Edited version of private ruling

Authorisation Number: 1011804706013

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Ruling

Subject: overseas travel expenses

Question

Are you entitled to a deduction for your overseas travel expenses?

Answer: No.

This ruling applies for the following period

Year ended 30 June 2010

The scheme commenced on

1 July 2009

Relevant facts

The arrangement that is the subject of the Ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:

· the application for private ruling,

· additional information,

· letter

· role description for your position

· a travel diary.

You are an employee of a school.

You took long service leave and undertook professional renewal and development. This development was part of your annual performance review.

You travelled overseas alone to undertake meetings and professional development including resource gathering and attending lectures. The lectures attended included visitation lectures at the Palace of Versailles and Royal Naval College. The trip was self funded.

Your employer fully encouraged you to include visitations and to conference with people overseas. Your employer advised that this will greatly assist you to perform your duties.

The visits to schools were pre-arranged. One school was restructured into three separate school departments and you were interest in investigating this model.

The visit to one of the schools provided you with a chance to meet the IT administrator who was available and a past student of your current school. The purpose of the visit was to investigate the possibility of their courses being offered online.

In your planning you were able to pre book tours, excursions and visitations.

You advised that the opportunity to experience primary resources at first hand, such as the Museum of the Jewish Holocaust in Berlin, Papal Tombs, Vatican Museum and grottos of the Vatican and enhanced your knowledge of numerous topics and helped with your employment duties.

The mixture of religious, physical, cultural, environmental and social aspects experienced as well as the photographic record has already given you opportunity to better carry out your employment duties.

The pre booked tour gave you the opportunity to see High Altitude dairy farming and a visit to Oberammergau, the site of the work renowned Passion Play. You selected the following options to compliment your teaching practice and subject knowledge: Munich past and present, Lucerne Mont Pilatus Excursion and Swiss Heritage.

You stayed with a relation in some places. You met another relation in Rome for Christmas. You were joined by another relation. You travelled with your relation through Italy.

You have kept a travel diary.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

Summary

Your travel expenses are not considered to have a sufficient connection to your employment duties and the gaining or producing of your assessable income. Rather, these expenses are considered to be private in nature and therefore not an allowable deduction.

Detailed reasoning

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, or a provision of the ITAA 1997 prevents it.

A number of significant court decisions have determined that for an expense to be an allowable deduction:

it must have the essential character of an outgoing incurred in gaining

assessable income or, in other words, of an income-producing expense

(Lunney v. FC of T; (1958) 100 CLR 478 (Lunney's case)),

there must be a nexus between the outgoing and the assessable income so

that the outgoing is incidental and relevant to the gaining of assessable

income (Ronpibon Tin NL v. FC of T, (1949) 78 CLR 47 (Ronpibon's case)), and

it is necessary to determine the connection between the particular outgoing

and the operations or activities by which the taxpayer most directly gains or

produces his or her assessable income (Charles Moore Co (WA) Pty Ltd v.

FC of T, (1956) 95 CLR 344; FC of T v. Hatchett, 71 ATC 4184).

To determine whether your expenses are deductible, the essential character of the expenditure must be considered. It is necessary to determine whether there is a sufficient nexus between the expenditure and your current income-earning activities.

Taxation Ruling TR 98/9 considers occasions where accommodation expenses and other travel expenses may have the essential character of an income-producing expense where the expenditure is incurred while away from home overnight on a work related activity or away from home overnight in connection with a self-education activity. Such expenses incurred may be deductible under section 8-1 of the ITAA 1997. Whilst the ruling discusses self-education expenses the principles contained in it can be applied to your situation.

TR 98/9 explains that airfares, accommodation and meal expenses incurred on overseas study tours or sabbatical, on work-related conferences or seminars, or attending an educational institution may be deductible if the necessary connection with a person's income producing activity exists.

However, TR 98/9 explains that if the subject of the self-education is too general in terms of the taxpayer's income-earning activities, the necessary connection between the expense and the income earning activity does not exist.

The ruling also states that the intention or purpose in incurring an expense can be an element in determining whether the whole or part of the expense is an allowable deduction. 

TR 98/9 provides that: 

· if the main purpose of the travel is the gaining/production of income, the existence of an incidental private purpose does not prevent the expenses from being fully deductible, 

· if the travel was mainly devoted to a private purpose, such as a holiday, and the gaining/producing of income was merely incidental to the private purpose, only those expenses directly related to the income earning purpose will be deductible, 

· if the travel was undertaken equally for income earning purposes and for private purposes the expenses would be apportioned equally.

An example in relation to the second point is provided in paragraph 69 of TR 98/9. In that example a doctor was holidaying in Cairns when she became aware of a work related seminar. The cost of the half day seminar was $200. A deduction is allowable for the seminar because it is directly attributable to an income earning purpose. However, no part of the air fare to Cairns or her accommodation is an allowable deduction.

Generally, a teacher is allowed a deduction for expenses they incur when accompanying students on excursions or school trips where the trip is relevant to the teacher's employment. To be relevant to the teacher's employment, the trip should be part of the school's curriculum or syllabus of the school. A supervisory role by itself is not sufficient to make the expenses deductible.

An example provided in Taxation Ruling TR 95/14 is where a teacher accompanies students to visit a sister school overseas. Attendance of the trip is open to any student of the school. While on the trip, 6 out of the 10 days are spent engaging in social, classroom and sporting activities. The remaining days are spent touring the country. In this case, the trip does not form part of the school's curriculum as the trip is open to all students. Even though the trip may provide social and cultural benefits to the students, the teacher's expenses are not deductible.

Taxation Ruling IT 2198 deals with allowable deductions for voluntary expenditure incurred by employee taxpayers. Paragraph 13 states that the Taxation Boards of Review have seen a number of teachers seeking income tax deductions for overseas travelling expenses. Most of the claims were rejected because the teachers were not 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 a deduction.

In Case R94 84 ATC 628 a college librarian was disallowed overseas travel expenses in making a study tour of China organised by the Library Association. The benefits derived by the taxpayer might have made her a better librarian, but the nexus between the outgoings and deriving assessable income was too remote. The taxpayer voluntarily made the trip and the expenditure was essentially of a private nature.

In the Board of Review Case R47 84 ATC 380; (1984) 15 ATR 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 U109 87 ATC 657, the taxpayer was a science teacher who specialised in geology and was the head of the school science department. He undertook a 17 day trip to Indonesia organised by a natural museum history society of which he was a member. During the course of the trip he visited several volcanoes and other geological sites, and attended a geological congress. He also visited some tourist attractions. The taxpayer took many slides of the geological sites and prepared a taped commentary which he used in his teaching on his return.

The Administrative Appeals Tribunal (AAT) examined previous court decisions dealing with teachers who had claimed for the cost of overseas travel. It concluded that the trip was essentially recreational in character and not deductible. The AAT also stated that some taxpayers are fortunate in finding personal and recreational satisfaction in their field of endeavour and that in this case the trip was recreational in character and not deductible.

The circumstances of your case can be compared to the above decisions. It is acknowledged that the travel provided you with first hand knowledge, but it does not in itself mean that the expenditure was incurred in gaining or producing your assessable income. The trip may have broadened your knowledge and benefited you as an employee of the school. However, as with the cases quoted above, the courts have held that these reasons alone are not enough to demonstrate a sufficient connection between the travel and your income-producing activities.

The sights and places you visited are open to the public to visit and are equally relevant to many occupations. Similarly, the lectures attended do not specifically relate to your employment duties. The knowledge that you have gained from your trip is too general in nature for the expenses to be incurred in the course of gaining your assessable income. There are many experiences which may help an employee however this does not automatically mean that the associated expenses are deductible.

The purpose of your trip overseas was essentially recreational and private in nature. The visits to schools, meetings, lectures and gathering resources are seen as being merely incidental to this main purpose. You have not incurred any additional work related expenses as in the example in paragraph 69 of TR 98/9.

Although your employer encouraged you to visit schools while overseas, such activities were not directly related to your employment duties. Furthermore, your travel is not regarded as being travel on an overseas study tour or sabbatical.

In summary, it is considered that there is not a sufficient connection between your travel expenses and your income earning activities. Furthermore, your expenses are private in nature. Accordingly, the costs you incurred for your airfare, accommodation, meals, incidental and other travel expenses are not deductible under section 8-1 of the ITAA 1997.