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Ruling

Subject: Company - Deductions - Travel expenses

Question 1

Will the home office have the character of a place of business?

Answer

Yes.

Question 2

Will the Company be entitled to a deduction for travel expenses from their place of business to client premises?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2012

The scheme commences on:

1 July 2011

Relevant facts and circumstances

The Company incorporated during the 2011 income year.

The business will be conducted from a home office which will be clearly identified by a sign at the front of the house.

The dedicated home office will be used solely for business purposes and will contain office furniture and equipment.

Activities conducted at the home office will include soliciting and booking contracts, preparing customised material and advice, client meetings and visits.

Employees will travel from the home office to client premises within Australia and international destinations to perform services on behalf of the Company.

All travel and accommodation expenses will be incurred and paid by the Company. No allowances will be given to employees of the Company.

Travel expenses which the Company expects to incur include:

· airfares

· parking fees

· car hire

· taxis and public transport

· accommodation and meals

All international travel will be solely for business purposes and details of all expenses will be recorded in diaries.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Subdivision 900-D

Income Tax Assessment Act 1997 Subdivision 900-F

Reasons for decision

Question 1

Summary

The home office will have the character of a place of business.

Detailed reasoning

As a general rule, expenses associated with a taxpayer's home are of a private or domestic nature and do not qualify as deductions for taxation. An exception to this general rule is where part of the home is used for income producing activities and has the character of a place of business.

The following factors, none of which is necessarily conclusive on its own, may indicate whether or not an area set aside has the character of a "place of business":

· the area is clearly identifiable as a place of business

· the area is not readily suitable or adaptable for use for private or domestic purposes in association with the home generally

· the area is used exclusively or almost exclusively for carrying on a business

· the area is used regularly for visits of clients or customers.

· the decision in each case will depend on whether, on a balanced consideration of:

· the essential character of the area

· the nature of the taxpayer's business

· any other relevant factors

· the area constitutes a "place of business" in the ordinary and common sense meaning of that term.

In successful cases the taxpayer was able to show that, as a matter of fact, there was no alternative place of business and that the room in question was used exclusively or almost exclusively for income producing purposes.

In this case, the Company incorporated during the 2011 income year and intends to operate a business of consultancy services to clients who are looking to invest in international property. The business will be conducted from a home office.

The following factors will need to be considered to determine whether or not the home office has the character of a "place of business":

· the business will be clearly identifiable by a sign at the front of the house

· the home office will contain office furniture and equipment. As such, the office would not be readily suitable or adaptable for private use

· the home office will be used solely for business purposes

· the activities conducted at the home office will include soliciting and booking contracts, preparing customised material and advice, client meetings and visits.

A balanced consideration of these factors would indicate the home office will have the character of a place of business.

Question 2

Summary

The Company will be entitled to a deduction for travel expenses from their place of business to client premises.

Detailed reasoning

A deduction is allowed for all losses and outgoings to the extent that they are incurred in gaining or producing assessable income or are necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income. However, no deduction is allowed to the extent that the losses or outgoings are of a capital, private or domestic nature or are necessarily incurred in gaining or producing exempt income. Note that a company cannot have private expenses.

As the home office will have the character of a place of business the Company will be entitled to claim a deduction for travel expenses incurred when travelling from the home office to other locations in order to conduct business.

The Company states all travel and accommodation expenses will be incurred and paid by the Company and no allowances will be given to employees.

Travel expenses which the Company expects to incur include:

· airfares

· parking fees

· car hire

· taxis and public transport

· accommodation and meals

All international travel will be solely for business purposes and details of all expenses will be recorded in diaries.

Given this situation, the Company will be entitled to a deduction for travel expenses from the home office, being their place of business to other locations both within Australia and international destinations to the extent that they are necessarily incurred in carrying on a business.