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Ruling

Subject: Accommodation expenses

Question

Are you entitled to a deduction for rent paid on a unit maintained to allow you to attend work away from home?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2007

Year ended 30 June 2008

Year ended 30 June 2009

Year ended 30 June 2010

Year ended 30 June 2011

The scheme commences on:

1 July 2006

Relevant facts and circumstances

You are an elected representative.

Both of your roles require you to be in City B frequently and you estimate that you spend 142 nights per year in City B due to work commitments.

Rather than stay in a hotel, you have leased a two bedroom unit (the unit) close to City B. The lease is for a 12 month period.

You contend that your principal place of residence is at City A and that you use the unit to facilitate your attendance at work commitments in City B.

You are in City B almost every week and typically stay in the unit three nights a week. Sometimes your stays are only overnight.

The unit is let unfurnished and you have acquired basic furniture only. You do not leave clothing at the unit, bringing it home each time and only basic toiletries are left there.

You have no dependent children.

Your partner has a child who attends school in City B.

On weekends your partner's child often stays with you at City A or with your partner at the unit.

Your partner is the office manager. Their work place is located in City B and they are a full time employee. Generally, your partner will stay in City B at the unit in order to attend their her work commitments.

They spend most weekends during the school term at the unit with their child and approximately 70 nights a year at the unit with you.

You contend that the unit is used primarily in the derivation of your assessable income.

You are paid an allowance which is treated as assessable income.

You contend that the unit is not a second residence but is more akin to a hotel stay and that the expense is income related and that any private use is purely incidental.

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 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 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.

Taxation Ruling TR 1999/10 provides some guidance on the deductibility of expenses on a second residence used for work-related travel. Whilst the ruling applies to Members of Parliament, the principles outlined in TR 1999/10 may have application to your particular circumstances. Paragraphs 328-343 of Taxation Ruling TR 1999/10 discusses that where you have chosen to rent or buy a property, rather than stay in a hotel when travelling, a deduction is allowable for expenses in respect of the property where the property is used for accommodation when:

· you are undertaking work related travel involving an overnight stay away from home

· the property is not regarded as a second residence.

Where the property is regarded as a second residence, no deduction is allowed as the expenses are considered private or domestic in nature.

In FC of T v. Toms 89 ATC 4373; (1989) 20 ATR 466 the Federal Court 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 because the taxpayer had chosen to reside at a place far from the worksite. These expenses were dictated not by work but by private considerations.

In Case X4, Senior Member Beddoe (at ATC 118; ATR 3122) found, on the facts, that the house in respect of which claims for deduction had been made was used for domestic purposes of the applicant's family as well as himself. He did not wish to stay in hotels and preferred to have his own premises with his own facilities, books, etc. The essential character of the house was that of a second home.

In your case, you have established a second residence for your convenience to reside closer to your usual work location, not because you are travelling on work. The unit serves a domestic purpose for you and your family, with both your partner and child spending time at the unit. Your partner also holds employment at this second location, and not at your principle residence.

The expenses associated with the unit are considered to be private or domestic in nature. Therefore, a deduction is not allowable for your rented accommodation expenses under section 8-1 of the ITAA 1997.