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Ruling

Subject: Accommodation expenses

Question

Are you entitled to claim a deduction for rent paid to your employer for accommodation at the work place?

Answer

No

Relevant facts and circumstances

You are employed as a government employee and live in a property owned by your employer.

You pay your employer rent for the premises.

Your family resides in another place where you have a house.

The house provided by your employer is also the office from which you provide advice and information to the public. There is a sign on the road indicating that your employer's office is located inside the gate.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1.

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 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 these expenses are incurred is not determinative of deductibility. The expenses are a prerequisite to the earning of assessable income rather than being incurred in the course of gaining that income.

This principle was derived by the High Court in Lunney & Hayley v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 7 AITR 166; 77 ATC 4076; (Lunney's Case) where it was found that the expenses in travelling from home to work did not have a connection with the activities carried out by the taxpayers to earn their income. It was accepted that although the travel expenses were necessary and a prerequisite to earning income, the travel itself was not an activity that earned the income.

The issue of expenses incurred in relation to accommodation near the workplace while maintaining a family residence in another location was considered in the cases of Federal Commission of Taxation v. Toms 89 ATC 4373; (1989) 20 ATR 466 (Toms' Case) and Federal Commission of Taxation v. Charlton 84 ATC 4415; (1984) 15 ATR 711 (Charlton's Case).

These cases established that accommodation expenses incurred by an individual who lives away from home to carry out the duties of their employment will not be deductible.  Expenses of this nature were found to be private in nature and incurred before or after the activity of earning assessable income.

In Charlton's Case, the taxpayer was a pathologist employed to carry out autopsies for the local coroner in Bendigo. He rented a flat in Bendigo while maintaining a permanent family home in Melbourne, located approximately 150 kilometres away. The taxpayer claimed that the rental was incurred in the production of assessable income, but the Court ruled that the expense of accommodation was considered private and domestic in nature and would not be deductible under section 8-1 of the ITAA 1997.

Similarly, the Federal Court in Toms' Case disallowed a forest worker's deduction for the cost of maintaining a caravan and other living expenses. The taxpayer incurred the expenses in providing temporary accommodation at the base camp. These expenses were dictated not by work but by private considerations. Therefore the essential character of the expenditure was considered to be of a private or domestic nature.

In your circumstances, your employer owns the premises that include the office, which is used for their business and benefit. You live in the premises and pay rent for that purpose because your work place is situated too far away from your home.

Your employer has provided the office and your services to the public. You reside in the employer's building in exchange for a rental payment.

It is not a question of whether some or all of the rent paid by you is applicable to the office but rather a circumstance where your employer provides you, as an employee, with an office in which to perform some of your duties and also permits you to reside in those premises. In this light the rent paid by you is not for your occupancy of the whole of the property but constitutes an entitlement that enables you to reside at your place of work.

Applying the principle derived from the above cases, the rental expenses you incur are a prerequisite to the earning of your assessable income. That is, the expenses are incurred to enable you to be in a position where you could perform your duties, rather than in the performance of your duties. Therefore, the accommodation expenses are considered to be of a private or domestic nature.

For these reasons, you are not entitled to a deduction under section 8-1 of the ITAA 1997 for any of the rental expense incurred by you.