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Ruling

Subject: Travel, accommodation, meals and living expenses

Question

Are you entitled to a deduction for travel, accommodation, meals and daily living expenses whilst working in City X?

Answer

No.

This ruling applies for the following periods

Year ending 30 June 2013

Year ending 30 June 2014

Year ending 30 June 2015

The scheme commenced on

1 July 2012

Relevant facts and circumstances

You have accepted a work contract. Under the contract you:

· receive an all inclusive set amount per day

· carry out your duties in City X.

Your principal place of residence is in City Y where your family will remain whilst you are working in City X.

You have signed a lease agreement for accommodation in City X.

You will travel home to City Y to visit your family regularly.

You are responsible for the cost of your own travel, accommodation, meal and daily living expenses. You do not receive a separate allowance from your employer to cover these expenses which has been the case with previous employers.

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 travel, meals, accommodation and daily living expenses incurred whilst completing your employment contract in City X 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 have accepted a work contract which requires you to perform your work duties in City X. Your home is in City Y. You will incur travel, accommodation, meals and daily living expenses over the course of the contract.

Given the nature of the services to be performed under the contract, its length and the fact that the services will be performed in City X, your place of work for the duration of the contract is considered to be City X. Whilst in City X you are not considered to be travelling in the course of performing your work duties. Instead, it is considered you travelled to City X to commence your employment duties. The travel, accommodation, meal and daily living expenses will be incurred by you to enable you to stay in proximity to your City X work place and the leased accommodation constitutes a second home. These expenses are a prerequisite to the earning of your assessable income and are 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 do not receive any allowances from your employer towards travel, accommodation, meals or daily living expenses 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 travel, accommodation, meal and daily living expenses you incur whilst in City X.