Edited version of private ruling

Authorisation Number: 1011850346505

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Ruling

Subject: accommodation and travel expenses

Question 1

Are you entitled to a deduction for accommodation expenses in city A?

Answer

No.

Question 2

Are you entitled to a deduction for travel between home and head office?

Answer

No.

Question 3

Are you entitled to a deduction for travel from home to work when on call to resolve an issue that commenced before leaving home?

Answer

Yes.

Question 4

Are you entitled to a deduction for travel between head office and clients?

Answer

Yes.

Question 5

Are you entitled to a deduction for travel between different clients?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2010
The scheme commenced on

1 July 2009

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You live in town B.

Your employment duties required you to drive between the office and various businesses.

You also provided out of hours support.

You were required to be contactable and available to resolve issues 24 hours per day, 7 days per week. You would receive phone calls, emails or system generated alerts and were required to act on those immediately to ensure the customers were serviced.

Upon receiving the alert, you would log in and try to resolve the issue remotely. If this could not be done, you would travel to the site where the problem would be resolved onsite.

Generally you would leave town B on Monday morning and travel more than 100 km to head office in city A where you would receive a list of issues to be resolved. Depending upon the issues and the location, you would stay overnight in city A to be available to resolve any additional issues that may arise overnight. You would return to town B for a night during the week depending upon the work load.

You initially stayed in motels, however the cost was becoming higher and you would have to assemble and disassemble equipment each day.

You then began renting a studio apartment in city A. By renting you were able to be available to resolve issues that may arise overnight.

On most days you would visit one or two clients. However some days you would visit four or five clients and other days would be at the head office only.

You do not receive a travel allowance from your employer.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

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.

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), 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).

Accommodation expenses

Expenditure on the daily necessities of life (for example, accommodation, food and drink) is generally not deductible as it is not incurred in gaining or producing assessable income and is also considered to be private or domestic in nature.

Exceptions to this are where you are undertaking work related travel and are required to stay away overnight. However, no deduction is allowable if a taxpayer is merely maintaining accommodation close to their usual work location for convenience.

In Federal Commissioner of Taxation v. Toms 20 ATR 466; 89 ATC 4373 (Toms case), 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. The Federal Court disallowed the forest workers deduction for the cost of maintaining a caravan and other living expenses. The taxpayer's family home in Grafton was some 108 kilometres from the base camp so he lived in the caravan during the week and returned to the family home on weekends. The caravan was rendered necessary as much by the taxpayer's choice of the place of his residence in Grafton as by his employment in the State forest, and its purpose was to enable him to retain his residence in Grafton although he was employed in the State forest. Had he lived at a town closer to the forest, there is no question the caravan would have been unnecessary.

Your situation is similar to Toms case. In your case, you incurred accommodation expenses in city A as a result of your normal dwelling being in town B and your employment being in city A. The motel expenses and expenses of renting an apartment in city A were incurred to put you in a place where you are closer to your place of employment. City A was your normal place of work for the relevant period. The accommodation expenses incurred were not related to the actual performance of your duties. They are more a convenience and a prerequisite to the earning of assessable income and are not expenses incurred in the course of gaining or producing that income. Furthermore, the essential character of the expense is of a private or domestic nature. Accordingly, you are not entitled to a deduction for the accommodation expenses under section 8-1 of the ITAA 1997.

Work related car expenses

Generally a deduction is not allowable for the cost of travel between home and work as it is considered a private expense. Expenditure incurred in travelling to work is a prerequisite to the earning of assessable income rather than being incurred in the course of producing that income. Such expenses are incurred as a consequence of living in one place and working in another. That is, the essential character of the expenditure is of a private or domestic nature, relating to personal and living expenses and therefore not an allowable deduction. (Lunney's case and Federal Commissioner of Taxation v. Cooper (1991) 29 FCR 177; 91 ATC 4396; 21 ATR 1616). 

The essentially private character of travel between home and work is not affected by factors such as the mode of transport, the availability of transport, the lack of suitable public transport, the erratic times of employment, the time of travel, the distance of travel and the necessity of travel (Taxation Ruling IT 2543).

Certain expenditure is incurred in order to be in a position to be able to derive assessable income, for example, unless a person arrives at work it is not possible to derive income. The income earning duties do not generally commence until the arrival at a place of work and will cease upon departure from work. 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 (Case V111 88 ATC 712, Taxation Ruling IT 112).

However, the Commissioner accepts that expenses incurred in travelling between home and work may be deductible in some limited circumstances, for example, where the taxpayer's employment is inherently of an itinerant nature, or where the taxpayer's employment can be construed as having commenced before or at the time of leaving home.

Itinerant work

A deduction is allowable for the cost of travel between home and work for an employee who is engaged in itinerant work. Taxation Ruling TR 95/34 deals with the issue of an employee carrying out itinerant work. The question of whether an employee's work is itinerant is one of fact, to be determined according to individual circumstances. It is the nature of each individual's duties and not their occupation or industry that determines if they are engaged in itinerant work. Further, itinerant work, that is, shirting places of work, may be a permanent or temporary feature of an employee's duties.

The main features of itinerant work include the following characteristics:

· travel is a fundamental part of the employee's work,

· the existence of a 'web' of work places in the employee's regular employment, that is, the employee has no fixed place of work, and

· the employee continually travels from one work site to another. An employee must regularly work at more than one work site before returning to his or her usual place of residence.

Other factors that may indicate itinerancy, to a lesser degree, include:

· the employee has a degree of uncertainty of location in his or her employment, that is, no long term plan and no regular pattern exists,  

· the employee's home constitutes a base of business operations,  

· the employee has to carry bulky equipments from home to different work sites, and

· the employer provides an allowance in recognition of the employee's need to travel continually between different work sites. 

Travel is a fundamental part of an employees work

For the travel to be a fundamental part of an employee's work, travel must be an essential feature of the employee's duties (paragraph 22 TR 95/34).

Web of work places

A web of work places exists when an employee earns the income by performing his or her duties at several work sites before returning home. In FC of T v. Wiener 78 ATC 4006; (1978) 8 ATR 335 (Wiener's case), the taxpayer was required to teach at four to five schools each day. Her duties for the day involved travelling between the schools to instruct pupils at different schools. This constituted a web of work places because the travel was a fundamental part of her work. Travelling between schools was part of her duties for the day.

This situation is contrasted with Case U97 87 ATC 584; AAT Case 68 (1987) 18 ATR 3491 (Case U97), where the taxpayer was not considered to be an itinerant worker. His work required him to travel to one outer station for a number of days then another outer station for another period. It was decided that there is not the web of work places for the work to be regarded as itinerant.

TR 95/34 also states that although an employee may perform his or her duties at more than one work location, this fact in itself may be insufficient to constitute a 'web' of work places for the purpose of itinerancy. The ruling goes on to explain that if the teacher in Wiener's case had attended only one school each day instead of many, a web of work places would not exist. That is, a web of work places must exist during each work day.

Uncertainty of location

The degree and uncertainty of the employment did not have a large impact in the Courts' considerations in both FC of T v. Genys (1987) 17 FCR 495; 87 ATC 4875; 19 ATR 356 (Genys's case) and Wiener's case. Hence, although there is uncertainty in the nature of a person's employment, this factor is insufficient to treat the work as itinerant.

Home constitutes a base of operations

Whether an employee's home constitutes a base of business operations depends on the nature and the extent of the activities undertaken by the employee at home. An employee's home may constitute a base of business operations if the work is commenced at or before the time of leaving home to travel to work and the responsibility for completing the work is not discharged until the taxpayer attends the worksite (FC of T v. Collings 76 ATC 4254; (1976) 6 ATR 476 (Collings case).

In Genys's case, the taxpayer was contacted by telephone by a nursing agency when work was available. The taxpayer in this case believed her home constituted an income producing operation because she received instructions about her next work location over the telephone which was the only method of contacting her. The Court held that the mere receipt of telephone calls from an employer or employment agency was not sufficient to allow the home to be classed as a base of operations.

Bulky equipment

A deduction for travel expenses is generally allowable where there is a requirement to transport bulky tools of trade required to carry out the work at each worksite (FC of T v. Vogt 75 ATC 4073; (1975) 5 ATR 274).

Summary

Whilst the above characteristics are not exhaustive, they provide guidelines for determining whether an employee's work is itinerant. It is considered that no single factor on its own is necessarily decisive; however, the frequency of travel between work sites is an important element.

In your situation, we consider that travel is not a fundamental part of your work each day. Unlike Wiener's case where the teacher was required to regularly travel to four or five different schools in any one day, your travel to other work locations is not as frequent. That is, you are not required to travel to several different workplaces each day to be able to perform your work. On some days you are not required to travel in the performance of your work once you commence work.

Although you perform your duties at more than one work location, you have a fixed place of work and you do not travel to several other sites on a regular basis. It is acknowledged that your work involves visiting clients; however, this alone is not sufficient to constitute a web of work places for itinerancy. Visiting several clients and continuous travel between work sites on any one day is not a regular part of your employment duties.

In view of the above, your employment is not considered to be itinerant in nature. The degree of travel surrounding your employment is not sufficient to make your work itinerant. The expenses you incurred in travelling between home and head office are considered private and are incurred to put you in a position to perform the duties of your employment, rather than in the performance of those duties. Therefore you are not entitled to a deduction for your travel expenses between home and head office under section 8-1 of the ITAA 1997.

Travelling on work to finish resolving a problem

A deduction for car expenses between home and work may be allowable if they can be attributed to travelling on work, as distinct from travelling to work, for example, where a person's work has commenced before leaving home.

In Collings case, a highly trained computer consultant whose employment required her to be on call 24 hours a day was allowed a deduction for car expenses incurred by her in travelling between home and work solely outside the normal daily journeys to and from work. In order to assist in diagnosing and correcting computer faults while at home, she was provided by her employer with a portable terminal. In accordance with the terms of her employment, she used the terminal at home in the performance of her duties. If she could not resolve the problem over the telephone, she would return to the office in order to get the computer working. In these particular circumstances, the expenses were found to be incurred in gaining or producing her assessable income and were not of a private or domestic nature. The abnormal journeys to and from home were made necessary by the very nature of the employment and of her duties. The taxpayer had a very special employment unlike most on call workers and was required to obey a summons to cope with some emergency. The taxpayer was not choosing to do part of the work of her job in two separate places. The two places of work are a necessary obligation arising from the nature of her special duties. When called at her home, the taxpayer immediately had the responsibility of correcting the malfunction in the computer. She might there and then diagnose the trouble, and provide the remedy or she might have to make the journey to the office in regard to a particular problem.

We acknowledge that your work sometimes commences at home when resolving client's problems. On these occasions, your out of hours support work is comparable to Collings case. It is considered that when you are unable to resolve an issue raised and you are required to travel to a work site to resolve the problem, the associated travel is an allowable deduction. That is, such home to work travel is regarded as travelling on work, rather than the private travel to work.

Travel between head office and clients

A deduction is allowable for the cost of travel from a person's normal place of work to other work places. Therefore your travel directly between head office and a client for work related purposes is an allowable deduction. Similarly, travel directly between two clients for work related purposes is also an allowable deduction.