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Ruling

Subject: Work related expenses - accommodation

Question

Are you entitled to claim a deduction for expenses incurred for accommodation?

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

You are a self-employed carpenter who subcontracts to other builders.

You were subcontracted to work for a builder in another town.

You considered the distance between the work site and your home was too far, so you stayed at a motel during the week and only returned home on weekends.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Summary

You are not entitled to claim a deduction for the accommodation expenses you incurred during the period you stayed in another town for work, as these expenses are considered to be private or domestic in nature and not incurred in producing your assessable income.

Detailed reasoning

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.

Generally, accommodation expenses are private in nature and are not deductible. In Lunney v. FC of T (1958) 100 CLR 478 the Full High Court laid down the principle that for a deduction to be allowable it is not enough for the expenditure to be an essential prerequisite to the derivation of assessable income. In that case it was held that the costs incurred by a taxpayer in travelling to the place where they work are expenses incurred in order to enable them to earn income but are not expenses incurred in the course of earning that income.

This was again considered in Federal Commissioner of Taxation v Toms (1989) 89 ATC 4373; (1989) 20 ATR 466. In this case the taxpayer was a forest worker who during the working week lived in a caravan in a bush camp 108 kilometres from his family home. On working days he would proceed by four-wheel drive vehicle from the base camp to predetermined logging areas within a radius of 20 kilometres. He would return home every weekend. The Federal Court ruled the only reason why the taxpayer had to incur expenses in providing temporary accommodation at the base camp was because he had chosen to reside at a place so far from where he was required to be to earn his income. As those expenses were dictated not by his work but by private considerations, they were not deductible.

Your case is comparable with both cases as your home was located outside of the town of your employment and, because you considered your workplace to be too far from your home, you stayed in the town of your workplace during the week and incurred costs for short term accommodation at a motel.

These costs were incurred to enable you to stay in close proximity to your workplace and were a prerequisite to the earning of assessable income and not in the production of your assessable income. Therefore, you are not entitled to a deduction under section 8-1 of the ITAA 1997 as these expenses are considered to be private or domestic in nature and not incurred in producing your assessable income.