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Ruling

Subject: Deduction- overseas travel.

Question:

Are you entitled to a deduction for overseas travel expenses?

Answer:

No.

This ruling applies for the following period

Year ended 30 June 2011

The scheme commenced on

1 July 2010 

Relevant facts

You are employed in the construction industry.

Your employer was involved in a number of construction projects.

Your duties for your employer were:

· to provide documentation at the tendering and construction stage of a project

· attending to requests for information from builders during construction phase of a project

· carrying out inspections for defects upon completion of a project.

Your employer did not request you to travel overseas.

You travelled overseas voluntarily during the financial year.

The purpose of the trip was to attend a display and to embark on a self-development trip by visiting the various cities overseas.

You did not use any leave entitlements to travel overseas.

You did not receive any allowance or reimbursement from your employer for any travel expenses while overseas.

You were not accompanied by anyone while travelling overseas.

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.

Most self-education expenses are incurred voluntarily and to be allowable under section 8-1 of the ITAA 1997, the expenditure must be characterised as having been incurred in gaining or producing assessable income (Fletcher & Ors v. Federal Commissioner of Taxation T 91 ATC 4950 at 4957). Ronpibon Tin N. L v. Federal Commissioner of Taxation (1949) 78 CLR 47 Dixon J at p56 indicated that the character of the expenditure must be relevant and incidental to the gaining or producing of assessable income.

It is a long standing principle that a taxpayer does not satisfy section 8-1 of the ITAA 1997 merely by demonstrating a casual connection between the expenditure and the derivation of income. What must be shown is a closer and more immediate connection. The expenditure must be incurred in gaining or producing your assessable income (Lunney v. Commissioner of Taxation (1958) 100 CLR 478). These principles have been affirmed by the High Court in Commissioner of Taxation v. Payne [2001] HCA 3.

Taxation Ruling TR 98/9 provides the Commissioner's view on the deductibility of self-education expenses. It states that self-education expenses are incurred in gaining or producing assessable income if they are directly relevant to the person's employment activities or are likely to lead to an increase in income from those activities.

Whether such a connection exists is a question of fact to be determined by reference to all the facts of the particular case. 

However, where a course of study is too general in terms of the taxpayer's current income-earning activities, the necessary connection between the self-education expense and the income-earning activity does not exist. The cost of self-improvement or personal development courses is generally not allowable, although a deduction may be allowed in certain circumstances.

The ruling also states that the intention or purpose in incurring an expense can be an element in determining whether the whole or part of the expense is an allowable deduction.

The leading case for expenses of this nature is the High Court decision in Federal Commissioner of Taxation v. Finn (1961) 106 CLR 60 (Finn's case). 

That case involved a senior government design architect, who went on an overseas tour for the express purpose of studying current trends in architecture with a view to improving his prospects of future promotion. His employer requested that he travel to South America and reimbursed him for some of his expenses. The High Court found that the travel expenses were part and parcel of his employment. That connection was clear because his employer requested that he travel and provided financial assistance. The travel was also likely to lead to promotion. 

However, in the cases noted below travel expense claims were rejected by the Taxation Board of Reviews because the taxpayers were not able to establish a positive connection between the overseas travel and the performance of their duties of employment. In the ultimate, the claims have been based on a general proposition that the overseas travel has made the taxpayers better able to carry out their duties which, of itself, is not sufficient to enable the expenditure to be allowed as a deduction.

In the Board of Review Case R47 84 ATC 380; (1984) 15ATR 824, the taxpayer, a French language teacher, claimed a deduction for part of the expenses in travelling to France. The trip was not undertaken at the request of the taxpayer's employer. She asserted that the trip increased her teaching skills.

The Board of Review stated that the fact that the taxpayer became a better teacher because of the trip did not mean that expenses were incurred in the course of gaining her assessable income as a teacher. The expenditure was incurred in relation to a period during which the taxpayer was without obligation to render service to her employer. Notwithstanding that her experience would be of value when she resumed performing the duties of her employment, the essentially recreational nature of the journey did not alter.

In Case Q83 83 ATC 418, the taxpayer, a high school French and Indonesian language teacher, travelled overseas with her husband. She claimed a deduction for travel expenses relating to time spent in France and Indonesia. The taxpayer conceded that promotion did not depend on travelling overseas. The Taxation Board of Review disallowed the taxpayer's claim. They found that even though language teachers can, in the course of ordinary tourist activities, derive benefits as teachers, this fact does not transmute tourist activities into business activities.

In Case N37 81 ATC 191 (Case N37) the taxpayer was an art and craft teacher at a secondary school and embarked on a trip to Europe. The taxpayer's employer did not encourage the taxpayer to take the trip. The taxpayer believed that he would become a better teacher through being able to view the actual art works which he had previously only seen in photos and slides. The objection was disallowed as there must be a real connection between the outgoing and the taxpayer's income - it must be shown that the former had a direct effect upon the latter, or that the taxpayer undertook the trip because the terms upon which he was employed obliged him to do so. This connection had not been shown to exist in this case.

In your case, we acknowledge your efforts to undertake self-development activities at your own cost by travelling overseas to attend a display and to embark on a tour of a number of cities.

However, your case can be distinguished from Finn's Case for the following reasons:

· your employer did not specifically request that you undertake the trip overseas

· it was not a requirement of your duties to undertake this trip

· you were not required to undertake any specific tasks for your employer while overseas

· your employer did not provide any financial support to you for undertaking the trip overseas

· you undertook the trip while on unpaid leave

· there is no indication the trip is likely to result in an increase in your employment income.

While the purpose of the trip was to visit the cities and to attend a display, this is not sufficient to transform the character of the travel expenses from private to work related in nature. The circumstances of your travel are similar to the travel undertaken in the Taxation Board of Review cases noted above, in that you voluntarily undertook the trip without any financial support or specific tasks to undertake for your employer. Furthermore, there is no evidence to indicate it was a condition of your employment to undertake this specific trip overseas nor has it been demonstrated that the undertaking of the trip has led to or likely to lead to an increase in your income for your employment.

Given the factors noted above, your trip is considered to be predominantly private in nature and as such no deduction can be claimed for your travel expenses as there is insufficient connection between the outgoings incurred and the gaining of your assessable income. Therefore a deduction for the travel expenses is not available under section 8-1 of the ITAA 1997.