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Ruling

Subject: Accommodation, food and incidental expenses

Question

Are you entitled to a deduction for your accommodation, food and incidental expenses?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2013

The scheme commenced on

1 July 2012

Relevant facts

Your ordinary residence is in place A.

You are currently working interstate.

Your employer pays your airfares from place A to your work place.

Your employer does not pay an allowance for you to travel.

Your employer pays for your accommodation while at your work place but does not pay for food or incidentals.

On occasions you are required to stay overnight in place B to await a connecting flight to place C. You don't carry out any employment duties in place B.

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, or relate to the earning of exempt income, or a provision of the ITAA 1997 prevents it.

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 (Lunney's case)),

· 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).

Accommodation expenses

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.

Home to work travel is regarded as private in nature and not work related travel. Expenditure incurred in travelling to work is a prerequisite to the earning of assessable income rather than being incurred in the course of producing that income. Such expenses are incurred as a consequence of living in one place and working in another. That is, the essential character of the expenditure is of a private or domestic nature, relating to personal and living expenses and therefore not an allowable deduction. (Lunney's case and Federal Commissioner of Taxation v Cooper (1991) 29 FCR 177; 91 ATC 4396; 21 ATR 1616). 

The essentially private character of travel between home and work is not affected by factors such as the mode of transport, the availability of transport, the lack of suitable public transport, the erratic times of employment, the time of travel, the distance of travel and the necessity of travel (Taxation Ruling IT 2543).

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 Federal Commissioner of Taxation v. Toms 20 ATR 466; 89 ATC 4373 (Toms case), 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. The Federal Court disallowed the forest workers deduction for the cost of maintaining a caravan and other living expenses. The caravan was rendered necessary as much by the taxpayer's choice of the place of his residence in Grafton as by his employment in the State forest, and its purpose was to enable him to retain his residence in Grafton although he was employed in the State forest. Had he lived at a town closer to the forest, there is no question the caravan would have been unnecessary.

In your case you occasionally incur accommodation expenses in place B. You do not actually work in place B. It is only necessary to be in place B to enable you to get to and from your work place. We acknowledge the distance travelled however, your accommodation expenses are incurred because you live in place A and work interstate. The travel and associated accommodation expenses are not considered to be work related expenses and are not sufficiently related to the actual performance of your employment duties. They are more a convenience and a prerequisite to the earning of assessable income and are not expenses incurred in the course of gaining or producing that income. Furthermore, the essential character of the expense is of a private or domestic nature. Accordingly, you are not entitled to a deduction for the accommodation expenses under section 8-1 of the ITAA 1997.

Meal expenses

A deduction for meal expenses is allowed when a person is undertaking work related travel and is required to stay away overnight or they work overtime and receive an overtime meal allowance.

Where a person travels from one place to another to start work, the travel is not considered to be work related travel. Even though a person may own a home in a different location to their work, the travel from their usual home to their job is regarded as private in nature. The travel is carried out to enable you to be closer to your work and commence employment duties. The distance of the travel does not alter the private nature of the travel.

As you are not considered to be undertaking work related travel and your food expenses do not relate to an overtime meal allowance, the expenses you incur for food are not an allowable deduction.

Similarly, as you are not undertaking work related travel, any incidentals incurred are not an allowable deduction.