Edited version of your private ruling

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Ruling

Subject: project allowance and expenses

Question 1

Are your allowances assessable income?

Answer

Yes.

Question 2

Are you entitled to a deduction for accommodation, meal or travel expenses?

Answer

No.

This ruling applies for the following period

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.

The arrangement that is the subject of the private ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:

§ the application for private ruling,

§ additional information

§ extract of employment agreement.

You work on site six days per week.

Your shifts and work location are not regular.

You find and pay for your accommodation such as a hotel or caravan park when working away from home.

Your employer covers travel costs between sites.

Food is supplied on site.

You are paid a project allowance in recognition of your project work. The allowance is paid at an hourly rate and is paid to compensate you for various special and unpleasant aspects of your employment.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 15-2.

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Division 900

Reasons for decision

Assessable income

Section 15-2 of the Income Tax Assessment Act 1997 (ITAA 1997) states that your assessable income includes the value to you of all allowances, gratuities, compensation, benefits, bonuses and premiums provided to you in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by you.

Your project allowance and any other allowance your employer pays you forms part of your assessable income and should be included in your tax returns.

Allowable deductions

Section 8-1 of the 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)

§ 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 test

§ satisfies the substantiation rules.

Project allowance

A deduction is not allowable if an employee incurs expenditure of a private or domestic nature in order to cope with the working conditions that exist.

Even though an allowance is assessable income, you are not automatically entitled to a deduction for expenses incurred in relation to an allowance. The expenses must meet the criteria for deductibility under section 8-1 of the ITAA 1997.

The receipt of a project allowance, or an allowance to compensate for inconvenience, isolation or discomfort suffered during the course of employment does not entitle the employee to an offsetting deduction (Taxation Determination TD 93/49).

Example 2 in TD 93/49 is relevant and states:

A mining company employee camps out to undertake land surveys and is paid a site allowance to compensate for the inconvenience, isolation and discomfort of remote job sites. The employer provides all items necessary for the employee to camp out.

The allowance is included in the employee's assessable income. As the employee has not incurred any work related expenditure in relation to this allowance, no deduction is allowable.

Taxation Ruling TR 95/22 discusses various allowances. Although this ruling relates to building workers, the principles are relevant in your case. Paragraph 16 of TR 95/22 states that allowances that are paid for dirty work, height, confined space, disability, first aid, hot work, site allowances for special projects, toxic substances and wet work are assessable, however no deduction is allowable.

In your case your project allowance covers various special and unpleasant aspects of your employment. Despite the name given to the allowance, it remains that your project allowance is assessable, however the expenses associated with the allowance are not considered to be work related and do not sufficiently relate to your actual income earning activities. Therefore no deduction is allowable in relation to your allowance.

Also, the fact that an employee may incur an expense at the direction of the employer does not mean that the amount is deductible.

Accommodation, meal and travel expenses

You incur costs for your accommodation, however your employer pays for your travel expenses.

Expenditure on the daily necessities of life (for example, accommodation and food) are 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 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. 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.

Your situation is similar to Toms case. In your case, you incurred accommodation expenses at your work sites as a result of your normal residence being elsewhere and your employment being at the work site. The hotel or caravan park or other accommodation expenses were incurred to put you in a place where you are closer to your place of employment. The work site was your normal place of work for the relevant period. Although you may have more than one normal place of employment, each work site is regarded as a normal place of work. 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.

We acknowledge your specific circumstances, however, as in Toms case, the expenses that you incur for accommodation are as a result of living in one place and working in another. The distance between your normal places of work or the fact that your principle residence is elsewhere does not convert your accommodation expenses into deductible expenses. Your expenses are likewise not deductible.

Similarly, your meal expenses are private in nature and not a work related expense. Therefore you are not entitled to a deduction for the costs of your meals. As your employer pays for your travel expenses, no deduction is allowed.

Division 900 of the ITAA 1997 outlines the substantiation rules for work expenses. The exception from substantiation for travel allowance and overtime meal expenses provided by Division 900 of the ITAA 1997 will only apply where you receive a bona fide assessable travel allowance or a bona fide overtime meal allowance.

There is no evidence to show that you have received a travel or overtime meal allowance. As your accommodation and meal expenses are private in nature, you are not entitled to any deductions. As you have not incurred any deductible project, travel, accommodation or meal expenses, the substantiation provisions are not relevant. Therefore any substantiation exceptions for domestic travel allowance expenses or overtime meal expenses contained in these provisions have no application in your circumstances. It follows that Taxation Ruling TR 2004/6 and Taxation Determinations TD 2009/15 and TD 2010/19 have no application in your case.