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Ruling

Subject: Accommodation expenses

Question

Are you entitled to a deduction for the cost of your accommodation expenses where you work?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2011

Relevant facts

You are employed at an educational institution and it is a condition of your employment that you live at the institution.

You rent a flat from your employer.

The rent you pay is not factored into your salary, nor is the amount you pay considered.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

Summary

You are not entitled to a deduction for the cost of your accommodation where you work as it is considered to be a private expense.

Detailed reasoning

Section 8-1 of the Income Tax Assessment Act 1997 allows a deduction for all outgoings to the extent to which they are incurred in gaining or producing assessable income, or are necessarily incurred in carrying on a business for that purpose. However, a deduction is not allowable for outgoings that are of a capital, private or domestic nature.

Generally, accommodation expenses are private in nature and are not deductible.

An employer's requirement that an employee incur expenditure which is not related to income-producing activities does not convert that expenditure into a deductible outgoing (FC of T v. Cooper 91 ATC 4396 at 4414; (1991) 21 ATR 1616 at 1636 (Cooper's case)).

In Cooper's case the taxpayer was a professional footballer who was ordered by his coach to eat large quantities of particular foods as he needed to gain weight. If he did not gain this weight, he would be dropped from first grade to reserve grade and this would drastically reduce his income. The courts found that whilst the expense affected his income, gaining weight was not part of his income earning activities and the expense of purchasing additional food remained private.

In Cooper's case Hill J said: 

...the fact that the employee is required, as a term of his employment, to incur a particular expenditure does not convert expenditure that is not incurred in the course of the income producing operations into a deductible outgoing.

Also in that case, Lockhart J said:

The deductibility of the expenditure depends upon determining the essential character of the expenditure itself and not upon the fact that, unless it is incurred, the taxpayer will not be able to engage in the activity from which his income is derived.

In your case, you incur expenses for renting accommodation to enable you to live on site at your work place to fulfil a condition of your employment contract. The expenses would not have been incurred but for the requirement by your employer to live on site. However, the expenses are a prerequisite to the earning of assessable income. As in Cooper's case, the private expenditure does not convert to expenditure incurred in the course of producing your income because it is a requirement of your employment contract. The expenses are incurred in order to enable you to earn income but are not incurred in the course of gaining or producing that income. The essential character of your rental accommodation expenses remains private in nature and therefore you are not entitled to a deduction for these expenses.