Edited version of your private ruling

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Ruling

Subject: travel expenses

Question

Are you entitled to a deduction for expenses incurred to attend a National Awards night?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

Relevant facts

You are a teacher and member of a professional organisation.

The organisation runs professional development and provides resources for teachers.

The membership primarily includes teachers and lecturers from across subject disciplines at all levels of education. The membership also includes relevant industry personnel and education organizations and increasingly, the general public interested in the field.

The organisation presents annual awards.

You have been nominated for an award.

Your school is supporting your attendance by providing a relief teacher for the day you would need to travel.

You incurred expenses in relation to your trip to attend the awards night.

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 or are necessarily incurred in carrying on a business for the purpose of 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.

A number of significant court decisions have determined that, for an expense to satisfy the tests outlined in section 8-1 of the ITAA 1997:

· 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)

· 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 (Hatchett's case).

Taxation Ruling TR 95/14 discusses allowable deductions for teachers and states that a deduction is allowable for the costs incurred by a teacher in undertaking work related travel or travelling in the course of employment such as an interstate conference.

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 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.

Taxation Ruling TR 98/9 discusses the circumstances under which self education expenses are allowable as a deduction. A deduction is allowable for self education expenses if a taxpayer's current income earning activities are based on the exercise of a skill or some specific knowledge and the subject of the self education enables the taxpayer to maintain or improve that skill or knowledge (Federal Commissioner of Taxation v. Finn (1961) 106 CLR 60, (1961) 12 ATD 348).

Similarly, if the study of a subject of self education objectively leads to, or is likely to lead to an increase in a taxpayer's income from his or her current income earning activities in the future, a deduction is allowable.

The deductibility of expenses incurred to attend a graduation ceremony was considered in Berrett v. FC of T 99 ATC 2127; (1999) 41 ATR 1262 (Berrett's case). In that case the taxpayer was employed by the Australian Taxation Office in Melbourne as an Administrative Services Officer. He was enrolled in a Masters degree by correspondence through a Sydney University. The employer paid all necessary course fees and provided paid study leave. The taxpayer drove from Melbourne to Sydney to attend his graduation ceremony and claimed a deduction for the costs of travel, accommodation and the hire of an academic gown.

The Commissioner issued a private ruling which stated that the expenses were not deductible. The taxpayer unsuccessfully objected to the private ruling and sought a review of that decision by the Administrative Appeals Tribunal (AAT).

The taxpayer claimed that the expenses were deductible on the grounds that they were incurred in the course of gaining the qualification in order to earn increased income. The Commissioner submitted that the expenses lacked the required nexus with gaining or producing assessable income and/or were of a private nature.

In disallowing the taxpayer's claims the AAT held that it was the course of study itself and the completion of the course which had the required nexus with the gaining of assessable income. It was a matter of personal choice for the taxpayer to travel to the graduation ceremony as he was entitled to receive the degree in absentia. Whether he attended the ceremony or received his degree in the post had no impact on the taxpayer's knowledge or ability to carry out his employment duties or on his promotion prospects.

Although your expenses are not specifically self education expenses, graduation expenses or related to overseas travel, the principles outlined above are relevant in your circumstances.

To determine whether circumstances exist which would support the deduction for attendance at an award's night, a look to the essential character of the expenditure is required. It is necessary to determine whether there is a sufficient nexus between the expenditure and your income-earning activities.

We consider your situation to be comparable to the taxpayer in Berrett's case in that you incurred expenses to attend an Awards night. The Awards night is an occasion where various awards are presented. The expenditure incurred to attend an awards night was not incurred to increase the skills or knowledge used in your current income-earning activities. The awards night is merely a recognition of excellence.

It is acknowledged that the travel to the awards night may provide some benefits, but it does not in itself mean that the expenditure is incurred in gaining or producing your assessable income. 

It is considered that there is not a sufficient connection between your travel expenses and your income earning activities. Expenditure incurred in attending the awards night is not considered to be incurred in gaining or producing your assessable income as a teacher. Therefore, you are not entitled to a deduction under section 8-1 of the ITAA 1997 for the cost of attending the awards night.