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Ruling

Subject: Work related travel expenses

Question 1

Are you entitled to a deduction for accommodation, meals and additional occupancy expenses incurred while working in City B?

Answer

No.

Question 2

Are you entitled to a deduction for the cost of travelling between your home in one state and your second place of work or flat City B?

Answer

No

This ruling applies for the following period

Year ending 30 June 2012

Year ending 30 June 2013

Year ending 30 June 2014

Year ending 30 June 2015

The scheme commenced on

1 July 2011

Relevant facts

You are employed and work 8 days per fortnight.

You are required to work 5 days at their City B office and 3 days the following week at your home which is City A office.

You carry a laptop and ipad as well as various documents between offices.

You spend 5 nights per fortnight in City B, the remainder at your family home in City A.

In the City B you rent an apartment and you spend the 5 nights you are required to stay and the remainder of the time the apartment is vacant. You do this because it is cheaper than renting hotel accommodation.

At your private residence you maintain a separate office to work out of.

You spend an additional 2 hours per night on average working from your City B flat.

You have provided a copy of your employment letter.

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 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.

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),

· 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), and

· 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).

Expenditure on the daily necessities of life (for example, accommodation, food and drink) is 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 FC of T v. Toms 89 ATC 4373; (1989) 20 ATR 466 (Toms case) the Federal Court disallowed a forest worker's deduction for the cost of maintaining a caravan and other living expenses. 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.

Taxation Ruling TR 1999/10 discusses deductions for Members of Parliament. Paragraph 328 of TR 1999/10 states that a deduction is allowable for expenses for a second property that are not of a capital, private or domestic nature where it is used by a Member for accommodation when he or she is undertaking work related travel involving an overnight stay away from home and the property is not regarded as a second residence.

Where it has been established that a property used to accommodate a taxpayer amounts to a second residence, the Courts and the Administrative Appeals Tribunal have consistently held that the essential character of the expenses incurred is of a private or domestic nature unconnected with income-producing activities and, therefore, the expenses are not deductible. See Case X4 90 ATC 116; AAT Case 5,545 (1989) 21 ATR 3120 (Case X4).

In Case X4, Senior Member Beddoe (at ATC 118; ATR 3122) found, on the facts, the overall picture painted by the applicant's evidence is that he was intent on creating a home away from home. He did not wish to stay in hotels and preferred to have his own premises with his own facilities, books etc. The essential character of the house was that of a second home.

To determine if your accommodation expenses are an allowable deduction, it is necessary to consider whether you have established a new home in Melbourne. The question of whether a new home has been established depends on all the facts. There is no one test to satisfy all circumstances.

Paragraph 93 of Taxation Ruling TR 98/9 states that the key factors to be taken into account in determining whether a new home has been established include:

· the total duration of the travel;

· whether the taxpayer stays in one place or moves frequently from place to place,

· the nature of the accommodation, for example, hotel, motel, long term accommodation,

· whether the taxpayer is accompanied by family,

· whether the taxpayer is maintaining a home at the previous location while away, and

· the frequency and duration of return trips to the previous location.

In your case you are required to work 5 days at your City B office and 3 days the following week at your home, which is in City A. You have rented a flat in City B as it works out cheaper than renting hotel accommodation. Although your home is interstate, it is considered that the essential character of your flat is that of a second residence and private in nature.

Therefore, you are not entitled to a deduction under section 8-1 of the ITAA 1997 for any of these expenses.

Travel expenses

A deduction is generally not allowable for the cost of travel between home and work because the expenses are not considered to be incurred in producing assessable income. These expenses are incurred as a consequence of living in one place and working in another and any expenses incurred to enable a taxpayer to commence their income earning activities are therefore considered private in nature.

The case of Lunney v. Commissioner of Taxation [1958] ALR 225;1958 - 0311H - HCA;100 CLR 478;(1958) 11 ATD 404;(1958) 32 ALJR 139 settled the principle that travel to and from work is ordinarily not deductible under section 8-1 of the ITAA 1997. This travel is considered to be of an essentially private or domestic nature.

There are, however, some circumstances where home to work travel expenses incurred by employees are deductible. The most relevant examples to your situation are:

· the employees employment is inherently of an itinerant nature, or

· travel is directly between two places of employment.

A deduction is allowable for the cost of travel between home and work for an employee who is engaged in itinerant work. Taxation Ruling TR 95/34 provides guidelines for establishing whether an employee is carrying out itinerant work. Paragraph 18 of TR 95/34 states that the question of whether an employees work is itinerant is one of fact, to be determined according to individual circumstances. It is the nature of each individual's duties and not their occupation or industry that determines if they are engaged in itinerant work. Further, itinerant work may be a permanent or temporary feature of an employees duties.

Main features of itinerant work include:

· travel is a fundamental part of the employees work

· the existence of a web of work places in the employees regular employment, that is, the employee has no fixed place of work

· the employee continually travels from one work site to another. An employee must regularly work at more than one site before returning to his or her usual place of residence

· the employee has a degree of uncertainty of location in his or her employment (that is, no long-term plan and no regular pattern exists).

In your case, we consider that travel is not a fundamental part of your work as you are not required to travel to different work locations each day to carry out your duties with your employer. You do not have a 'web' of places where you work. You work in City B for 5 days one week, and in your interstate office for 3 days the following week and you do not travel to different work locations on a daily or weekly basis as part of your employment.  We consider that your workplaces in interstate and City B are both regular places of employment with no uncertainty about your location on any given day. Accordingly, we do not consider that your work is of an itinerant nature.

You also do not travel directly between two places of employment. Your travel between your home in City A and the flat is considered to be home to work travel.

The travel expenses you have incurred are not considered to be incurred in the course of undertaking your income earning activities. Rather the expenses are incurred by you in putting yourself in a position where you can commence performing your duties, rather than in the performance of those duties. Therefore, you are not entitled to a deduction for travel as it is considered to be private in nature.