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Ruling
Subject: Relocation expenses
Question
Are you entitled to a deduction for relocation expenses?
Answer
No.
This ruling applies for the following period
Year ending 30 June 2012
The scheme commenced on
1 July 2011
Relevant facts
You have transferred from your job in Australia to an overseas position.
You received a taxable transfer allowance paid by your employer.
This allowance is paid to assist with a range of costs associated with long term postings.
You have incurred a number of expenses associated with your transfer, including accommodation, meals and car hire.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1.
Reasons for decision
Summary
You are not entitled to a deduction for the relocation expenses, as you were travelling to work, rather than on work. That is, the expenses were incurred as a prerequisite to the earning of assessable income rather than in the course of earning assessable income. Also, the expenses are private in nature.
Detailed reasoning
Section 8-1 of the Income Tax Assessment Act 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.
Taxation Ruling IT 2614 examines the deductibility of relocation expenses. The ruling states that expenses incurred in relocating to take up an appointment with a new or existing employer are not allowable deductions as they are private or domestic in nature. This is so, regardless of whether an allowance has been paid, or if the relocation was involuntary.
Specifically, at paragraph 24, IT 2614 states:
The fact that an allowance paid to an employee is expended by that employee for the purpose for which it was paid does not of itself impress an outgoing with any greater degree of deductibility than that which it would have had if no allowance been paid. It is the nature or character of the outgoing itself, without regard to the nature or character of any allowance that might be received, which determines whether it is an outgoing that is deductible… : Taxation Board of Review in Case R22 84 ATC 212 at 214, (1984) 27 CTBR (NS) Case 76 at 603. The expenditure in this case is considered not to be incurred in gaining or producing assessable income and is essentially of a private or domestic nature. Similarly, removal and storage expenses in respect of which a removal or storage allowance of the type discussed in paragraphs 15 to 18 has been received are not allowable deductions.
Taxation Ruling IT 2481 also discusses this expense. At paragraph 9 the ruling states the expenditure is not incurred in gaining or producing income and is not deductible as the taxpayer is not travelling on work, but to work. This is consistent with the view in the Federal Court case Fullerton v. FC of T 91 ATC 4983; 22 ATR 757 (Fullerton's case).
In Fullerton's case, it was held that the shortfall between the costs of relocation and the employer's partial reimbursement was not a loss or outgoing incurred in the gaining or producing of income, notwithstanding that the relocation was in response to the changing necessities of work.
In your case, you incurred relocation expenses to take up your new position overseas. However the relocation expenses are not incurred in gaining or producing your assessable income. Rather, they are a prerequisite to earning that income. Also, the expenses are of a private nature.
Therefore, you are not entitled to a deduction for the relocation expenses.