Edited version of your private ruling

Authorisation Number: 1012459072978

Ruling

Subject: Travel expenses

Question 1

Are you entitled to a deduction for the cost of air fares to relocate to another location to begin your contract?

Answer: No.

Question 2

Are you entitled to a deduction for both accommodation expenses and taxi fares incurred while relocating to another location to begin your contract?

Answer: No.

This ruling applies for the following period

Year ended 30 June 2013

The scheme commenced on

1 July 2012

Relevant facts

You reside in Location A.

You travelled to Location B on two separate occasions to undertake employment.

The time spent in Location B was four weeks on both of these occasions.

The income from the employment is subject to income tax.

When in Location B you stay in an apartment. The income earned from the employment covers the cost of your accommodation and general living expenses whilst in Location B.

The employment is not available in Location A.

The employment does not relate to your existing employment in Location A.

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 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.

Therefore, in considering whether a deduction is allowable for your cost of return airfares from Location A to Location B, accommodation in Location B and the taxi fares incurred, it is necessary to consider whether the expenses are incurred in the course of producing your assessable income.

Expenses incurred as a prerequisite to employment

Expenses incurred in securing a new employment (for example, travel expenses) are not deductible because the expenses come at a point in time too soon to be regarded as being incurred in gaining assessable income. The expenditure is incurred in getting, not in doing, work.

The leading case on this issue is FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541. In that case, a taxpayer who earned his living as an employee electrician and as a professional footballer claimed for travel and legal expenses incurred in seeking and obtaining a contract with another Rugby League Club. It was held that the expenses claimed were not deductible. Barwick CJ stated (ATC at 4162; ATR at 548):

'The cost to an employee of obtaining his employment does not form an outgoing incurred in the course of earning the wages payable in the employment.'

This principle has been applied to deny taxpayers on unemployment benefits deductions for expenses associated with looking for a job. Similarly, expenditure that is a prerequisite to obtaining particular employment is not deductible.

Reference should also be made to Lunney v. FC of T (1958) 100 CLR 478 (Lunney's Case), where the Full High Court laid down the principle that for a deduction to be allowable it is not enough for the expenditure to be an essential prerequisite to the derivation of assessable income.

In Lunney's Case it was held that the costs incurred by a taxpayer in travelling to the place where they work are expenses incurred in order to enable them to earn income but are not expenses incurred in the course of earning that income. Williams, Kitto, and Taylor JJ stated (at pages 498 - 499):

'It is, of course, beyond question that unless an employee attends at his place of employment he will not derive assessable income and, in one sense, he makes the journey to his place of employment in order that he may earn his income. But to say that expenditure on fares is a prerequisite to the earning of a taxpayer's income is not to say that such expenditure is incurred in or in the course of gaining or producing his income.'

There have been a number of cases dealing with taxpayers who have claimed expenses associated with travel to a new job and accommodation during temporary employment. Some of these cases are discussed below.

In Case G4 75 ATC 14; 19 CTBR (NS) Case 98, the taxpayer moved from one State to another in order to take up a new job. He claimed a deduction for various costs of travel to the new place of employment, that is, fares, car running costs, cartage of furniture and hotel bills. It was held that the expenditure was not an integral part of the work so as to enable it to be classed as having been incurred in the course of gaining or producing assessable income. The expenditure was a prerequisite to the work.

The taxpayer in Case H37 1976 ATC 312; 21 CTBR (NS) Case 3, a senior lecturer at a State university, was granted special leave with pay from his full time employment to take up temporary employment with a Commonwealth Department in Canberra during the university long vacation. So that he would be able to do the work required of him in that temporary employment, the taxpayer travelled from his home town to Canberra and found himself accommodation there. At all relevant times the taxpayer had his family home in the same town as the university. The taxpayer claimed a deduction for the return airfare from his home town to Canberra and for living expenses incurred during the period of his employment in Canberra. The expenses were not deductible. It was held that the cost of the taxpayer's airfare to and from Canberra was incurred in getting, not in doing, work as an employee. The living expenses which the taxpayer incurred while in Canberra were expenses of a private or domestic nature.

Your travel, taxi fares and accommodation expenses

Your expenses incurred in travelling to Location B, the taxi fares and the accommodation expenses that you incur whilst working in Location B, are incurred in order for you to be able to take up the duties of the new employment which brings in income. However, while incurred in order to enable you to earn income, they are not incurred in the course of earning that income. Your travel, taxi fares and accommodation expenses are a prerequisite to you being able to earn assessable income from your contract; they are not actually incurred in the course of carrying out the duties of that contract. These expenses are not incurred while travelling on work, that is, in the performance of your work. Furthermore, the accommodation expenses are private or domestic in nature.

Consequently, your costs of travelling to Location B, the taxi fares and the accommodation expenses that you incur in taking up the short term contract in Location B are not deductible under section 8-1 of the ITAA 1997.