Edited version of private ruling

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Ruling

Subject: Accommodation expenses

Question

Are you entitled to a deduction for the accommodation expenses you incur while away from home as part of your employment?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2012

The scheme commences on:

1 July 2011

Relevant facts and circumstances

You relocated to City A from City B approximately a year ago.

You work from home in City A.

You continued to work for the same employer in the same position.

As a part of your employment you are required to be in City B for a minimum of three to four days a fortnight.

You normally travel down to City B on a Wednesday morning and return to City A on the following Monday or Tuesday evening.

You are renting a unit in City B to live in while you are there.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

Summary

You are not entitled to a deduction for the rent paid for the unit because the unit is considered to be a second residence. Therefore, the rent expenses incurred are private or domestic in nature.

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.

A deduction is also not allowed where a provision of the tax law prevents it.

Accommodation expenses

Accommodation expenses are normally private or domestic in character.

The occasion of the outgoing may give the expenditure the essential character of an income producing expense. An example is where the expenditure is incurred while away from home overnight on a work related activity.

Where a taxpayer is away from home overnight in connection with an income producing activity, accommodation expenses are generally deductible under section 8-1of the ITAA 1997. The expenditure is not considered private because its occasion is the taxpayer's travel away from home on income producing activities.

There may be exceptions to the general rule.

One exception is where a second residence is established. In these circumstances, expenditure on accommodation is private or domestic in nature.

This was highlighted in Case X4  90 ATC 116; AAT Case 5,545  (1989) 21 ATR 3120. In that case the taxpayer was a specialist radiologist with a practice in a town a substantial distance from a capital city. He also had professional obligations in the capital city. As a result, the taxpayer travelled to the capital city every week on a regular basis. Due to the frequent travel, the taxpayer purchased a house to stay in while he was in the capital city for work.

The Administrative Appeals Tribunal found a deduction was not allowed for expenses incurred in maintaining the house (such as interest and rates) as the house was a second residence and therefore, the expenses were private or domestic in nature.

Application to your circumstances

The expenses to rent the premises are private in nature and cannot be claimed under section 8-1 of the ITAA 1997.

The rented premises will be your second place of residence. Occupancy expenses of a residence are generally not deductible. They are incurred to provide a place to live, not in producing assessable income.

People travelling on work typically use short term accommodation such as a hotel. The use of these premises is short term in nature and can be attributed to the need to travel for income producing reasons. The transient use confers a dominant income producing purpose on what would otherwise be private expenses.

In your case, you would maintain the same residential premises on an ongoing basis. You will visit the same premises each time you are away from your usual place of residence. The extended, exclusive use of the premises is sufficient to characterise the expenses as private in nature. The premises will become your second home.