Edited version of your private ruling

Authorisation Number: 1012517713154

Ruling

Subject: Travel and accommodation expenses

Issue 1 - Business expenses

Questions and Answers

1. Is a deduction allowable for the accommodation expenses (rent and electricity) that you incurred while you were away from your family home in City A performing work for Company X in City B?

Yes

2. Is a deduction allowable for the cost of travel (car expenses) between your family home and your temporary accommodation in City B when you were performing work for Company X?

Yes

3. Is a deduction allowable for the cost of travel (daily public train fare) between your rented accommodation in City B and place where you performed your work for Company X?

Yes

Issue 2 - Travel expenses as an employee

Questions and Answers

1. Is a deduction allowable for the cost of travel between your residence in City B and the venture in City C when you travelled directly to the venture in City C or vice versa?

No

2. Is a deduction allowable for the cost of travel from your residence in City B to your family home in City A and then onto the venture in City C vice versa?

No

3. Is a deduction allowable for the cost of travel from the City B office to your family home in City A and on to the venture in City C or vice versa?

No

This ruling applies for the following periods

Year ended 30 June 2012

The scheme commenced on

1 July 2011

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.

Issue 1

Your family home is in City A.

For part of the income year you undertook private consulting contracts from your home.

During the period date A to date B you were under a contract provide accounting services to Company X. This assignment was in conjunction with your other consulting work.

The contract with Company X was based in City B. Due to the distance from your home in City A you stayed in City B from Monday to Friday and returned to your home in City A each weekend. You rented a unit in City B on a short term basis to accommodate this contract.

You incurred expenses for rent and electricity on your unit in City B. You also incurred travel expenses (daily public train fare) between your rented accommodation and Company X for the period date M until date N.

The Commissioner has issued you with a personal services business determination for the relevant income year.

Issue 2

At the end of your contract with Company X you returned to City A to undertake private consulting/accounting contracts until date O.

You then gained a temporary contract with Company Y on date P.

Company Y has varied business interests including a venture based in another part of the state, City C.

Your position for Company Y was based in City B, with regular regional travel as the role required time at the office in City B as well as the venture in City C.

You had an office provided both in City B and City C.

You continued the rental of the unit in City B after obtaining the temporary contract with Company Y, and you stayed there during your time in City B. You used your home in City A for accommodation when you were required to be at the venture in City C. On weekends you returned to your home and family in City A.

You were paid a travel/car allowance for the period of your temporary contract with Company Y. This allowance was paid due to the requirement to travel between City B and the venture in City C.

The position at Company Y was made permanent from date Q. When the role became permanent, you ceased your temporary rental in City B and took a long term rental in another suburb of City B. You continued to use your City A residence for accommodation when working at the venture in City C.

You continued to be paid a travel/car allowance equivalent to a revised amount for the period after your role became permanent, due to the ongoing requirement to travel between City B and the venture in City C.

You travelled from City B to City C a few times a month for scheduled meetings. These trips were normally of two to five days duration.

You have stated that it was several hours drive from City B to the venture in City C, and that the venture in City C was less than half this distance away from your family home.

The City B office was some distance from your City B residence and was not in the same direction as the venture in City C. Travelling to the City B office would involve a further T hours onto the journey.

Often your visits to the venture in City C required early morning meetings or late evening meetings and you were unable to complete the visit in one day. To ensure the safety of the journey, you often stayed at your family residence in City A on the way to the venture in City C or on your way back to City B.

The time that you travelled between City B and City C depended on the scheduled meeting time. Given the distance between the two places of work, it was sometimes necessary to travel outside of normal office hours. You have stated that:

· If you went direct from City B to City C, you had to leave your City B residence in the early hours of the morning to get to the venture in City C by a set time, which was the usual time set for a range of meetings. You slept at City A overnight at your family home and then went back to City C the next day from City A.

· If you had to chair a meeting in at the venture in City C at an earlier time, you sometimes split the journey into two trips. That is, you would leave the City B office the previous evening and arrive in City A later that night, stay overnight at your family home and leave early the next morning to travel to the venture in City C.

· Sometimes you travelled back to City B directly from City C for example, if you finished at the venture in City C at lunch time you would travel back to City B. Sometimes you went to City A and then travelled back to City B from City A.

· To return to City B from City A, after a trip to the venture in City C required leaving in the early hours of the morning in order to get to the City B office during normal hours.

· Depending on what time you arrived back in City B, you would either head to the office or, if it was later, you would go to your rented unit and return to the office the next day.

You have stated that the allowance paid to you by Company Y covered both your own car and food expenses when travelling from City B to the venture in City C. The amount paid was not a reimbursement and you did not have to produce receipts. You were paid a certain set amount every fortnight, as part of your salary.

The amount of allowance paid was the same amount every fortnight irrespective of the number of trips from City B to the venture in City C undertaken. The amount each fortnight was not based on a specified number of overnight stays, and there was no requirement to repay that part of the allowance entitlement referrable to trips not undertaken.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Subsection 87-60(5)

Reasons for decision

Issue 1 Business expenses

Business expenses generally fall for consideration under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997). Section 8-1 of the ITAA 1997 allows a deduction for losses and outgoings which are incurred in the course of gaining or producing assessable income, unless the losses or outgoings are capital, or are of a capital, private or domestic nature.

In your case, you were conducting a personal services business in the relevant income year. Thus the personal services income rules do not apply.

From date M until date N as part of your personal services business you were under a contract to provide services to Company X. This assignment was in conjunction with your other consulting work.

As you were conducting a business during the period date M to date N, your travel expenses between your home in City A and your rental accommodation in City B were related to your business. Thus this travel is allowable as a deduction. Similarly, the accommodation costs you incurred in City B (rental and electricity) are also allowable as they were incurred in running your business.

In addition the cost of travel (daily public transport fare) between your rented accommodation in City B and the place where you performed your work for Company X is allowable as this travel was part of your business expenses.

Issue 2 - Travel expenses as an employee

Travel expenses as an employee also fall for consideration under section 8-1 of the ITAA 1997.

It is settled law that expenditure incurred in travelling to and from the normal workplace is not deductible as it is not incurred in, or in the course of, gaining or producing the assessable income (Lunney & Hayley v. Federal Commissioner of Taxation (1958) 100 CLR 478). The general rule, as discussed in Taxation Ruling IT 112, is that travel between home and a person's regular place of employment or business is ordinarily private travel. While travel to work is a necessary pre-requisite to earning income, it is not undertaken in the course of earning that income. 

Alternate work place

From date P, you were employed by Company Y and had an office provided in both City B and the venture in City C.

Consideration needs to be given to determine whether the venture in City C constitutes an alternative workplace, whereby travel to the venture in City C is considered to be made on work, or does it merely represent another regular workplace in which travel is required to get to work.

Whilst the issue of what constitutes an alternative workplace will be dependant on the individual facts of the case, the features that may be taken into consideration as to what will characterise an alternative workplace include: 

· The short term or temporary duration of the work undertaken there;

· The irregularity of the visits to the place; and

· The absence of any regular pattern of travel to the place.

These features are derived from MT 2027 at paragraphs 28 to 36. These paragraphs provide three principles in determining whether expenses incurred in travel from home to an alternative workplace are deductible.

These three principles are:

· The employee has a regular place of employment to which he or she travels habitually;

· In the performance of his or her duties as an employee, travel is undertaken to an alternative destination which itself is not a regular place of employment; and

· The journey is undertaken to a location at which the employee performs substantial employment duties.

In your case, you were employed by Company Y during the relevant income year from date P. Your position was based in City B. You were required to travel a few times a month to the venture in City C, which took several hours. During this time period you were renting a place in City B (City B residence).

As you travelled a few times a month to the same place, being the venture in City C, this was a regular place of employment. The regularity of the travel to the venture in City C prevents it from satisfying the second principle set out in MT2027 which requires that the alternative destination be one that is not a regular place of employment. Therefore the venture in City C is not considered as an alternative workplace according to MT 2027 but is another regular workplace. Consequently the travel expenses incurred in travelling between your City B residence and the venture in City C is not deductible.

Long distance

You are aware that a deduction is allowable for travel between your City B office and the venture in City C as this constitutes travel between two places of employment and hence is travel on work. You have argued that it is the distance to the venture in City C which made it impractical to travel there and back in one day.

We have noted that the City B office was some distance from your City B residence and was not in the same direction as the venture in City C. Travelling to the City B office would involve a further T hours onto the journey. We acknowledge that often your visits to the venture in City C required early morning meetings or late evening meetings and you were unable to complete the visit in one day. To ensure the safety of the journey, you often stayed at your family residence in City A on the way to the venture in City C or on your way back to City B.

The law as it currently stands does not take into account the distance that is required to be travelled. In circumstances such as yours, if you start your journey from a place which is not a place of employment, the travel is not deductible.

The circumstances in your case are similar to those in Case V111 88 ATC 712, where a taxpayer worked at a power station site located approximately 400 km from his home. Each Monday the taxpayer departed his family home and travelled by car directly to the work site, and commenced the return journey on the following Saturday. During the week the taxpayer resided in employer provided accommodation at a camp near the work site. In his judgment, P.M. Roach (Senior Member) stated at p 714 (emphasis added):

... nothing in High Court decisions turns on the significance of the length of distance travelled (even 400 kms each way) or the frequency of such travel (once per week each way). Although the High Court accepted that incurring the expense was a necessary prerequisite to the earning of income, it none the less held that the expenses of getting to and from work were not expenses incurred "in the course of" deriving income by working.

Accordingly a deduction is not allowable for the cost of travel between your residence in City B and the venture in City C (direct), between your residence in City B to your family home in City A and then onto the venture in City C, or from the City B office to your family home in City A and onto the venture in City C, or the reverse of any of these journeys.