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Ruling

Subject: Living Away From Home Expenses

Question:

Are you eligible to claim accommodation expenses for living away from your usual home?

Answer:

No

This ruling applies for the following periods:

Year ended 30 June 2009

Year ended 30 June 2010

Year ending 30 June 2011

The scheme commenced on:

1 July 2008

Relevant facts and circumstances:

Your home is located in Town X, which is far from the state capital.

Until early 200X you were working in Town X or nearby.

From early 200X to date you have been working in the state capital.

During this period you have maintained your home in Town X as your main residence.

You intend to keep working in the state capital until mid 20XX.

You have been renting in the state capital in order to be close to your work.

You stay in the state capital during week days and return to Town X on most weekends, public holidays and periods of annual leave.

You believe that expenses comprising of rent and utility charges that you incurred while living in the state capital should be deductible against your income.

You have not claimed these expenses in your 2008-09 and 2009-10 tax returns.

Reasons 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, 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 or you are not being paid a living away from home allowance, 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.

This is supported by the decision in Federal Commissioner of Taxation v. Toms 89 ATC 4373; (1989) 20 ATR 466, where the Federal Court held that expenses incurred in relation to accommodation near the work place while maintaining a family residence in another location were not an allowable deduction as they were considered to be private expenses.

Further ATO ID 2002/616 states:

Certain expenditure is incurred in order to be in a position to be able to derive assessable income, for example unless one arrives at work it is not possible to derive income. This does not mean that the expenditure is incurred in the course of gaining or producing assessable income. Rather, the expenses are incurred to enable the taxpayer to commence income earning activities (Lunney & Hayley v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 11 ATD 404; (1958) 7 AITR 166).

The accommodation expenses incurred by the taxpayer enable them to stay in proximity to their work place and arrive at work on time. They are a prerequisite to the earning of assessable income and are not expenses incurred in the course of gaining or producing that income. The essential character of the expenditure is of a private or domestic nature as it arises due to the taxpayer's choice of where to live and at what distance from work. The taxpayer will therefore not be entitled to a deduction for their accommodation expenses under section 8-1 of the ITAA 1997.

Conclusion

In your case, you have established a second residence at a location close to your workplace. Your accommodation expenses are considered to be of a private and domestic nature. They are a prerequisite to the earning of assessable income and are not expenses incurred in the course of gaining or producing that income. Accordingly, a deduction for these expenses is not allowable under section 8-1 of the ITAA 1997.