Edited version of your private ruling

Authorisation Number: 1012229330516

This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.

Ruling

Subject: Accommodation, meals and incidental expenses

Question

Are you entitled to claim accommodation, meal and incidental expenses while completing a work contract in Town A when you did not receive a living away from home allowance?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2012

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You and your spouse each accept contracts to work for short-term periods.

During the 2010-11 financial year you both undertook contracts in another town (Town A). Under the contracts the duties were performed at the client's site.

You rented an apartment in Town A instead of staying in a hotel.

You incurred accommodation, meal and incidental expenses whilst in Town A.

You did not receive a living away from home allowance in relation to this travel.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

Summary

You are not entitled to a deduction for the cost of meals, accommodation and incidentals incurred when you were in Town A as these expenses were not incurred in earning your assessable income. The fact you did not receive an allowance from your employer to assist with these expenses does not affect their deductibility.

Detailed reasoning

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.

The cost of meals, accommodation and incidentals is an allowable deduction where the taxpayer is travelling away from home in the course of performing their work duties. For example, an office worker attending an interstate conference or an 'on road' salesman.

However, no deduction is allowable for these expenses where a taxpayer works at a different location to where they normally live. The place where a taxpayer stays whilst away from home is considered to be their usual place of residence for that period. These costs are essentially living expenses of a private or domestic nature. The fact that income cannot be earned unless certain expenses are necessarily incurred is not determinative of deductibility.

Court decisions and decisions of the Administrative Appeals Tribunal (AAT)/Board of Review, which provide an independent view as to what effect taxation laws should have, confirm this.

In Case X4 90 ATC 116; AAT Case X4 21 ATR 3120 a specialist radiologist with a practice in a small provincial town over 100 kilometres from a capital city was denied a deduction for the costs of maintaining a house which had been purchased in the city where the taxpayer also had professional obligations. The taxpayer travelled to the city every week. The house was not used for business purposes. The sole purpose of purchasing the house was to provide accommodation while the taxpayer was in the city.

The AAT found that the overall picture was that the taxpayer had created a home away from home. Accordingly it held that the outings were incurred for the purposes of maintaining domestic premises and they did not have any relevant connection with income producing activities. It also held that even if it could be shown that the outgoings were incurred for the purpose of producing assessable income the deductions would be disallowed as outgoings of a private or domestic nature.

This decision endorsed the principle established in Lunney v FC of T 100 CLR 478; 11 ATD 404; [1958] ALR 225 (Lunney's case), that is, prima facie a taxpayer cannot deduct living expenses as they are considered to be private and domestic in nature. To paraphrase what was said in Lunney's case: while a particular expenditure, for example rent, may be a prerequisite to the earning of income that is not to say that the expenditure is incurred in the gaining or producing of that income.

You and your spouse accepted short-term work contracts which required you to perform your work duties in Town A. You rented an apartment in Town A instead of staying in hotel accommodation.

Given the nature of the services performed under the contracts, their length and the fact that the services were performed in Town A, your place of work for the duration of the contracts is considered to have been Town A. Whilst in Town A you are not considered to have been travelling in the course of performing your work duties. Instead, it is considered you travelled to Town A to commence your employment duties. The accommodation, meal and incidental expenses were incurred by you to enable you to stay in proximity to your Town A work place and the apartment constitutes a second home. These expenses were a prerequisite to the earning of your assessable income and were not expenses incurred in the course of gaining or producing that income. They are living expenses and have been incurred for private and domestic purposes.

The fact that you did not receive any allowances from your employers towards accommodation, meals or incidentals does not change the nature of the expenses. These expenses remain private in nature.

No deduction is allowable under section 8-1 of the ITAA 1997 for the accommodation, meal and incidental expenses you incurred whilst in Town A.