Edited version of your private ruling

Authorisation Number: 1012489806106

Ruling

Subject: Accommodation expenses

Question

Are you entitled to a deduction for your accommodation expenses incurred on your property in City B, when you are also maintaining your family home in City A?

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

The scheme commenced on

1 July 2012

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.

Your family home is in City A and this is where your family lives.

You maintain your family home in City A.

You are required to work in City B.

You have purchased a property in City B specifically so you can be closer to your workplace.

You are paying accommodation expenses in connection with your property in City B.

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 a loss and outgoing to the extent that it is incurred in gaining or producing assessable income. However, a loss or outgoing is not deductible if it is of a capital, private or domestic nature, or it is incurred in gaining or producing exempt income.

In order for a deduction to be allowable, it must be incurred in the course of gaining or producing assessable income. A deduction is not allowable if it is a prerequisite to the derivation of assessable income.

It is acknowledged that certain expenditure is incurred in order to be in a position to be able to derive assessable income, for example unless one arrives at work it is not possible to derive income. This does not mean that the expenditure is incurred in the course of gaining or producing assessable income. Rather, the expenses are incurred to enable the taxpayer to commence income earning activities (Lunney v. FC of T (1958) 100 CLR 478 (Lunney's Case)).

In Lunney's Case 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 that 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.

Accommodation expenses

Generally accommodation expenses incurred by a person who lives away from home in order to carry out his or her own employment duties, at the place of employment, will not be deductible. Expenses of this nature are private, or incurred before or after the activity of earning assessable income. 

The issue of expenses incurred for travel to, and accommodation near, the work place while maintaining a family residence in another location has been considered in a number of court cases.

In the case Federal Commissioner of Taxation v. Charlton  84 ATC 4415; (1984) 15 ATR 711 (Charlton's Case), the taxpayer was a pathologist employed to carry out autopsies for the local coroner in Bendigo. He rented a flat in Bendigo while maintaining a permanent family home in Melbourne, located approximately 150kms away. There was evidence that there was difficulty in finding motel accommodation in Bendigo and the taxpayer was reluctant to make the round trip back to Melbourne without rest.  The taxpayer claimed that the rental expenses were incurred in the production of assessable income. 

Justice Crockett of the Supreme Court of Victoria agreed with the Commissioner and stated:   

The Commissioner contends (correctly in my view) that, if the taxpayer should choose to reside so far from the place where it is necessary for him to be in order to gain his income that he, not only needs to incur expense in travelling to that place but, also to incur expense in the provision to him of some accommodation transitory or discontinuous in its use and secondary to or temporarily supplemental of his actual home, then that expense, too, is for the same reason non-deductible.

The taxpayer's election to live in Melbourne and not in Bendigo meant that the rental expended on the flat in order to enable him to secure accommodation in which to recuperate from the rigours of travel and the nature of his work was an expenditure dictated not by his work but by private considerations.

In another case, FC of T v. Toms 89 ATC 4373; (1989) 20 ATR 466 (Toms' Case), the taxpayer was a forest worker who during the working week lived in a caravan in a bush camp 108 kilometres from his family home in Grafton. He claimed it was too far to travel each day to his work in the forest, so that it was necessary to establish a caravan at the camp. He would return home on weekends. He claimed the costs of maintaining his caravan and other living expenses such as the cost of heating and lighting. The Federal Court considered that the caravan was rendered necessary as much by the taxpayer's choice of the place of his residence in Grafton as by his choice of employment in the forest, and its purpose was to enable him to retain his residence at Grafton although employed in the forest. It was held that the expenses incurred in relation to the temporary accommodation near the workplace while maintaining a family residence in another location were dictated not by his work but by private considerations, and therefore were not deductible.

Your case

Your circumstances are comparable to that of the taxpayers in Charlton's case and Toms' case. You maintain your family home is in City A. You are required to work in City B. You have purchased a property in City B specifically so you can be closer to your workplace. You have incurred accommodation expenses on your property.

We acknowledge that you are paying running expenses twice. We have also noted your argument that the expenses in question would be deductible if you were renting out the property in City B to tenants. This is correct as you would be earning rental income. However, you are not renting the property out.

It is the distance between your home and your work in City B that necessitates your having to stay away from home. You are not travelling to City B on work. Rather, you are travelling to work.

Accordingly, your accommodation expenses for your property in City B are considered to be of a private or domestic nature. The expenses do not have the character of an outgoing incurred in gaining assessable income and, therefore, are not deductible in total or in part.