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Ruling

Subject: overseas travel expenses

Question

Are you entitled to a deduction for your overseas travel and conference expenses?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010

Relevant facts

You are a full-time primary school teacher, currently teaching younger children.

You and your spouse attended an international conference. The conference was designed for religious principals and teachers. Other teachers from other Australian and overseas religious schools also attended.

Your travel was partly in the school holidays and partly on paid study leave. Your employer did not request you attend, but recommended the conference.

The conference was held overseas for nine days.

You holidayed for four days prior to meeting the tour group and attending the conference.

The attendance at the conference was approved by the school council for professional development. Sixty hours of the conference counted for professional development.

You included information regarding the objectives of the trip and the itinerary.

You incurred costs for the conference and airfares.

The tour and conference itinerary included more than six days of tours and visiting various religious sites.

Other people could also join the tour and conference.

You advised that the students have been excited by the information and knowledge they have learnt following the conference.

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, or a provision of the ITAA 1997 prevents it.

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,

· there must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessableincome (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).

To determine whether your expenses are deductible, the essential character of the expenditure must be considered. It is necessary to determine whether there is a sufficient nexus between the expenditure and your current income-earning activities.

Taxation Ruling TR 98/9 considers occasions where travel expenses may have the essential character of an income-producing expense. Whilst the ruling discusses self education expenses the principles contained in it are relevant to your situation.

TR 98/9 explains that airfares and travel expenses incurred on overseas study tours or sabbaticals may be deductible if the necessary connection with a person's income producing activity exists.

Paragraph 42 or TR 98/9 states:

If a course of study is too general in terms of the taxpayer's current income earning activities, the necessary connection between the self education expense and the income earning activity does not exist. The cost of self-improvement or personal development courses is generally not allowable, although a deduction may be allowed in certain circumstances.

However, TR 98/9 explains that if the subject of the self-education is too general in terms of the taxpayer's income-earning activities, the necessary connection between the expense and the income earning activity does not exist.

Generally, a teacher is allowed a deduction for expenses they incur when accompanying students on excursions or school trips where the trip is relevant to the teacher's employment. To be relevant to the teacher's employment, the trip should be part of the school's curriculum or syllabus of the school. A supervisory role by itself is not sufficient to make the expenses deductible.

An example provided in Taxation Ruling TR 95/14 is where a teacher accompanies students to visit a sister school overseas. Attendance of the trip is open to any student of the school. While on the trip, 6 out of the 10 days are spent engaging in social, classroom and sporting activities. The remaining days are spent touring the country. In this case, the trip does not form part of the school's curriculum as the trip is open to all students. Even though the trip may provide social and cultural benefits to the students, the teacher's expenses are not deductible.

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 overseas 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.

In Case R94 84 ATC 628 a college librarian was disallowed overseas travel expenses in making a study tour of China organised by the Library Association. The benefits derived by the taxpayer might have made her a better librarian, but the nexus between the outgoings and deriving assessable income was too remote. The taxpayer voluntarily made the trip and the expenditure was essentially of a private nature.

In the Board of Review Case R47 84 ATC 380; (1984) 15 ATR 824, the taxpayer, a French language teacher, claimed a deduction for part of the expenses in travelling to France. The trip was not undertaken at the request of the taxpayer's employer. She asserted that the trip increased her teaching skills.

The Board of Review stated that the fact that the taxpayer became a better teacher because of the trip did not mean that expenses were incurred in the course of gaining her assessable income as a teacher. The expenditure was incurred in relation to a period during which the taxpayer was without obligation to render service to her employer. Notwithstanding that her experience would be of value when she resumed performing the duties of her employment, the essentially recreational nature of the journey did not alter.

In Case U109 87 ATC 657, the taxpayer was a science teacher who specialised in geology and was the head of the school science department. He undertook a 17 day trip to Indonesia organised by a natural museum history society of which he was a member. During the course of the trip he visited several volcanoes and other geological sites, and attended a geological congress. He also visited some tourist attractions. The taxpayer took many slides of the geological sites and prepared a taped commentary which he used in his teaching on his return.

The Administrative Appeals Tribunal (AAT) examined previous court decisions dealing with teachers who had claimed for the cost of overseas travel. It concluded that the trip was essentially recreational in character and not deductible. The AAT also stated that some taxpayers are fortunate in finding personal and recreational satisfaction in their field of endeavour and that in this case the trip was recreational in character and not deductible.

In Case R84 562 ATC 562, a Lutheran pastor claimed a deduction for expenses in travelling to Israel, Egypt and Greece. His sole reason for the tour was to familiarise himself with the biblical holy places so that he would be a better teacher of the Bible. The Church did not require him to undertake the trip and there was no prospect of earning a higher salary. The deduction was not allowed.

The circumstances of your case can be compared to the above decisions. It is acknowledged that the travel will provide you with first hand knowledge, but it does not in itself mean that the expenditure is incurred in gaining or producing your assessable income. The trip may broaden your knowledge and benefit you as a teacher. However, as with the cases quoted above, the courts have held that these reasons alone are not enough to demonstrate a sufficient connection between the travel and your income-producing activities.

Although the tour was organised by a religious education group, the tour and places visited are open to all to experience and are equally relevant to other occupations and members of the public. The tour does not specifically relate to your teaching duties. The fact that your tour will include a visit to sacred sites and meeting other religious educators does not change the nature of your expenses into work related expenses. While we acknowledge the religious benefits, the knowledge and experience gained from your trip is too general in nature for the expenses to be incurred in the course of gaining your assessable income. It is considered that the skills obtained from the conference and tours are not unique to your current position. There are many experiences and places of interest which may help a teacher however this does not automatically mean that the associated expenses are deductible. Virtually any experience and the acquisition of any knowledge will contribute to the individuals own development with consequent benefit to the employment duties.

The trip overseas is essentially recreational and private in nature. The knowledge gained goes beyond the level required in teaching young students. It is considered that there is not a sufficient connection between your travel expenses and your income earning activities.

Although your employer supported your travel, it was not a requirement of your employer to attend the conference. The trip has had no identifiable impact on your assessable income.

Accordingly, the expenses for the conference and tour are considered to be more private in nature. The trip does not have a close enough nexus to your income earning activities and is therefore not deductible under subsection 8-1 of the ITAA 1997.