Edited version of your private ruling

Authorisation Number: 1011969504884

This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.

Ruling

Subject: overseas travel expenses

Question

Are you entitled to a deduction for your overseas travel expenses?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

The arrangement that is the subject of the ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:

· the application for private ruling, and

· your travel itinerary.

You are a professional employee.

You travelled overseas on a tour. The tour is available for all employees working for your employer, regardless of their duties.

You travelled with a number of other professionals for approximately a month.

A number of days of the trip included visits to employees in a similar field to yours. These visits included working with professionals and examining their methods. You were not paid any remuneration in relation to these visits and work.

The remaining days of the tour included sightseeing tours and free time.

The tour was prearranged and you had no input into what areas were visited.

You undertook the travel to improve your professional knowledge.

Your employer did not request you to travel on this tour.

You took annual leave to go on the trip.

You took notes in relation to the various methods used by overseas professionals to help with your employment duties. You were not required to report to your employer on the details of the trip on your return.

The cost of the tour included:

· your welcome dinner,

· all accommodation,

· breakfast each day,

· all domestic air travel and taxes,

· half day sightseeing in each major city,

· coach travel,

· all professional activities

· transfers as per itinerary.

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, or a provision of the ITAA 1997 prevents it.

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,

· 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).

To determine whether your expenses are deductible, the essential character of the expenditure must be considered. It is necessary to determine whether there is a sufficient nexus between the expenditure and your current income-earning activities.

Taxation Ruling TR 98/9 considers occasions where travel expenses may have the essential character of an income-producing expense. Whilst the ruling discusses self education expenses the principles contained in it are relevant to your situation.

TR 98/9 explains that airfares and travel expenses incurred on overseas study tours or sabbatical may be deductible if the necessary connection with a person's income producing activity exists.

However, TR 98/9 explains that if the subject of the self-education is too general in terms of the taxpayer's income-earning activities, the necessary connection between the expense and the income earning activity does not exist.

A deduction is allowable for the costs incurred in undertaking work related travel. To be relevant to your employment, the trip should be an integral part of your work related duties.

In Case W73 89 ATC 659 (Case W73), a husband and wife, both junior members of the NSW Police, travelled overseas for more than three months. Prior to touring USA and Europe, they wrote to various police stations in places they intended to visit hoping to speak to people who could provide information on law implementation. On their return it was found that some of their expenditure was designed to and did lift their performance in a critical area of their work. A deduction was allowed for their travel expenses.

Case M51 80 ATC 352 (Case M51) involved a husband and wife who were partners in a sugar cane farming business. They went overseas on a three week 'Sugar and Pineapple Tour' organised by the Farmers and Graziers Co-operative Company Ltd. Members of the tour spent most of the time sightseeing, although they did visit some farming areas. The taxpayer's expenditure was not deductible as the tour was similar to an ordinary excursion trip, except that it had a small bias in favour of people having a rural interest. The fact that they gained many useful insights on sugar cane growing and probably picked up some useful ideas, did not mean that the expenditure was incurred in gaining or producing assessable income.

Taxation Ruling IT 2198 deals with allowable deductions for voluntary expenditure incurred by employee taxpayers. Paragraph 13 states that the Taxation Boards of Review have seen a number of teachers seeking income tax deductions for overseas travelling expenses. Most of the claims were rejected because the teachers were not able to establish a positive connection between the overseas travel and the performance of their duties of employment as teachers. In the ultimate the claims have been based on a general proposition that the overseas travel has made the taxpayers better able to carry out their duties which, of itself, is not sufficient to enable the expenditure to be allowed as a deduction.

In Case R94 84 ATC 628 a college librarian was not allowed overseas travel expenses in making a study tour of China organised by the Library Association. The benefits derived by the taxpayer might have made her a better librarian, but the nexus between the outgoings and deriving assessable income was too remote. The taxpayer voluntarily made the trip and the expenditure was essentially of a private nature.

In the Board of Review Case R47 84 ATC 380; (1984) 15 ATR 824, the taxpayer, a French language teacher, claimed a deduction for part of the expenses in travelling to France. The trip was not undertaken at the request of the taxpayer's employer. She asserted that the trip increased her teaching skills.

The Board of Review stated that the fact that the taxpayer became a better teacher because of the trip did not mean that expenses were incurred in the course of gaining her assessable income as a teacher. The expenditure was incurred in relation to a period during which the taxpayer was without obligation to render service to her employer. Notwithstanding that her experience would be of value when she resumed performing the duties of her employment, the essentially recreational nature of the journey did not alter.

In Case U109 87 ATC 657, the taxpayer was a science teacher who specialised in geology and was the head of the school science department. He undertook a 17 day trip to Indonesia organised by a natural museum history society of which he was a member. During the course of the trip he visited several volcanoes and other geological sites, and attended a geological congress. He also visited some tourist attractions. The taxpayer took many slides of the geological sites and prepared a taped commentary which he used in his teaching on his return.

The Administrative Appeals Tribunal (AAT) examined previous court decisions dealing with teachers who had claimed for the cost of overseas travel. It concluded that the trip was essentially recreational in character and not deductible. The AAT also stated that some taxpayers are fortunate in finding personal and recreational satisfaction in their field of endeavour and that in this case the trip was recreational in character and not deductible.

Although many of the above cases involve employee teachers, the principles are relevant in your situation and the circumstances of your case can be compared to the above decisions. It is acknowledged that the travel provided you with first hand knowledge, but it does not in itself mean that the expenditure is incurred in gaining or producing your assessable income. The trip may broaden your knowledge and benefit you as an employee. However, as with the cases quoted above, the courts have held that these reasons alone are not enough to demonstrate a sufficient connection between the travel and your income-producing activities.

The tour and places visited are open to all employees to experience, regardless of their duties. While the trip included spending time with working professionals, the remaining days were spent touring. The fact that your tour included visits to various professional departments and meetings with professionals does not change the nature of your expenses into work related expenses. While we acknowledge the benefits of working with fellow professionals, the knowledge to be gained from your trip is not considered to be incurred in the course of gaining your assessable income. There are many experiences and places of interest which may help professionals however this does not automatically mean that the associated expenses are deductible.

Your case can be distinguished from Case W73 as there is no evidence to show that your travel lifted your performance in a critical area of your work. The facts of your case are more comparable to Case M51. Your tour was favourable to fellow employees however, it is largely a sightseeing tour.

In your case, the trip was not a requirement of your employer. Even though the trip may provide some benefits, the expenses are not deductible. Although you advised that the travel overseas was business oriented, the essential character of the trip is recreational in nature and not specifically related to your income earning activities. It is considered that there is not a sufficient connection between your travel expenses and your income earning activities. Accordingly, the costs you incurred in relation to your travel are not deductible under section 8-1 of the ITAA 1997.