Edited version of your private ruling

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Subject: Accommodation expenses

Question

Are you entitled to a deduction for expenses you incur in respect of your accommodation and meals?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2009

Year ended 30 June 2010

Year ended 30 June 2011

The scheme commenced on:

1 July 2008

Relevant facts and circumstances

You are a fly-in/fly-out employee.

You work a two weeks on/one week off rotational roster.

You fly into City A from City B and two weeks later you fly back from City A into City B where you have one week home at your residence in City C.

You travel by air to the site on the same day and you travel by air to home on the same day two weeks later.

You do not go anywhere else to work other than this work site.

As part of the conditions of your employment you have to stay in company provided accommodation whilst on site.

You are allocated a room to stay in for the two weeks you are working.

The company deducts money from your post tax earnings to pay for the room and meals. This charge is deducted automatically from your pay. You have no control over the deduction, it is automatic and compulsory.

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 outgoings to the extent to which they are incurred in gaining or producing assessable income, provided they are not of a capital, private or domestic nature, or incurred in the gaining of exempt income.

Generally, accommodation expenses incurred by an employee who lives away from home, to carry out the duties of his employment, will not be deductible. Expenses of this nature have been found to be private, or incurred before or after the activity of earning assessable income.

In Lunney & Hayley v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 11 ATD 404; (1958) 7 AITR 166 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.

A deduction is allowable however, under section 8-1 of the ITAA 1997 for travel expenses, including accommodation, incurred when an employee is required to undertake travel while carrying out the duties of their employment.

In the case of the FC of T v. Toms 89 ATC 4373; (1989) 20 ATR 466, 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.

In Federal Commissioner of Taxation v. Charlton 84 ATC 4415; (1984) 15 ATR 711 it was stated that if a taxpayer chooses to reside far away from where he earns his income, he will incur travelling expenses to his place of employment, and may even incur temporary accommodation expenditure, in addition to the expenditure on his actual home. These expenses will be non deductible as they are private in nature.

You have incurred accommodation and meal expenses as a result of living in one location and working in another. These expenses were incurred in order to stay in proximity to your work location and arrive at work on time. They are a prerequisite to the earning of assessable income and not an expense incurred in the course of gaining and producing that income.

While we acknowledge that your accommodation and meal expenses are automatic and compulsory, they lack the required connection to the performance of your duties. Accordingly, they are seen to be of a private and domestic nature, and as such are not deductible under section 8-1 of ITAA 1997.