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Ruling

Subject: Travel expenses

Question 1

Are you entitled to a deduction for travel expenses while working overseas?

Answer

No.

Question 2

Are you entitled to a deduction for exchange fees incurred while working overseas?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2012

The scheme commenced on

1 July 2011

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 are an employee.
Your employer provides services overseas.

As part of your employment, you are required to be out of Australia for about six months of the year. During this time you are meeting with potential customers and conducting training sessions.

During the six month continuous period overseas, you are based in the one city.

While overseas, you usually pay for your own accommodation and meals and petrol expenses.

You are also subject to exchange fees.

You travelled alone.

No expenses are reimbursed.

You received an allowance in relation to your travel. You requested your employer pay you a travel allowance and this is the amount paid. Although your travel has increased over the years, the allowance has stayed the same.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1
Income Tax Assessment Act 1997 Section 900-30
Income Tax Assessment Act 1997 Section 900-50
Income Tax Assessment Act 1997 Section 900-55

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.

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 (Lunneys 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).

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 or you work overtime and receive an overtime meal allowance.

In your case you are away overseas for six months and received an allowance in relation to your travel. Although the allowance is assessable income, this does not automatically entitle you to a deduction for expenses incurred in relation to an allowance. The expenses must meet the criteria for deductibility under section 8-1 of the ITAA 1997 as well as meet the substantiation requirements.

Where a person works at a given place for several months, that place is generally considered to be their normal place of work for that period. Accommodation and meal expenses incurred are not directly associated with any work related travel. That is, the expenses are not incurred in gaining or producing your assessable income. Rather they are a private expense and no deduction is allowable.

For six months you live and work in an overseas city. This city is your normal place of work for you for this period. While it is acknowledged that your usual home is in Australia, it is not considered that your accommodation, meal and other associated expenses incurred while overseas is work related. Rather it is private in nature. The distance of the travel does not alter the private nature of the travel.

Your expenditure for accommodation and meal expenses are not deductible, even though the expenditure had a causal connection with the earning of income. The expenditure is not incurred in the actual performance of your work. Therefore, the associated travel expenses are not an allowable deduction under section 8-1 of the ITAA 1997.

Similarly, no deduction is allowable for the exchange fees. The expenses associated with exchange fees relate primarily to the different currency. While such fees are unavoidable when travelling overseas, it does not follow that the costs are deductible. 

The exchange fees are not sufficiently connected with your income earning activities. Furthermore, the associated expenses are considered to be private in nature. Accordingly no deduction is allowable under section 8-1 of the ITAA 1997.