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Ruling

Subject: accommodation and meal expenses

Question

Are you entitled to a deduction for your meal and accommodation expenses?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

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 a 457 visa holder.

You received a living away from home allowance (LAFHA) from July to September 2010.

From September 2010 to April 2011 you did not receive a LAFHA from your employer.

You incurred expenses for food and rent.

You have no intention of applying for permanent residency. You are applying for a 457 extension for 20XX.

You are here with your family.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

Allowable deductions

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 (Lunney's 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).

A deduction is only allowable if an expense:

· is actually incurred,

· meets the deductibility tests, and

· satisfies the substantiation rules.

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.

Exceptions to this are where you are undertaking work related travel and are required to stay away overnight. However, no deduction is allowable if a taxpayer is merely maintaining accommodation close to their usual work location for convenience.

The receipt of an allowance does not automatically mean you are entitled to a deduction. Before a deduction is allowable, the expenses must meet the criteria for deductibility under section 8-1 of the ITAA 1997.

It should be noted that when a person receives a bona fide LAFHA the taxation consequences fall to the employer under the Fringe Benefits Tax legislation and that when a person is not in receipt of a bona fide LAFHA the deductibility conditions must be met for any deduction to be allowable.

IT 2566 states that an employee who is travelling to commence employment duties at a new work location is not travelling on duty. The employment duties do not commence until the employee reports to work at the new location. This is so whether the transfer is voluntary or at the employer's request. When relocating to a new work site, a taxpayer is not travelling on their work, but is travelling to their work.

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. Rather, the expenses are incurred to enable the taxpayer to commence income earning activities (Lunney's case).

A deduction is generally not allowable for the cost of accommodation close to your normal work place because the expenses are not considered to be incurred in producing assessable income. These expenses are incurred to enable a taxpayer to commence their income earning activities and are therefore considered private in nature. The distance from a previous home does not alter the essential character of any accommodation or meal expenses incurred as they remain private in nature. The cost of accommodation close to work is generally incurred to put a person in a position to perform duties, rather than in the performance of those duties (Case V111 88 ATC 712, Taxation Rulings IT 2543 and IT 112).

This is supported by the decision in Federal Commissioner of Taxation v. Toms 89 ATC 4373; (1989) 20 ATR 466, where 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.

Taxation Ruling TR 98/9 considers occasions where accommodation and meal expenses may have the essential character of an income-producing expense where the expenditure is incurred while away from home overnight on a work related activity or away from home overnight in connection with a self-education activity. Such expenses incurred may be deductible under section 8-1 of the ITAA 1997.

However, where a taxpayer is away for an extended period of time and has established a new home, the associated costs including accommodation and meals remain private in nature and are not deductible under section 8-1 of the ITAA 1997.

TR 98/9 lists the key factors to be taken into account in determining whether a new home has been established. They include:

· the total duration of the travel

· whether the taxpayer stays in one place or moves frequently from place to place

· the nature of the accommodation (hotel, motel, long term accommodation)

· whether the taxpayer is accompanied by his or her family

· whether the taxpayer is maintaining a home at the previous location while away, and

· the frequency and duration of return trips to the previous location.

TR 98/9 provides examples designed to illustrate factors and circumstances that are relevant in determining whether a taxpayer has established a new home in the new location. 

Example 1:     Elizabeth ordinarily lives with her parents in a country town outside Brisbane. She takes 4 months leave from her job to undertake a course of education at a training college in Brisbane. She shares a rented unit in Brisbane with two other students and returns to her parental home every weekend and during holiday periods.

The relatively short period of her stay in Brisbane and the frequency of her return visits to her parental home indicate that Elizabeth has not established a new home in Brisbane.

Example 2:     John, who is single, decides to undertake a 2-year course of study at a university in a city 250 kilometres from the town where he lives with his parents. He shares a rented house with some other students during this period and takes a casual job. He occasionally returns to the parental home on weekends. 

The length of time that John resides in the city, the long term nature of his accommodation and the fact that he has employment in the city indicate he has established a new home.

Example 3:     Katherine travelled overseas for 6 months to study at a university in Germany. She was accompanied by her husband and three children. An apartment suitable to accommodate the family was rented for the period of her stay and the family home in Australia was rented out.

The relevant factors are the period of time away, the renting of the family home and staying in one place with her family. These factors indicate that a new home was established in Germany.

In your case, you currently work and live in Australia. You arrived here to work and hope to extend your stay to 2013. You are here with your family. You are staying in rented accommodation. These factors lend weight to the conclusion that you have established a new home in Australia. Therefore, you are not entitled to a deduction for your accommodation or meal expenses, as the expenses are not incurred in gaining or producing assessable income, but rather the expenses are a prerequisite to your employment.

You travelled to Australia on a 457 visa to work. As you are in Australia for several months, it is considered that your normal place of work for this period is in Australia. While it is acknowledged that your usual home is overseas, it is not considered that your travel to Australia is work related travel. It follows that expenses for accommodation and meals are private expenses to enable you to be close to your work and commence your employment duties. The expenses are not regarded as work related expenses and are not incurred in earning your assessable income.

Expenditure on a taxpayer's domestic or family arrangements is not deductible, even though the expenditure had a causal connection with the earning of income. The expenditure is inherently of a private or domestic nature and therefore no deduction is allowable under section 8-1 of the ITAA 1997.