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Ruling

Subject: Expenses - living away from home

Questions and answers:

Are you entitled to a deduction for the expenses incurred whilst living interstate?

No.

This ruling applies for the following periods:

Year ended 30 June 2010
Year ended 30 June 2011
Year ended 30 June 2012

The scheme commenced on:

1 July 2009

Relevant facts and circumstances

You moved interstate under a temporary transfer from your home state.

You owned a house at that time and returned approximately once per month to check on it and maintain the house.

This move interstate was initially for a 12 month period and your intention was to only work the12 months required.

You were asked to stay longer by your manager due to staffing issues in the area.

You stayed in that same for an extended period.

While interstate you kept your manager in your home state up to date on your contract extensions and when you were likely to return home.

Your position is still being held in your home state for your return.

You have been moved into a different team interstate for the same organisation which was also short-staffed.

This position is on a temporary basis and was recently renewed for another period.

You are not being paid any weekly allowances to live interstate. You are not offered any financial assistance working interstate where your organisation has refused to support you whilst you are working interstate even though you are temporarily relocated.

It became too expensive to rent a place whilst maintaining your house in your home state.

You sold your house in your home state but still intend to return to fulfil your role.

You have moved some things into your sibling's place as you had sold your house.

You still currently have possessions in storage located in your home state.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Please note all references are to the Income Tax Assessment Act 1997 unless otherwise stated.

Section 8-1 allows you a deduction for any loss or outgoing as long as it is incurred while you are gaining or producing your assessable income, or it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. Where the expenses are private or domestic in nature or are gained while earning exempt income, they will not be deductible. A deduction is also not allowed where there is a provision of the tax law that prevents it.

As a general rule, expenditure on meals and accommodation while working away from your home is not allowed as a deduction although it may be deductible where you are required by your employer to live away from home. These costs are essentially 'living expenses' and fall within the meaning of private or domestic in nature. The fact that your income cannot be earned unless these expenses are incurred is not determinative of deductibility.

Certain expenditure is incurred in order to put you in the position to be able to earn your assessable income. For example unless you arrive at work it is not possible to starting earning your income. This does not mean that the expenditure is incurred while you are gaining or producing that assessable income, rather, the expenses are incurred before you get there to enable you to commence your income earning activities.

The High Court case Lunney v. Commissioner of Taxation (Lunney's case) introduced what is now regarded as the essential character test for determining entitlement to a deduction. This test requires that for an expense to be deductible, it must have the essential character of a business or income producing expense.

The taxpayer in this case sought to deduct the cost of travelling from his home to his work. The expenses were disallowed as being private and domestic, establishing the broad principle that costs incurred because of living in one place while working in another cannot be regarded as deductible. The reasons given by the High Court were twofold.

Firstly, because certain expenditure, such as travelling to work, must be incurred in order to put you in a position to be able to earn your assessable income, it does not necessarily mean that the expenditure is incidental and relevant to the derivation of your assessable income or that it is incurred in the course of gaining or producing your assessable income. It is a prerequisite to the earning of your assessable income rather than being incurred while you are gaining that income.

Secondly, the essential character of the travel to and from work is of a private and domestic nature, related to personal and living expenses as part of a taxpayer's choice of where to work, in choosing to work away from and what distance from where they live.

The general principles established in Lunney's case have been followed in many subsequent cases and would hold equally for the travel expenses in your case.

In another case, FC of T v. Charlton 84 ATC 4415; (1984) 15 ATR 711, 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 150kms away. There was evidence that there was difficulty in finding motel accommodation in Bendigo and the taxpayer was reluctant to make the round trip back to Melbourne without rest. 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.

Crockett J. referred to the personal nature of expenses incurred by a taxpayer in travelling from his home to his place of work and added:

The Commissioner contends (correctly in my view) that, if the taxpayer should choose to reside so far from the place where it is necessary for him to be in order to gain his income that he not only needs to incur expense in travelling to that place but also to incur expense in the provision to him of some accommodation transitory or discontinuous in its use and secondary to or temporarily supplementary of his actual home, that expense too, is for the same reason non-deductible.

Similarly in Case L25 (79 ATC 124) the taxpayer could only find a job in her chosen field interstate. She commuted by air and her husband and children continued to live in the home state. The Board disallowed her claimed deduction for the cost of the travel, on the ground that it was expenditure of a private or domestic nature. Again in this case the principles of Lunney's case were applied.

Another example is Ricketts v Colquhoun (1926) 10 TC 118, where Viscount Cave LC observed (at p 134):

A man must eat and sleep somewhere, whether he has or has not been engaged in the administration of justice. Normally he performs those operations in his own home, and if he elects to live away from his work so that he must find board and lodging away from home, that is by his own choice, and not by reason of any necessity arising out of his employment; nor does he, as a rule, eat or sleep in the course of performing his duties, but either before or after their performance.

Paragraph 43 of Miscellaneous Taxation Ruling MT 2030 states:

To illustrate the point, an employee who lives during the working week in the country town where his permanent job is located but who travels perhaps several hundred kilometres to live during weekends with his wife and children in the family home located in another town would be, during the week, living away from home.

Following on from above, it can be seen that the courts have considered the issue of deductibility of such expenses on many occasions and one of the principles that has arisen out of these cases is that they would only be deductible in situations when a taxpayer could be found to be travelling as part of their work as opposed to be travelling to work.

Therefore for you to be eligible to claim these expenses you would have to commence work prior to undertaking the travel and not cease it until the travel had been finalised. Generally, when a taxpayer takes up a new contract of employment or business and incurs transport and travel expenses in attending the workplace to fulfil that contract, they would be regarded as travelling to work and not as part of their work. The reason is that the person does not commence work prior to arriving at the new workplace.

In other words, when you are living away from home rather than travelling on the job you are incurring private non-deductible expenses.

Application to your circumstances

In your case, you have undertaken work contracts interstate and although it is necessary for you to pay the costs of living interstate whilst you are there working this does not mean that such expenditure is incidental and relevant to the derivation of your income.

You accepted work in a location away from your home. In order to undertake this work you have had to live away from your normal place of residence and accordingly you have incurred additional living expenses.

The travel, meal and accommodation expenses do not have a sufficient connection with your income producing activities as:

- they were incurred by you to put yourself in a position to perform your duties, rather than in the performance of your duties;

- they were incurred to enable you to stay in proximity to your work place; and

- they were incurred as a prerequisite to the earning of assessable income and were not expenses incurred in the course of gaining or producing that income.

You are therefore not entitled to a deduction for the travel, meal and accommodation expenses under section 8-1 on the basis that they are of a private or domestic nature.