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Ruling
Subject: Accommodation expenses
Question
Are you entitled to a deduction for the cost of your share of rent?
Answer
No.
This ruling applies for the following period
Year ended 30 June 2011
The scheme commenced on
1 July 2010
Relevant facts
You are a resident of Australia for taxation purposes.
You came to Australia holding a 457 visa.
Your employer paid you an allowance for food and living away from home. The total amount was included as an allowance on your PAYG summary.
You incurred rental expense which was shared between three people.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Reasons for decision
Section 8-1 of the Income Tax Assessment Act 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 (which includes electricity, phone and water) 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.
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 your case, you have established a second residence in Australia. Even though your employer paid you an amount to subsidise your expenses, your rent expense is considered to be of a private and domestic nature. Accordingly, a deduction for this expense is not allowable.