Edited version of your private ruling

Authorisation Number: 1012510786526

Ruling

Subject: Travel expenses

Question

Are you entitled to claim a deduction for your travel expenses?

Answer

No

This ruling applies for the following period

Year ended 30 June 2013

The scheme commenced on

1 July 2012

Relevant facts

You currently reside in City A.

You are employed at a work site near City B.

You pay for your own travel to and from City A and City B.

You reside at the site camp facilities when you work at the work site.

You maintain your own vehicle which remains at City B, which you use to travel to and from the worksite.

You receive an allowance of $xx per annum, which your employer has stated that in your contract is to acknowledge the requirement for you to reside in the camp accommodation.

This allowance is not shown separately on your PAYG summary. It is included as part of your gross wages.

It is a requirement of the position that all employees will be required to reside in the camp when working from site. It is also stated that all employees must bear all accommodation costs associated with their principal place of residence.

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.

In considering the deductibility of travel expenses, a distinction is made between travel to work and travel on work. It is only if the duties of the job require a taxpayer to travel that the taxpayer's expenses can be deducted.

A deduction is generally not allowable for the cost of travel by an employee between their home and their normal workplace as it is considered private in nature. The cost of such travel is generally incurred to put the employee in a position to perform their duties of employment, rather than in the performance of those duties (paragraph 77 of Taxation Ruling TR 95/34).

Lunney v. Commissioner of Taxation [1958] ALR 225; 1958 0311H HCA; 100 CLR 478; (1958) 11 ATD 404; (1958) 32 ALJR 139 introduced what is now regarded as the essential character test. This test requires that for an expense to be deductible, it must have the essential character of a business or income producing expense. The taxpayer in this case sought to deduct the cost of travelling from his home to his work. The expenses were disallowed as being private and domestic, establishing the broad principle that costs incurred because of living in one place while working in another cannot be regarded as deductible. The reasons given by the High Court were twofold.

The fact that certain expenditure, such as travelling to work, must be incurred in order to be able to derive assessable income, does not necessarily mean that the expenditure is incidental and relevant to the derivation of assessable income. It is a prerequisite to the earning of assessable income rather than being incurred in the course of gaining that income.

The essential character of the travel to and from work is that of a private and domestic nature, related to personal and living expenses as part of the taxpayer's choice of where to live, in choosing to live away from and what distance from work.

In your case, you have incurred expenses for travel between your home and your work. This travel is incurred in order to put you in a position to perform your duties of your employment; it is not incurred in the performance of the duties of your employment. Travel is not a part of your actual work duties.

For the travel to be a fundamental part of an employees work, travel must be an essential feature of an employee’s duties (paragraph 22 TR 95/34). Your duties will only commence when you reach the work site where you carry out your work. You are not considered to be travelling in the performance of your duties from the moment you leave your home.

The expenses you incur in travelling between your home and work are private in nature. Therefore, you are not entitled to a deduction for these expenses under section 8-1 of the ITAA 1997.