Edited version of private ruling

Authorisation Number: 1011768836481

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Ruling

Subject: Deductibility of work related expenses

Question and answers:

1) Are you entitled to a deduction for accommodation, electricity, gas, water, groceries and meal expenses?

No.

2) Are you entitled to a deduction for home office expenses?

No.

3) Are you entitled to a deduction for internet expenses used exclusively for business purposes?

Yes

4) Are you entitled to a deduction for expenses associated with taxis and the use of hire cars?

Yes.

This ruling applies for the following period:

Year ended 30 June 2011

The scheme commenced on:

1 July 2010

Relevant facts

You are employed as a sales manager.

You have been sent interstate to set up your employer's office.

Your employer is paying for all expenses for the initial period of the office being set up.

After this period you will not receive an allowance and will be therefore required to pay the ongoing expenses, which include accommodation, car and phone.

You do however receive a travel allowance or reimbursement for interstate travel and pre-approved long journeys.

While you are setting up the office you will be using your unit as an office.

The area in your unit that is being used as an office is:

· not clearly identified as a place of business

· readily suitable or adaptable for private use

· not used exclusively for the production of your assessable income

· not visited regularly by clients or customers

· also used by your partner

You have a separate internet line used exclusively for business purposes.

You work a number of hours a week in your unit.

The duties that are undertaken in the unit are sales preparation and selling.

Your sales preparation and customer communication duties are also carried out before you leave your unit.

You use taxis to visit potential opportunities for sales outside of the CBD.

You are sometimes required to hire a car when you are unable to walk or use public transport.

You undertake a number of long journeys that require you to hire a car to visit clients.

You also incur petrol and parking expenses in relation to the use of a hire car.

You incur expenses in relation to the provision of meals for clients. The provision of meals is not directly related to the production of your assessable income.

You will be returning to your home town within the month.

You have documentation to substantiate the deductions that you are wishing to claim in this ruling.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.
Income Tax Assessment Act 1997 Subdivisions 900-D.
Income Tax Assessment Act 1997 Subdivisions 900-F.

Reasons for decision

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.

Accommodation, electricity, gas, water, groceries and the provision of meals

Generally, accommodation, electricity, gas, water, groceries and meal expenses are considered private in nature and are therefore not deductible.

Taxation Ruling TR 95/19 Income tax: airline industry employees - allowances, reimbursements and work-related deductions, discusses the Commissioner's view on expenses that are considered private or domestic in nature. Although this ruling relates to airline industry employees, the principles outlined also apply in your case.

Paragraph 29 of TR 95/19 states:

Private or domestic expenditure is considered to include costs of living such as food, drink and shelter. In Case T47 18 TBRD (NS) 242; 14 CTBR (NS) Case 56 , J F McCaffrey (Member) stated (TBRD at 243; CTBR at 307):

'In order to live normally in our society, it is requisite that individual members thereof be clothed, whether or not they go out to work. In general, expenditure thereon is properly characterised as a personal or living expense...'

In your case, you incur expenses for accommodation, electricity, gas, water, groceries and meals, which are not directly related to the earning of your assessable income. Consistent with the Commissioner's view expressed in TR 95/19, these expenses are considered a requisite that allow you to live normally regardless of whether or not you go out to work. Furthermore as these items are not considered to be directly related to the earning of your assessable income they are considered private or domestic in nature.

Accordingly, you are not entitled to a deduction for your accommodation, electricity, gas, water, groceries and meal expenses, under section 8-1 of the ITAA 1997.

Home office expenses

As previously mentioned in this ruling, accommodation, electricity, gas, and water expenses are normally private or domestic in character. However the occasion of the outgoing may give the expenditure the essential character of an income producing expense. An example is where a taxpayer's home is used for income producing purposes.

Taxation Ruling TR 93/30 Income tax: deductions for home office expenses, provides the Commissioner's view on the deductibility of expenses incurred when using a home office for income producing purposes.

Where part of the home is used for income producing activities and has the character of a place of business, the taxpayer is able to claim a portion of the occupancy expenses incurred in respect of the home such as rent, interest, repairs, house insurance and rates.

Where part of the home is not a place of business but is used in connection with the taxpayers income earning activities, the additional cost of running expenses such as electricity charges for heating/cooling, lighting, cleaning costs, depreciation and the cost of repairs on items of furniture and furnishings in the area used exclusively for income earning activities are deductible. These additional expenses may also be claimed where the part of the home is a place of business.

TR 93/30 lists a number of factors, none of which is necessarily conclusive on its own, that may indicate whether or not an area set aside has the character of a place of business. The factors are:

· the area is clearly identifiable as a place of business

· the area is not readily suitable or adaptable for use for private or domestic purposes in association with the home generally

· the area is used exclusively or almost exclusively for carrying on a business, or

· the area is regularly used for visits of clients

The absence of an alternative place of conducting income producing activities has also influenced courts and tribunals to accept part of a taxpayer's residence as a place of business (Swinford v. FC of T (1984) 15 ATR 1154; 84 ATC 4803).

In your case, the area in your unit that is being used as an office is:

· not clearly identified as a place of business

· readily suitable or adaptable for private use

· not used exclusively for the production of your assessable income

· not visited regularly by clients or customers

· also used by your partner

In applying the factors outlined in TR 93/30, your home does not meet the criteria required for it to be considered to be a place of business.

In addition, you have been afforded the opportunity of working at your employer's office, but have elected to work from home as a matter of convenience and to be closer to your prospective clients.

Accordingly, you are not entitled to a deduction for home office expenses, under section 8-1 of the ITAA 1997.

Internet

Taxation Ruling TR 98/14 Income tax: employee journalists - allowances, reimbursements and work-related deductions, discusses the Commissioner's view on the deductibility of internet fees incurred in the course of earning assessable income and although this ruling relates to journalists the principles outlined, also apply in your case.

Paragraphs 94 to 96 of TR 98/14 provide:

A deduction is allowable for the 'time usage cost' of researching a story on the Net. This includes the work-related portion of the service provider recurrent costs or costs associated with accessing secure web sites. Installation and connection costs of an Internet environment are capital in nature and are not an allowable deduction.

In your case, you have incurred internet expenses. Your internet is set up such that you have a separate internet line used exclusively for income earning activities. Therefore, as your internet connection is being used exclusively for the earning of your assessable income, any service provider recurrent costs and or costs associated with accessing secure web sites are considered a deductible expense.

Further, as you also have the documentation required to substantiate this expense, the service provider recurrent costs and costs associated with accessing secure websites will be allowed as a tax deduction, under section 8-1 of the ITAA 1997.

Please note that any installation and or connection costs in relation to the setting up of your internet connection are considered capital in nature, and therefore are not an allowable deduction, under section 8-1 of the ITAA 1997.

Taxis, car hire, petrol and parking - travel expenses

Expenses for travel between a taxpayer's home and their workplace are generally considered to be a private expense that is necessarily incurred to allow a taxpayer to be able to get to their place of work.

The Commissioner's view on the deductibility of travel expenses between a taxpayer's place of residence and their place of employment or business are expressed in Taxation Ruling IT 112 Deductibility of travelling expenses between residence and place of employment or business, which discusses various court decisions and affirms the view that home to work travel, in most cases, is a private expense.

Paragraph 4 states:  

Dixon C.J., Williams, Kitto and Taylor JJ. (with McTiernan J. dissenting) decided that the fares in each instance were not deductible under s.51. Williams, Kitto and Taylor JJ. said, at pages 498 and 499 -

"It is, of course, beyond question that unless an employee attends at his place of employment he will not derive assessable income and, in one sense, he makes the journey to his place of employment in order that he may earn his income. But 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 these activities from which their respective incomes are derived."

However, there are some circumstances where a deduction for work may be allowed under section 8-1 of the ITAA 1997. The criteria where travel is considered a deductible expense are:

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

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

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

· where the taxpayer's employment is of an itinerant nature; and

· where the taxpayer is required to break his or her normal journey to perform employment duties (other than incidental duties such as collecting newspapers, mail, etc.) on the way from home to the usual place of employment, or from the place of employment to home.

In your case, the criteria that best describes your particular circumstance is where the taxpayer's employment can be construed as having commenced before or at the time of leaving. From the information that you have provided, you in your capacity as sales manager commence your sales preparation and customer communication duties before you leave your unit. As these duties are conducted prior to you leaving your unit, the travel expenses incurred in visiting clients and associated with taxis and the use of hire cars are directly related to the earning of your assessable income and are considered a deductible expense.

Further, as you also have the documentation required to substantiate these expenses, the taxis and expenses directly associated with the use hire cars will be allowed as a tax deduction, under section 8-1 of the ITAA 1997.

It should be noted that any costs incurred that are reimbursed by your employer are no longer deductible to you.