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Ruling

Subject: travel and accommodation expenses

Question 1

Are you entitled to a deduction for expenses in travelling to and from your prac placement?

Answer

No.

Question 2

Are you entitled to a deduction for the accommodation and meal expenses incurred while carrying out your course requirements?

Answer

No.

This ruling applies for the following periods

Year ended 30 June 2010
Year ended 30 June 2011

The scheme commenced on

1 July 2009

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are currently studying full-time for a Bachelor of Education degree.

You receive a Youth Allowance to study.

As part of your course, you are required to do prac placements.

You travel to different areas to fulfil the course requirements.

For a period you travelled more than 50 km return each day to attend the compulsory placement.

You live either at home or other accommodation as required to attend the various prac placements.

You incur accommodation and meal expenses when away from home.

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 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 be an allowable deduction:

· 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 (Lunneys case)), 

· 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), and

· 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).

Certain expenses incurred in undertaking your course of study, such as textbooks, stationery and student union fees, are an allowable deduction under section 8-1 of the ITAA 1997 as they have the necessary connection with your assessable Youth Allowance.

However, a deduction for travel between home and your place of education or study is not an allowable deduction as the expenses are considered to be private in nature. Such travel is similar in nature to home to work travel for an employee.

Generally a deduction is not allowable for the cost of travel between home and work as it is considered a private expense. Expenditure incurred in travelling to work is a prerequisite to the earning of assessable income rather than being incurred in the course of producing that income. Such expenses are incurred as a consequence of living in one place and working in another. That is, the essential character of the expenditure is of a private or domestic nature, relating to personal and living expenses and therefore not an allowable deduction. (Lunney's case and Federal Commissioner of Taxation v Cooper (1991) 29 FCR 177; 91 ATC 4396; 21 ATR 1616). 

The essentially private character of travel between home and work is not affected by factors such as the mode of transport, the availability of transport, the lack of suitable public transport, the erratic times of employment, the time of travel, the distance of travel and the necessity of travel (Taxation Ruling IT 2543).

Certain expenditure is incurred in order to be in a position to be able to derive assessable income, for example, unless a person 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 (Case V111 88 ATC 712).

In your case, you are required to do prac placements as part of your course. Travel from home or your place of accommodation to the placement is considered to be a private expense. The cost of this travel is incurred to put you in a position to perform the study and course requirements, rather than in performance of those requirements. That is, the expenses are a prerequisite to the earning of assessable income and are not incurred in producing that income.

We acknowledge that you need to travel to get to your placements, however, the distance of the travel does not alter the private nature of the travel. Therefore, the associated travel expenses are not an allowable deduction under section 8-1 of the ITAA 1997.

Similarly, expenditure on the daily necessities of life (for example, accommodation, food and drink) is generally not deductible as it is not incurred in gaining or producing assessable income and is also considered to be private or domestic in nature. No deduction is allowable if a taxpayer is merely maintaining accommodation close to their usual work or study location for convenience.

In Federal Commissioner of Taxation v. Toms 20 ATR 466; 89 ATC 4373 (Toms case), the Federal Court held that expenses incurred in relation to accommodation near the work place, while maintaining a family residence in another location, were not an allowable deduction as they were considered to be private expenses. The Federal Court disallowed the forest workers deduction for the cost of maintaining a caravan and other living expenses. The taxpayer's family home in Grafton was some 108 kilometres from the base camp so he lived in the caravan during the week and returned to the family home on weekends. The caravan was rendered necessary as much by the taxpayer's choice of the place of his residence in Grafton as by his employment in the State forest, and its purpose was to enable him to retain his residence in Grafton although he was employed in the State forest. Had he lived at a town closer to the forest, there is no question the caravan would have been unnecessary.

Although your situation is different to Toms case, the principles are relevant. In your case, you incur accommodation and meal expenses near your place of study or prac placement. We acknowledge your specific circumstances, however, your accommodation expenses are incurred to put you in a place where you are closer to your place of study.

Your accommodation and meal expenses incurred are not related to the actual course requirements. They are more a convenience and a prerequisite to the earning of assessable income and are not expenses incurred in the course of gaining or producing that income. Furthermore, the essential character of the expense is of a private or domestic nature. Accordingly, you are not entitled to a deduction for the accommodation and meal expenses under section 8-1 of the ITAA 1997.