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Ruling

Subject: Allowances

Question 1

Is the meal and incidental allowance paid by your employer for your work overseas assessable in the 2010-11 year of income?

Answer

Yes.

Question 2

Are you entitled to a deduction for the meal and incidental expenses?

Answer

No.

This ruling applies for the following period

Year ending 30 June 2011

The scheme commenced on

1 July 2008

Relevant facts and circumstances

The company you work for is a foreign company registered overseas.

You were relocated overseas by your company as part of an intra-company transfer. This was a temporary relocation and you considered yourself an Australian resident for taxation purposes during your time overseas.

The overseas trip comprised working days in the 2008-09 and 2009-10 years of income.

Your accommodation in Australia was maintained by friends. Your partner accompanied you and you did not return to Australia whilst you were relocated.

A letter detailing your employment conditions show that you will be paid a daily meal and incidental allowance whilst overseas. Accommodation was arranged by your employer for the duration of your relocation.

Due to the financial state of the company this allowance was not able to be paid until the 2010-11 year of income.

You estimated that the daily allowance covered approximately half of your actual meals and incidentals expenditure for the time spent overseas. You do not have any receipts for meals and incidental expenditure other than credit card statements which cover a portion of the expenses.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 subsection 6-5(2)

Income Tax Assessment Act 1997 subsection 900-30(3)

Reasons for decision

Assessable income

Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of an Australian resident includes ordinary income derived directly or indirectly from all sources, whether in or out of Australia, during the income year. Section 15-2 provides that allowances and other things provided in respect of employment are also assessable income.

Taxation Ruling TR 98/1 sets out the Commissioner's policy on the derivation of income. Paragraph 42 of TR 98/1 states income from employment would normally be assessable on a receipts basis. Salary, wages or other employment remuneration are assessable on receipt even though they relate to a past or future income period.

In your case the travel allowance was paid in the 2010-11 year of income and therefore this amount is assessable in that year of income.

Allowable deductions

Section 8-1 of the 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, or relate to the earning of exempt income.

Taxation Ruling TR 2004/6 explains that a taxpayer cannot automatically claim a deduction just because they receive an allowance. The expense must meet the requirements of section 8-1 of the ITAA 1997.

Accommodation, meal and incidental expenses are ordinarily not deductible as they are private and domestic in nature.

An exception is where a taxpayer is travelling in the course of performing their work duties, for example, an interstate truck driver who travels away from home overnight. In these types of cases, the accommodation, meal and incidental expenses incurred while the taxpayer is travelling are incidental to the proper carrying out of their employment function and cease to be of a private and domestic nature.

In considering the deductibility of travel expenses a distinction is made between travel to work and travel on work. It is only if the duties of the job require a taxpayer to travel in the course of undertaking their work duties that the taxpayer's expenses can be deducted (Taylor v Provan 1975 AC 194).

A deduction is generally not allowable for the cost of travel by an employee between home and their normal workplace as it is considered to be a private expense. The cost of this travel is incurred to put you in a position to perform your duties of employment, rather than in the performance of those duties. (Taxation Ruling TR 95/34)

The principles of Taxation Ruling TR 98/9 can be used when determining whether a new home has been established when travelling. These principles when applied to circumstances such as yours will determine whether you are travelling to work from your home or on work from Australia.

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

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, e.g., hotel, motel, long term accommodation;

whether the taxpayer is accompanied by his or her family;

whether the taxpayer is maintaining a home at the previous location while away.

The fact that the taxpayer did not maintain a home while away for an extended period was the decisive factor in characterising expenditure on accommodation and meals as private 'living expenses' in a series of Board of Review decisions: Case N13 13 TBRD (NS) 45; 10 CTBR (NS) Case 98; Case N16 13 TBRD (NS) 65; 10 CTBR (NS) Case 99; Case N19 13 TBRD (NS) 76; Case N20 13 TBRD (NS) 79; and

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

Example 4 in TR 98/9 illustrates when a new home has been established when overseas.

· James, a university lecturer, travels overseas for 12 months to undertake a studies program. He spends 10 months in the USA where he attends a university and 2 months based at an academic institution in the UK. He is accompanied by his wife and the family home in Australia is rented out while he is away. While in the USA, he resides with his wife in an apartment leased for the duration of their stay.

· The facts indicate that James has established a new home in the USA for the period of his stay. He stayed in one place in leased accommodation with his wife for the 10-month period and the family home in Australia was rented out during the period he was away.

In your case, you were working and living overseas for a period in excess of 12 months. Your partner accompanied you overseas, your accommodation in Australia was maintained by friends and you did not return to Australia for the duration of your re-location. Your employer paid for your airfares and accommodation and in addition paid you an allowance for your meals and incidentals. It is considered you had established a new home overseas and therefore were not travelling on work from Australia rather you were travelling to work and stayed at your work location for the period of your employment overseas. Your Australian residency does not impact on the consideration of the allowance paid to you whilst overseas.

Therefore, your meal and incidental expenses are considered to retain their character as living expenses. As these expenses are private in nature, a deduction is not allowable. This conclusion is not altered by the fact that your employer paid you an allowance.