Edited version of your private ruling

Authorisation Number: 1012505764565

Ruling

Subject: Overseas airfare expense

Question 1

Are you entitled to a deduction for 100% of your overseas airfare expenses?

Answer

No.

Question 2

Are you entitled to a deduction for 50% of your overseas airfare expenses?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2013

The scheme commenced on

1 July 2012

Relevant facts

You travelled overseas.

The main purpose in travelling overseas was to present a paper and to attend a work related conference. The conference went for four days.

Your spouse travelled with you. You were overseas for 28 days.

You allowed extra weeks overseas so that you could arrange to meet with an editor. You were acting as a guest editor for a special issue based on a selection of papers presented at a previous conference you had organized. You were required to write a foreward to the special issue. As you had never done this before, you decided to have a face to face meeting with the editor and receive feedback on the foreward you had drafted.

You met the editor on day one of your overseas stay and received positive feedback. No subsequent meeting was required.

You had other work to keep you occupied during your additional time overseas.

Your employer paid the conference fee for you to attend the conference.

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, or relate to the earning of exempt income, or a provision of the ITAA 1997 prevents it.

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,

· 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 (Ronpibon's case)), 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).

To determine whether your expenses are deductible, the essential character of the expenditure must be considered. It is necessary to determine whether there is a sufficient nexus between the expenditure and your current income-earning activities. 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 words 'to the extent to which' signify that an expense may be apportioned if it is only partly incurred to produce assessable income. In Ronpibon's case, the High Court expressed the view that '... there are at least two kinds of items of expenditure that require apportionment'. These were generally: those items that are capable of dissection; and those that cannot be dissected but should be apportioned on the basis that they serve more than one object indifferently. The latter would clearly apply to an airfare purchased for both work and other purposes (Case R13 84 ATC 168; 27 CTBR (NS) Case 64).

Taxation Ruling TR 98/9 discusses the apportionment of overseas travel expenses where there is a dual purpose for the travel. Although this ruling deals with deductions of self-education expenses, the principles are the same for all cases requiring apportionment and could equally apply to your travel expenses.

As highlighted in TR 98/9, if the purpose of the travel was for income earning purposes, the existence of an incidental private purpose does not affect the characterisation of the related expenses as being incurred in gaining assessable income. However where there are two equal purposes of the travel, 50% of the expenses would be deductible.

In your case, it is not considered that your expenses are wholly incurred in gaining assessable income. The conference was for four days, yet you were overseas for 28 days. The other purpose of your trip is not considered to be incidental due to the extended period of your trip and the fact that your spouse travelled with you. We accept that the conference attendance has a direct nexus to producing your assessable income. However, the remaining weeks spent overseas are not regarded as being sufficiently connected to your income producing activities. Therefore your airfare expenses are not wholly deductible under section 8-1 of the ITAA 1997.

After considering your specific circumstances, it is considered reasonable to allow a deduction equal to 50% of your return airfares.