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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 and circumstances

In the 2011-12 income year you relocated to Australia from overseas to take up employment with a company.

The company offered you the following relocation expenses as a part of your contract:

Four weeks temporary accommodation (funded by employer)

Four weeks payment for other expenses at an agreed amount per week

Upon your arrival to Australia, you have found that there is a short supply of rental accommodation available in the area and you believe it will take considerably longer than four weeks to find suitable long term accommodation.

Your company will not provide salary packaging for any further relocation expenses other than those listed in your contract.

Your household furnishings are being shipped to Australia and will not arrive for some time, further preventing you from moving to permanent accommodation.

You will not be able to find a car within four weeks, so you will incur additional transport expenses.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

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.

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 a new employment position. Your employer has provided you with some assistance with relocation expenses as a part of your contract; however, the expenses you will incur will exceed the amount provided by your employer.

The relocation expenses are not incurred in gaining or producing of your assessable income. They are a prerequisite to earning that income and consequently are of a private nature. Accordingly, you are not entitled to a deduction for relocation expenses under section 8-1 of the ITAA 1997.