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Ruling

Subject: Accommodation expenses

Question

Are you entitled to a deduction for any accommodation expenses relating to the property in City B?

Answer

No.

This ruling applies for the following periods

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

The scheme commenced on

1 July 2011

Relevant facts

You live in city D.

You agreed to a five year appointment with your employer.

Your employer has offices in many cities in Australia. The head office is in city B.

Your employment contract specifies city D as your base office.

Your anticipated work schedule will require you to work in city C on Monday, city B on Tuesday, Wednesday and Thursday and city D on Friday.

You have purchased an apartment in city B for the purpose of having accommodation close to head office. The property is not used for any other purpose while you are not staying there for work purposes and remains vacant in your absence. You will furnish the property.

You intend selling the property when your contract ends.

Your spouse will continue to reside in city D.

Your spouse may travel to city B with you two to three times a year to accompany you on official work functions. On these occasions your spouse will also stay in the apartment.

You do not have any other business roles, memberships or associations in city B.

Your employer pays for your airfares.

You receive a travel allowance when travelling, however you are not entitled to a travel allowance when in city B as you own a property there.

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:

o 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),

o 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).

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 fact that income cannot be earned unless certain expenses are necessarily incurred is not determinative of deductibility.

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 FC of T v. Toms 89 ATC 4373; (1989) 20 ATR 466 (Toms case) the Federal Court disallowed a forest worker's deduction for the cost of maintaining a caravan and other living expenses. The taxpayer incurred the expenses in providing temporary accommodation at the base camp because the taxpayer had chosen to reside at a place far from the worksite. These expenses were dictated not by work but by private considerations.

Taxation Ruling TR 1999/10 discusses deductions for Members of Parliament. Paragraph 328 of TR 1999/10 states that a deduction is allowable for expenses for a second property that are not of a capital, private or domestic nature where it is used by a Member for accommodation when he or she is undertaking work related travel involving an overnight stay away from home and the property is not regarded as a second residence.

Where it has been established that a property used to accommodate a taxpayer amounts to a second residence, the Courts and the Administrative Appeals Tribunal have consistently held that the essential character of the expenses incurred is of a private or domestic nature unconnected with income-producing activities and, therefore, the expenses are not deductible. See Case X4 90 ATC 116; AAT Case 5,545 (1989) 21 ATR 3120 (Case X4).

In Case X4, Senior Member Beddoe (at ATC 118; ATR 3122) found, on the facts, the overall picture painted by the applicant's evidence is that he was intent on creating a home away from home. He did not wish to stay in hotels and preferred to have his own premises with his own facilities, books etc. The essential character of the house was that of a second home.

To determine if your accommodation expenses are an allowable deduction, it is necessary to consider whether you have established a new home in city B. The question of whether a new home has been established depends on all the facts. There is no one test to satisfy all circumstances.

Paragraph 93 of Taxation Ruling TR 98/9 states that the key factors to be taken into account in determining whether a new home has been established 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, for example, hotel, motel, long term accommodation,

· whether the taxpayer is accompanied by 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 gives some examples. Example 2 outlined in paragraph 97 of TR 98/9 states: 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.

You have purchased long term accommodation and have furnished the apartment. You purchased the apartment to have comfort and stability on a continual basis for your five year appointment.

Although you return to city D at the end of each week and your spouse remains in city D, it is considered that the essential character of your city B apartment is that of a second residence and private in nature.

You will be working in city B three days each week. City B is your main place of work. This work location is a regular place of employment. Your work pattern and circumstances differs to that outlined in TR 1999/10. You are not a Member of Parliament and a Member of Parliament is not generally required to be in city B for three days every week. It is considered that TR 1999/10 does not apply to you in your circumstances.

We acknowledge the distance between city D and city B and your work pattern. However, as in Toms case, the expenses that you incur for accommodation in city B are as a result of living in one place and working in another. Your city B accommodation expenses are incurred to put you in a place where you are closer to your place of employment. Although you have more than one normal place of employment, city B is regarded as a normal place of work. The distance between your normal places of work or the fact that your base is in city D does not convert your accommodation expenses into deductible expenses.

The accommodation expenses incurred were not related to the actual performance of your duties. 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 expenses under section 8-1 of the ITAA 1997.

Therefore a deduction is not allowed for the holding costs, utility expenses, depreciation, capital works or stamp duty costs in relation to the city B accommodation.