Edited version of private ruling

Authorisation Number: 1011755695012

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Ruling

Subject: Overseas travel expenses

1. Are you entitled to claim a deduction for flight costs, travel insurance, taxes, accommodation, transport, meals, clothing and other expenses incurred in travelling overseas?

Answer: No

2. Are you entitled to claim a deduction for flight costs, travel insurance, taxes, accommodation, transport, meals, clothing and other expenses incurred in taking your spouse on the overseas trip?

Answer: No

Relevant facts and circumstances

We considered these to be the relevant facts:

You applied for a private ruling with regards to the deductibility of your overseas travel expenses.

You are employed as a Head of Department of languages at XYZ Senior High School in Country X. You are a specialist teacher who has taught Country X's language for over 35 years and a university entrance exam marker.

You have visited Country X twice - the recent one was for 3 weeks on a scholarship to study at an ABC university, Country X in the particular year.

You have advised that your school is one of the very few high schools which do not offer a trip to Country X for its students. You wish to rectify this in order to make your school more competitive in attracting high caliber student enrolments and as an incentive to retain more students into Upper School studies. This would cement you future income. Whilst studying in Country X in the particular year, you were rarely given any free time as activities were planned for you. You only had one weekend in Country X and that was also largely planned for you. Before being responsible for your student's well- being overseas, you need to check things out yourself.

During your trip, you wish to research into a trip to Country X, as follows:

· Visit a list of accommodation facilities.

· Survey which areas are unsafe and should be avoided.

· Check the most feasible methods of public transport for yourself.

· Devise a suitable itinerary for your students by visiting various monuments.

· Work out the best methods of ticket payment to facilitate entry to monuments and attractions.

· Familiarise yourself with airports.

· Work out timings e.g.: How long it takes to walk or take transport to visit a certain place. You cannot devise a suitable itinerary until you know how much or how little can be accomplished in a day.

· Locate suitable eateries/supermarkets near possible accommodation choices.

· See for yourself potential dangers and pitfalls.

· Advise regarding appropriate clothing to take according to weather patterns at that time of the year.

You have also advised that you are unable to provide appropriate feedback, ideas and comments for your students as your first hand knowledge of Country X is lacking in so many areas: the directions the country is taking, modern society, attitudes, education, the world of work, unemployment and the effects of the recessions, the homeless, environmental and pollution issues, immigrations, the growth of Islam, drugs, alcohol habits, TV, advertising etc. You need to experience the country and talk to people in order to teach the new particular course which only began in the recent year. You need to spend time in Country X in order to be a better teacher and in order to be a better state examiner.

Further, you have stated that a trip Country X will make the school's language programme more attractive to students. The more students who study Country X language , the more secure your job situation and employment will be.

You also wish to attend a specific event in Country X to investigate the feasibility of including it in my student's tour of the country. The logistics of attending this major event with a group of school children need to be assessed and a dry run is necessary. The particular themes are studies by the students in the new year senior course. Seeing the particular locations and speaking with the locals first hand would assist you in making the links between the combined past histories and legacies. You would also like to determine the best possible transport, accommodation and particular museum arrangements for possible inclusion in a future school trip.

You intend going to Country X in early 2011 for a couple weeks.

You would take the normal school Easter holidays and also use 5 days Long service leave in order to complete your fact finding mission.

In the early 2011, we sent you a letter requesting further information.

In your response you advised the following:

You will have no official duties requested by your employer. However, you feel pressure from parents, students and to a certain extent from your employer to organise a student trip to Country X. You are a Head of Languages at Senior High School. A teacher of another language takes the students to the relevant country every year. You feel obliged to organize such a trip now that your personal life is freer and you no longer care for a family member.

Your self imposed duties for the trip would be:

· to assess the timeframe required to complete various sight seeing activities.

· to assess the suitability of various suburbs, train stations and transport so that you do not lead students in your care into inappropriate surroundings.

· to asses various hotels first hand.

· to experience the entry procedures at museums and other sites for the smooth running of the student's trip.

· to experience the transport system yourself so that you can work out the best routes to take and also discover anything which may cause problems.

· you are hoping to make contacts with schools/ teachers with similar interests to set up an exchange program, be it through students corresponding or through an actual exchange to each others countries.

· to reassure yourself that you would be comfortable leading a tour to Country X. Without a full reconnaissance prior to a formal tour, you would not feel confident taking the responsibility of looking after a group of teenagers in Country X.

You stated that you have not received a direct request from your employer to travel overseas but your principal would be pleased to see direct communication opened up with Country X.

You advised that you will not be receiving any reimbursement whatsoever, nor receive any allowance for any costs associated with the trip.

With regards to promotion, you stated that you will not receive any promotion or a raise in salary as result of the trip. However, an overseas trip will be a huge incentive for students to continue their language study into upper school.

You state that if there are insufficient students choosing to study that particular language, numbers will drop. You compete with other subjects to attract students to study the subject. If numbers fall, the staffing allocation in your department will fall. Your own full time work load could be compromised. An overseas trip can help bolster employment prospect for the teachers. The more students who participate into years 10 to 12, the more secure your job will be.

With a complete new curriculum (which began in 2010), it may be crucial remaining full time. The new course is not as attractive to students. Students discuss such matters with each other and with younger friends and siblings, and you wish to head off any negativity to studying Country X 's language in the senior years by offering an overseas tour during which your students can be exposed to the particular language, history and culture, and where they can put their learning into practice.

Reasons for decision

Summary

Based on the information you have provided we consider that the expenses related to your and your spouse's travel are not allowable as a deduction under section 8-1 of the ITAA 1997.

Detailed reasoning

Overseas Travel Expenses

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) provides that in order for a loss or outgoing to be deductible, there must be a connection between the expense and the gaining or producing of assessable income. However, you cannot deduct a loss or outgoing that is of a private or domestic nature.

Most self-education expenses are incurred voluntarily and to be allowable under section 8-1 of the ITAA 1997, the expenditure must be characterised as having been incurred in gaining or producing assessable income (Fletcher & Ors v. Federal Commissioner of Taxation T 91 ATC 4950 at 4957). 

The courts have considered the meaning of 'incurred in gaining or producing the assessable income'. In Ronpibon Tin NL Tong Kah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; 56 ALR 785; 8 ATD 431 the High Court stated that:

'For expenditure to form an allowable deduction as an outgoing incurred in gaining or producing the assessable income it must be incidental and relevant to that end. The words "incurred in gaining or producing the assessable income" mean in the course of gaining or producing such income.'

The Commissioner's view on the deductibility of employee teachers' work related expenses is set out in Taxation Ruling TR 95/14. This Ruling applies to employee teachers, tutors, early childhood, primary, secondary, special education, technical and further education and relief employee teachers. 

Paragraph 188 of TR 95/14 states that:

"(a) A deduction is allowable for self-education expenses if the education is directly relevant to the taxpayer's current income-earning activities. This particularly applies if a taxpayer's income-earning activities are based on skill/knowledge and the education enables him or her to maintain or improve that skill/knowledge.

(b)  A deduction is allowable if the education is likely to lead to an increase in the taxpayer's income from his or her current income-earning activities.

(c)  A deduction is not allowable if the education is designed to enable a taxpayer to get employment, to obtain new employment or to open up a new income-producing activity (Federal Commissioner of Taxation v. Maddalena 71 ATC 4161; 2 ATR 541).

(d)  Self-education includes courses undertaken at an educational institution (whether leading to a formal qualification or not), attendance at work-related conferences or seminars, self-paced learning and study tours.

(e) Self-education expenses include fees, travel expenses (e.g., attending a conference interstate), transport costs, books and equipment."

The deductibility of your overseas travel needs to be considered under general
self-education principles and relevant case law. The High Court decision in Federal Commissioner of Taxation v Finn (1961) 106 CLR 60 (Finn's case) could be the starting point for consideration of the deductibility of overseas travel expenses. The case concerned a Government architect who travelled to Europe and South America on a study tour of contemporary architecture. Dixon CJ found that his expenses were deductible because:

(a) his prospects for promotion were enhanced by the trip;

(b) his main motive for undertaking the trip was to secure his promotion;

(c) his employer believed that the knowledge gained was important for a current project; and

(d) he was acting in accordance with the conditions of his service.

Taxation Ruling IT 2198 deals with allowable deductions for voluntary expenditure incurred by employee taxpayers.

Paragraph 13 states:

13. … recent years have seen a number of references to Taxation Boards of Review by teachers seeking income tax deductions for overseas travelling expenses. Most of the claims have been rejected by the Boards because the teachers have not been able to establish a positive connection between the overseas travel and the performance of their duties of employment as teachers. In the ultimate the claims have been based on a general proposition that the overseas travel has made the taxpayers better able to carry out their duties which, of itself, is not sufficient to enable the expenditure to be allowed as an income tax deduction.

In the Board of Review Case R47 84 ATC 380; (1984) 15ATR 824, the taxpayer, a French language teacher, claimed a deduction for part of the expenses in travelling to France.  The trip was not undertaken at the request of the taxpayer's employer.  She asserted that the trip increased her teaching skills. The Board of Review stated that the fact that the taxpayer became a better teacher because of the trip did not mean that expenses were incurred in the course of gaining her assessable income as a teacher.  The expenditure was incurred in relation to a period during which the taxpayer was without obligation to render service to her employer.  Notwithstanding that her experience would be of value when she resumed performing the duties of her employment, the essentially recreational nature of the journey did not alter.

In Case Q83 83 ATC 418, the taxpayer, a high school French and Indonesian language teacher, travelled overseas with her husband. She claimed a deduction for travel expenses relating to time spent in France and Indonesia. The taxpayer conceded that promotion did not depend on travelling overseas.  The Taxation Board of Review disallowed the taxpayer's claim.  They found that even though language teachers can, in the course of ordinary tourist activities, derive benefits as teachers, this fact does not transmute tourist activities into business activities.

 In Case U109 87 ATC 657, a science teacher who specialised in geology, joined a 17 day trip to Indonesia and also undertook a 53 day trip to Europe. The taxpayer was not requested to undertake the trips and the Administrative Appeals Tribunal upheld the Commissioner's decision to disallow the deductions on the grounds that the trips were recreational in character.

Case Q57 ATC 307 involved an art teacher who travelled to Greece and Crete to update her knowledge and to keep abreast of art concepts so as to maintain and improve the quality and content of the subject she taught. The Board of Review found that the costs associated with the travel were not incurred by the taxpayer in the process of carrying out her duties as a teacher.

In Case R109 84 ATC 727 the taxpayer taught Geography and Asian studies at a High School. He claimed a deduction for the cost of a trip to China and Indonesia organised by an association of geography teachers. The taxpayer's claim was disallowed. While the tour may have made him a more efficient teacher, expenditure on it was not incurred in gaining assessable income. P.M.Roach (Member) at p 732-3:

"The expenditure in question was incurred in relation to a period of time during which he was without obligation to render service to his employer. He utilised a period time available to him for recreation and private pursuits. The type of recreation which he chose was to travel, albeit to places which were of interest to him as a teacher. Notwithstanding that his experience would be of value to him and to others when he resumed performing the duties of his employment, the essentially recreational nature of his journey did not alter. That being so I conclude on the facts of this case that the taxpayer fails because the expenditure was of a 'private' nature within the meaning of sec. 51 of the Act. (Income Tax Assessment Act 1936)"

It was concluded that the expenses were not incurred by the taxpayer in the performance of her duties as a primary school teacher. She went on a holiday with her spouse during the school holidays. Therefore the expenditure was private in nature and not deductible.

Application to your circumstances

You are a specialist teacher in Country X's language and you wish to travel to Country X during school holidays.

During your trip, you wish to research into a trip to Country X, as follows:

· Visit a list of accommodation facilities.

· Survey which areas are unsafe and should be avoided.

· Check the most feasible methods of public transport for yourself.

· Devise a suitable itinerary for your students by visiting various monuments.

· Work out the best methods of ticket payment to facilitate entry to monuments and attractions.

· Familiarise yourself with airports.

· Work out timings e.g.: How long it takes to walk or take transport to visit a certain place. You cannot devise a suitable itinerary until you know how much or how little can be accomplished in a day.

· Locate suitable eateries/supermarkets near possible accommodation choices.

· See for yourself potential dangers and pitfalls.

· Advise regarding appropriate clothing to take according to weather patterns at that time of the year.

You have stated that an overseas trip will be a huge incentive for students to continue their language study into upper school. Your school and your language department lack the incentive other schools use - trip to Country X. You want to make the Country X language course attractive to students by offering an overseas tour during which your students can be exposed to the language, history and culture, and where they can put their French into practice. However, you are not required to travel to Country X by your employer.

Your involvement with the trip does not represent a continuation of your normal work with your students. The knowledge gained in your trip will not be considered to have sufficient connection to the subject you currently teach at the school. The travel will be separate from the normal involvement in your role as a Country X language teacher at the school.

You have also advised that you need to experience the country and talk to people in order to teach the new year12 course which only began in 2010. You need to spend time in Country X in order to be a better teacher and in order to be a better state examiner.

We acknowledge the fact that the travel would enable you to have greater first hand knowledge and will assist you in accompanying students on an educational trip to Country X. However, this does not in itself mean that the expenditure was incurred in gaining or producing assessable income. The expenditure on the trip will not be directly relevant to your current income earning activities or likely to lead to an increase in your current income-earning activities as the particular language teacher.

Your case can be distinguished from Finn's Case in that your employer did not request you to travel to Country X to undertake any language studies or visit any cultural events. You have advised that you have not received a direct request from your employer to travel overseas but your principal would be pleased to see direct communication opened up with Country X. Your employer would like to see teachers to make a trip to Country X which can help bolster employment prospect for them; however, your employer has not provided you with any financial support to travel overseas and you will not receive a promotion or a raise in salary as a result of your overseas travel.

The circumstances of your travel are similar to travel undertaken in the Taxation Boards of Review cases noted above, in that you voluntarily wish to undertake the trip to Country X without any financial support or specific task to undertake for your employer. 

Conclusion

As with the cases mentioned above, your trip is seen to be predominantly recreational in nature and as such no deduction can be claimed for the flight costs, travel insurance, taxes, accommodation, transport, meals, clothing and other travel expenses of the trip as there is insufficient connection between the outgoing incurred and the gaining of your assessable income.

The expenses related to your and your spouse's travel are not allowable as a deduction under section 8-1 of the ITAA 1997.