Edited version of private ruling

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Ruling

Subject: Allowance and accommodation

Question 1

Is the allowance you receive as compensation for costs relating to accommodation and the disability and discomfort of living away from home assessable income?

Answer

Yes.

Question 2

Are you entitled to a deduction for accommodation and meals?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

You are an employee.

Due to the distance and your new responsibilities, your employer requires you to live closer to your head office.

You work 80% of your time at the head office and the remaining 20% travelling to various other sites.

Your employer pays you a weekly allowance as compensation for costs relating to accommodation and the disability and discomfort of living away from home.

The allowance you receive is not subject to fringe benefits tax by your employer.

The amount you receive is shown on your PAYG summary.

You have rented accommodation close to your workplace. You incur additional expenses for meals.

Your family remain in the family residential home.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Section 15-2

Income Tax Assessment Act 1936 Section 23L

Fringe Benefits Tax Assessment Act 1986

Reasons for decision

Allowance

Section 15-2 of the Income Tax Assessment Act 1997 (ITAA 1997) states that your assessable income includes the value to you of all allowances, gratuities, compensation, benefits, bonuses and premiums provided to you in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by you.

Section 23L of the Income Tax Assessment Act 1936 states that income derived by a taxpayer by way of provision of a fringe benefit within the meaning of the Fringe Benefits Tax Assessment Act 1986 is not assessable income and is not exempt income of the taxpayer.

In your case, you have stated that the allowance is not subject to fringe benefits tax. Additionally, your employer has included the allowance on your PAYG summary as a taxable allowance which indicates that they consider the payment to be assessable.

Therefore, as the allowance is not a fringe benefit, it is assessable under section 15-2 of the ITAA 1997.

Deduction

Section 8-1 of the 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.

As a general rule, expenditure on meals and accommodation while working away from home is not allowed as a deduction. These costs are essentially 'living expenses' of a private or domestic nature. The fact that income cannot be earned unless certain expenses are necessarily incurred is not determinative of deductibility.

Where it has been established that a property used to accommodate a taxpayer amounts to a second residence, the Courts and the Administrative Appeals Tribunal have consistently held that the essential character of the expenses incurred is of a private or domestic nature unconnected with income-producing activities and, therefore, the expenses are not deductible. The reasoning in these cases is that a taxpayer's choice to establish a residence is not dictated by travel needs, but by considerations of a private or domestic nature. It follows that the required connection between second residence expenses and a taxpayer's income-producing activities is absent.

In FC of T v. Toms 89 ATC 4373; (1989) 20 ATR 466 the Federal Court disallowed a forest worker's deduction for the cost of maintaining a caravan and other living expenses. The taxpayer incurred the expenses in providing temporary accommodation at the base camp because the taxpayer had chosen to reside at a place far from the worksite. These expenses were dictated not by work but by private considerations.

In your case, you have chosen to maintain your original residence even though it is a requirement of your employer that you live close to your work place and you have established a second residence at a location close to your workplace. Your accommodation and meal expenses are considered to be of a private and domestic nature. Accordingly, a deduction for these expenses is not allowable.