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Ruling

Subject: Zone tax offset and living expenses

Question 1

Is a zone tax offset available with respect to working at location A?

Answer

No.

Question 2

Are you entitled to a deduction for the cost of airfares, accommodation, meals and incidentals in relation to working at location A?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2011

Year ending 30 June 2012

Year ended 30 June 2013

Year ending 30 June 2014

The scheme commenced on

1 July 2010

Relevant facts

You work at location A which is a substantial distance from where you live.

The only access is via plane, or cargo barge.

There are no phones, mobiles, radio or TV.

All power is solar generated.

Water is supplied via a desalination plant.

There are no conveniences or fresh food; it all has to be flown in.

There is no hospital or medical services.

You drive your car from home to an air terminal where you are airlifted to location A.

The cost of this flight is deducted from your pay.

You work X days shift and at the end of this shift you are required to leave location A for X days.

You do not receive any allowance but have an amount deducted weekly from your pay for meals and accommodation.

You have no choice on where to live or eat as there is nothing at location A but your workplace.

Relevant legislative provisions

Income Tax Assessment Act 1936 Section 79A

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

Summary

There is no discretion in the income tax law for the Commissioner to extend the zone boundaries to treat a point which is not located within a zone area as being in a zone. The zone boundaries are set out in the income tax law and location A is not within these boundaries. The Commissioner has no discretion to change the boundaries to treat location A as being within a zone area.

You are not entitled to a deduction for the cost of your airfares, accommodation, meals and incidentals as this expenditure is considered to be incurred to put you in a position to be able to earn assessable income rather than in the actual earning of that income. Also, this expenditure is considered to be private in nature.

Detailed reasoning

Zone areas

A zone tax offset is provided under subsection 79A(1) of the Income Tax Assessment Act 1936 (ITAA 1936) for individuals who are residents of certain areas which are subject to uncongenial climatic conditions, are isolated, or where the cost of living is high. These areas are comprised of two zones - Zone A and Zone B. Zone A comprises those areas where the above factors are more pronounced whilst Zone B comprises the less badly affected areas. 

For the purposes of the zone tax offset, Zone A and Zone B are defined at subsection 79A(4) of the ITAA 1936 to mean the area described in Part I and Part II of Schedule 2 of the ITAA 1936. The areas described in Schedule 2 of the ITAA 1936 refer to certain parts of the mainland of Australia and islands forming part of Australia.

A location in Zone A or B that is particularly remote may be considered to lie in a special zone area. Special zone areas attract a higher rate of zone tax offset than the 'ordinary' area of Zone A or B.

In order for an individual to be eligible for a zone tax offset, a taxpayer must satisfy one of the residency tests as outlined in subsection 79A(3B) of the ITAA 1936. These tests are:

(a) the individual resided in the zone for more than one-half of the year of income

(b) the individual was actually in the relevant area for more than one-half of the income year

(c) the individual died during the income year and at the date of death resided in the relevant area

(d) in the circumstances stated in paragraph 79A(3B)(d) or 79A(3B)(e) of the ITAA 1936, he or she resided or was actually in the relevant area for more than 182 days in two consecutive years of income.

In your case, you worked at location A. Location A is not an area described within Part I and Part II of Schedule 2 of the ITAA 1936, and therefore is not an area in Zone A or Zone B as defined at subsection 79A(4) of the ITAA 1936.

In your private ruling application you referred to subsection 79A(3E) of the ITAA 1936 and paragraphs 36 and 37 of Taxation Ruling TR 94/27 which discuss this subsection.

Paragraph 33 of TR 94/27 states:

Under subsection 79A(3E), the Commissioner has a discretion to treat a point in either Zone A or Zone B that is not in a special area in that zone as being in a special area in that zone if the point is 'adjacent to or in close proximity to' the special area.

That is, subsection 79A(3E) of the ITAA 1936 provides the Commissioner with some discretion to treat a point in close proximity to a special area of a zone as if it were within that special zone area for the purposes of zone tax offsets under section 79A of the ITAA 1936.

This subsection is applicable specifically only to points already within the ordinary area of either Zone A or Zone B and lying in close proximity to the special area of those zones. This discretion however, is not available to the Commissioner to bring a point lying outside of a zone into the ordinary area of either Zone A or Zone B.

As location A is not located within either ordinary Zone A of B, the discretion in subsection 79A(3E) of the ITAA 1936 does not apply. There is no discretion available to the Commissioner to treat location A as being in a zone area. Consequently, you are not entitled to a zone tax offset. 

Expenses

Section 8-1 of the Income Tax Assessment Act 1997 allows a deduction for all losses or outgoings to the extent to which they are incurred in gaining or producing assessable income, except to the extent that they are outgoings of a private or domestic nature.

Certain expenditure is incurred in order to be in a position to be able to derive assessable income, for example, unless one arrives at work it is not possible to derive income. This does not mean that the expenditure is incurred in the course of gaining or producing assessable income. Rather, the expenses are incurred to enable the taxpayer to commence income earning activities (Lunney & Hayley v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 11 ATD 404; (1958) 7 AITR 166).

Accommodation and meal expenses are living expenses and as such are intrinsically private or domestic in nature. However, these expenses may be considered to be work related where they are incurred while an employee is travelling on work.

Miscellaneous Taxation Ruling MT 2030 discusses the difference between travelling on work and living away from home for work. It states that travelling on work occurs where the employee is travelling in the course of carrying out their duties of employment (such as an interstate truck driver) whereas a person is living away from home for work where they are required to reside temporarily at or near their workplace due to the distance their home is from their workplace.

An employee who is travelling on work is entitled to a deduction for accommodation, meal and incidental expenses incurred while travelling as these expenses were incurred while the employee was carrying out work duties. An employee who is living away from home is not entitled to a deduction for these expenses as they are not considered to be incurred in the course of carrying out their duties.

In your case, you are working and living at location A for X days at a time. Travel is not a part of your actual work duties. It is considered that during these periods you are living away from home for work rather than travelling on work.

As you are not travelling in the course of carrying out employment duties, no deduction is available for the cost of airfares, accommodation, meals and incidentals you incurred when working away from your usual place of residence. These expenses are incurred in order to put you in a position to earn assessable income rather than in the actual course of earning that income. Further to this the essential character of the expenditure is of a private or domestic nature.