighing 20 kilograms when packed

· a suit bag which weighed 10 kilograms when packed, and

· a briefcase sized navigational bag which contained charts, work manuals and study materials.

It was held that the travel was private in nature and the items were not sufficiently bulky to impede easy transport. It was held that the mode of transporting the duffle bag, the navigational bag and the suit bag was simply a consequence of the means adopted by the taxpayer in conveying himself to and from his place of employment.

In your case, you carry certain work equipment and personal luggage. You transport the work equipment between your home and work as you require this equipment to work from home.

Comparing the weight of your work equipment and the personal luggage with their contents that you carried with those carried by the taxpayer in Case 43/94, it is considered that your situation is similar in that your work equipment and the personal luggage being carried are not bulky to impede facile transport. Additionally, your luggage with their contents is of a personal nature and would not be considered equipment necessary for your employment. Therefore, your travel expenses cannot be attributed to the transportation of bulky equipment.

Travel between workplaces

Section 25-100 of the ITAA 1997 discusses travel between workplaces. A deduction is allowed when you are an individual and you have incurred a transport expense in your travel between workplaces. However, subsection 25-100(3) of the ITAA 1997 specifies that travel between two places is not travel between workplaces if one of the places you are travelling between is a place at which you reside.

The Commissioner views regarding the deductibility of costs incurred in travelling between home and work are contained in Taxation Rulings MT 2027, IT 112, IT 2199, IT 2543 and TR 95/34.

IT 2199 states that claims incurred in travelling directly between two places of employment should be allowed where the taxpayer does not live at either of the places and the travel has been undertaken for the purpose of enabling the taxpayer to engage in income producing activities. The fact that a room in the employee's home is used in association with employment conducted elsewhere will not be sufficient to establish entitlement to a deduction for travel between two places of work.

In Case Q55, 83 ATC 296 the taxpayer who did some work at home by choice was disallowed his claim for travel between home and work. Working at home was not a condition of the taxpayer's employment and suitable working facilities were made available for him by the company. The taxpayer elected to carry out some of his duties at home because it was more convenient for him.

Similarly in your case, you work from home by choice as there is no evidence to indicate your employer requires you to work from home. The fact that a room in your home is used in association with your employment is not sufficient to establish an entitlement to a deduction between home and work. It is arguable that any use of your home to undertake work related activities appears to be a matter of personal convenience as your employer provides a place of employment in Penrith.

Therefore, the travel is more in the nature of travel between home and your place of employment rather than travel between two places of employment. That is, the cost of travel between home and work is incurred to put you in a position to perform your duties, rather than in the performance of those duties.

Your travel expenses are therefore, considered to be private in nature and not incurred in gaining or producing your assessable income. A deduction is not allowable under section 8-1 of the ITAA 1997 for your travel expenses between home and your workplace. In addition, you also cannot claim the expenses as travel between workplaces as you reside at one of these places (subsection 25-100(3) of the ITAA 1997).

Given these facts, it is considered you are not travelling on work but incurred the expenditure as a result of personal choice to reside in town A while your employer's office is in city A. Therefore, travel expenses such as airfares and car expenses incurred between town A and city A are considered to be private in nature and not deductible under section 8-1 of the ITAA 1997.