Edited version of your private ruling

Authorisation Number: 1012448871745

Ruling

Subject: Car expenses

Question 1

Are you entitled to a deduction for any of the costs incurred for a motor vehicle provided under a novated lease?

Answer

No.

Question 2

Where you own a car, are you entitled to a deduction for expenses in travelling between home and your work places?

Answer

No.

Question 3

Where you own a car, are you entitled to a deduction for expenses in travelling directly between two work places when you do substantial work at each work site?

Answer

Yes.

Question 4

Where you own a car, are you entitled to a deduction for expenses in travelling directly between a work place and head office when you do incidental tasks at the head office?

Answer

No.

This ruling applies for the following periods

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

Year ended 30 June 2017

The scheme commenced on

1 July 2012

Relevant facts

You are an employee.

You work at three sites.

You start your day wherever your next work related activity is at. You move between sites as required during the day. This is often at short notice.

You regularly visit two work sites daily and occasionally visit all three if required.

You travel from home to your first work site, then to the next work site as required and then directly home. There is no pattern in relation to which site you will be working at.

Sometimes you go to head office on the way home to collect extra materials that you may need. You may also drop off completed paperwork ready for filing.

You carry files and other work material in a suitcase in the car so they are ready for use without having to go back to different sites. The material is carried in a suitcase type bag approximately 600mm x 400mm x 180mm and weighing approximately 12 to 15kg.

Meetings are regularly held at head office. You are required to go to the head office to work regularly and sometimes attend training after normal working hours.

You do not receive a travel allowance or reimbursement from your employer.

You use the family car for your travel. The car is on a novated lease.

The novated lease and car is registered in your spouse's name, however you both share finances.

You use the car for work.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1
Income Tax Assessment Act 1997 Section 25-100

Income Tax Assessment Act 1997 Section 28-12

Income Tax Assessment Act 1936 Section 51AF

Reasons for decision

Novated lease

A novation is an arrangement whereby all or some of the rights or obligations of an employee (lessee) in relation to a leased property are transferred to the employer.

Motor vehicle leases are the most common subjects of a novation arrangement. The main types of novation arrangement involve the transfer of all or part of the employee's rights or obligations in a lease or in a lease and sub-lease arrangement to the employer. This is achieved by way of a deed of novation between the finance company (lessor), the employee and the employer that will revoke the original lease between the finance company and the employee.

Where the employees' use of the vehicle includes private as well as work-related travel a fringe benefit is provided to the employee and this will generally incur a fringe benefits tax for the employer.

In instances where a motor vehicle is provided by an employer to an employee for their exclusive use with some portion of private use, section 51AF of the Income Tax Assessment Act 1936 (ITAA 1936) prohibits employees from claiming deductions in respect of a car expense. The section prevents double dipping so that an employee cannot claim expenses already factored into the formulas used to calculate fringe benefits tax assessed to the employer. Section 51AF of the ITAA 1936 was intended to ensure that any contribution by the recipient (of the car benefit) was used solely to reduce the employer's fringe benefit tax liability. It was not intended that the same expenditure could be used to gain a deduction for the employee.

In addition, section 28-12 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for car expenses if you own or lease a car. Taxation Ruling TR 1999/15 deals with taxation consequences of certain motor vehicle lease novation arrangements. Paragraph 25 of TR 1999/15 states that in a full novation the lease payment obligations are transferred to the employer. It is explained in paragraph 27 of TR 1999/15 that the employer becomes the lessee under the novated lease.

In your case, you use a car that is under a novated lease. For taxation purposes, you do not own or lease the car. Accordingly you are not entitled to a deduction for car expenses under section 28-12 of the ITAA 1997.  

Allowable deductions

Section 8-1 of the 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).

A deduction is only allowable if an expense:

· is actually incurred,

· meets the deductibility tests, and

· satisfies the substantiation rules.

Home to work travel expenses

Generally a deduction is not allowable for the cost of travel between home and a normal place of work as it is considered a private expense. 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. The income earning duties do not generally commence until the arrival at a place of work and will cease upon departure from work. This does not mean that the expenditure is incurred in the course of gaining or producing assessable income (Case V111 88 ATC 712).

Section 25-100 of the ITAA 1997 allows a deduction for the cost of certain travel directly between two workplaces. However, subsection 25-100(3) of the ITAA 1997 states that travel between two places is not travel between workplaces if one of the places you are travelling between is a place at which you reside.

In your case, you work at three different sites. Each of these places are regarded as normal places of employment for you and are not regarded as an alternative place of work (please refer below).

The Commissioner accepts that expenses incurred in travelling between home and work may be deductible in limited circumstances, for example:

· the taxpayer's employment is inherently of an itinerant nature, or

· the taxpayer has to transport by vehicle bulky equipment necessary for employment.

Itinerant nature

The question of whether an employee's work is itinerant is one of fact, to be determined according to individual circumstances. It is the nature of each individuals duties that determines if they are engaged in itinerant work. Taxation Ruling TR 95/34 provides guidelines for establishing whether an employee is carrying out itinerant work.

TR 95/34 states that the following characteristics may indicate itinerancy:

· the employee continually travels from one work site to another - an employee must regularly work at more than one work site before returning to his or her usual place of residence,

· travel is a fundamental part of the employee's work,

· the existence of a 'web' of work places in the employee's regular employment, that is, the employee has no fixed place of work,

· the employee has a degree of uncertainty of location in his or her employment, that is, no long-term plan and no regular pattern exists,

· the employee has to carry bulky equipment from home to different work sites.

It should be noted that the above characteristics are not exhaustive and no single factor on its own is necessarily decisive.

The frequency of travel between work sites is an important element. What needs to be determined is whether the length of time spent at a work site qualifies it as a regular or fixed place of employment.

Although you work at three work sites with no set pattern in relation to when you work at each site, this is not sufficient to make your employment itinerant. You have three fixed places of work. There is no uncertainly in relation to the three work sites you will be working at.

After considering your specific circumstances, you are not considered to be carrying out itinerant work.

Bulky equipment

A deduction may be allowable for home to work travel if the transport costs can be attributed to the transportation of heavy, bulky or cumbersome equipment necessary for your work, rather than to private travel between home and work.

A deduction is not allowable if the equipment is transported to and from work as a matter of convenience or if the equipment is of a private or personal nature. Also a deduction is not allowable if a secure area for the storage of equipment is provided at the work place.

Broadly, a deduction will be allowed for the travel expenses between home and work when carrying equipment where:

· there is no secure storage area provided by the employer,

· the equipment is necessary for the completion of your employment duties, and

· the equipment is considered bulky.

The question of what constitutes bulky equipment must be considered according to the individual circumstances in each case.

In Crestani v. Federal Commissioner of Taxation 98 ATC 2219; (1998) 40 ATR 1037, a toolbox which measured 57 centimetres by 28 centimetres by 25 centimetres and weighed 27 kilograms was considered as 'bulky', in the sense of 'cumbersome', and the transport cost was 'attributable' to the transportation of such bulky equipment rather than private travel between home and work.

Senior Member J Block was of the opinion that the term 'bulky' should not be construed to refer only to an article of large size, but more aptly construed as similar to 'cumbersome' in the sense that it is not portable.

In Case 43/94 (1994) 29 ATR 1031; 94 ATC 387, a flight sergeant with the Royal Australian Air Force was denied a deduction for the cost of transporting his flying suit and other items used for work purposes. These items were carried in:

· a duffle bag measuring 75cm long x 55cm wide x 50cm deep and weighing 20 kilograms when packed,

· a suit bag which weighed 10 kilograms when packed, and

· a briefcase sized navigational bag which contained charts, work manuals and study materials.

It was held that the mode of transporting the items was simply a consequence of the means adopted by the taxpayer to convey him to work. It was considered that the duffle bag was not of sufficient size or weight to impede facile transport.

Where work equipment is not considered to be bulky, then transporting such equipment to work is not enough to change the character of travel to work from a private expense to a business or employment related expense even if it is compulsory to transport such equipment.

Carrying your work files and material do not change the primary purpose of your travel. The expenses incurred are in a practical sense attributable to your travel to your place of work rather than merely to the transporting of your equipment. Therefore, you are not entitled to a deduction for the cost of travelling to and from work on the basis that you have to transport bulky equipment necessary for your employment.

Travel to an alternative work place

A deduction is generally allowable for the cost of travelling to and from an alternative workplace. For example, travel to and from a client's premises for work related purposes is an allowable deduction. As highlighted in paragraph 34 of Miscellaneous Taxation Ruling MT 2027, an alternative destination is not a regular place of employment.

In your case travel to and from your three work sites is not regarded as travel to an alternative work place as these three sites are regular place of work for you.

The travel expenses between home and your work sites are a prerequisite to the earning of assessable income and are 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. Furthermore, section 25-100 of the ITAA 1997 specifically denies a deduction.

Travelling directly between two work places

Where you own a car and use it to travel directly between two work sites, a deduction is generally allowable.

Miscellaneous Taxation Ruling MT 2027, paragraph 34, addresses travel to work and states that travel to an employee's place of employment would not be accepted as work related travel where the employee merely performs incidental tasks enroute such as collecting newspapers or mail. For example, where you stop at the head office to collect or drop off paperwork to or from another work site or home such travel is not regarded as work related travel. Such activities are considered to be incidental.

However where you are required to travel from one work site to another work site and perform substantial employment duties (other than incidental duties) at each site, such travel is an allowable deduction.

You can use any of the four methods to work out your car expenses for such travel. Please ensure you keep the relevant substantiation. For further details in relation to the four methods and the required substantiation, please refer to the Australian Taxation Office website www.ato.gov.au.