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Authorisation Number: 1011982645919

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Ruling

Subject: Overseas travel expenses

Question 1

Is the cost of the singing lessons allowed as a tax deduction?

Answer: Yes.

Question 2

Are any of the other costs relating to your overseas trip allowed as a tax deduction?

Answer: No.

This ruling applies for the following periods

Year ended 30 June 2009

Year ended 30 June 2010

The scheme commenced on

1 July 2008

Relevant facts

You were employed for performances of a certain production.

While you were on retainer/rehearsals wages between seasons, you undertook round the world travel at your own cost. No one accompanied you on the travel.

The main aim of this trip was to experience film and television and many styles of vocal music and their dramatic context in many overseas cities.

You visited street performances, music schools, a movie studio, music and book stores, jazz clubs and had some singing and coaching lessons.

While in City A, it was your aim generally to see as many shows and venues as possible to experience the approach that actors/singers there have to musical theatre.

You incurred expenses for travel, accommodation, show tickets, singing lessons in City A, food, electrical conversion plugs and travel insurance.

When you began the trip you were on your way to City B for a season of a production. The contract states that the term of your employment was for the duration of the tour. This employer is separate from your Australian employer.

The round the world airfare you purchased included legs to and from City B.

Your employer has reimbursed you for the City B component of your travel.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1936 Section 51AH

Reasons for decision

Summary

Apart from the cost of your singing lessons, it is not considered that your costs in relation to your overseas trip were incurred in the course of earning your assessable income. Therefore, the only expenditure that is deductible is the cost of your singing lessons.

Detailed reasoning

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.

To satisfy section 8-1 of the ITAA 1997, the loss or outgoing must be relevant and incidental to the operations or activities from which the assessable income is produced: Ronpibon Tin NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; 8 ATD 431; (1949) 4 AITR 326. This principle is also expressed in terms of there having to be a sufficient nexus or connection between the outgoing and the production of assessable income.

What is involved is a process of identifying the essential character of the expenditure to determine whether it is in reality an outgoing incurred in gaining or producing assessable income.

Taxation Ruling TR 98/9 provides the Commissioner's view on the deductibility of self-education expenses. It states that self-education expenses are incurred in gaining or producing assessable income if they are directly relevant to the person's employment activities or are likely to lead to an increase in income from those activities.

TR 98/9 explains that airfares, accommodation and meal expenses incurred on overseas study tours or sabbaticals, on work-related conferences or seminars, or attending an educational institution are 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.

There are many court decisions dealing with similar issues concerning teachers. We have referred to them here as the principles are equally applicable to your situation.

The Taxation Boards of Review have seen a number of teachers seeking income tax deductions for overseas travel 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. Ultimately 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 the Board of Review Case R47 84 ATC 380; (1984) 15ATR 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) 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.

In your case, the main aim of the trip was to experience film, television and a large range of various styles of vocal music and their dramatic context in the overseas destinations.

Your case is similar to the cases discussed above. We acknowledge that the reason for your travel was to expand your knowledge and understanding as a performer. However, this is not enough to demonstrate a sufficient connection between the travel and your income earning activities. The knowledge that you have gained is too general in nature for your travel expenses to be incurred in the course of gaining your assessable income. In addition, it is considered that your overseas trip was essentially of a private nature.

However, it is accepted that your singing lessons in City A was one expense that was directly related to your income earning activities and not private in nature. Therefore, this particular cost is deductible.

Your round the world ticket incorporated travel to and from City B. It is arguable whether this part of the travel is deductible as travel 'on work'. However, as your employment in City B was with a different employer and separate from your employment in Australia, this travel was travel to and from work rather than travel in undertaking work duties. Therefore the cost of this travel is not deductible. Even if this cost did meet the criteria under section 8-1 of the ITAA 1997, section 51AH of the Income Tax Assessment Act 1936 prevents a deduction from being allowed as you have been reimbursed for this portion of your travel.

To summarise, a deduction is not allowable for any of your expenses in relation to your overseas travel other than the cost of your singing lessons in City A.