Edited version of your private ruling

Authorisation Number: 1012551192079

Ruling

Subject: Deduction for accommodation expenses

Question

Are you entitled to a deduction for accommodation 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 live and work in city A and your employer requires that you also work at their city B facility.

You travel to city B for a number of days in each month to work.

You incur accommodation expenses while staying 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 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.

Accommodation

As a general rule, expenditure on accommodation is not allowed as a deduction. These costs are essentially 'living expenses' of a private or domestic nature. The fact that income cannot be earned unless these expenses are incurred is not determinative of deductibility. The expenses are a prerequisite to the earning of assessable income rather than being incurred in the course of gaining that income.

The issue of expenses incurred in relation to accommodation near the workplace while maintaining a family residence in another location was considered in the cases of Federal Commissioner of Taxation v. Toms 89 ATC 4373: (1989) 20 ATR 466 (Toms' Case) and Federal Commissioner of Taxation v. Charlton 84 ATC 4415; (1984) 15 ATR 711 (Charlton's Case).

These cases established that accommodation expenses incurred by an individual who lives away from home to carry out the duties of their employment will not be deductible. Expenses of this nature were found to be private in nature and incurred before or after the activity of earning assessable income.

In 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 in order to avoid excessive travelling and fatigue, while maintaining a permanent family home in city B, located approximately 150 kilometres away. The taxpayer claimed that the rental was incurred in the production of assessable income, but the Court ruled that the expense of accommodation was considered private and domestic in nature and would not be deductible under section 8-1 of the ITAA 1997.

Similarly, the Federal Court in Toms' Case disallowed a forest worker's deduction for the cost of maintaining a caravan and other living expenses. The taxpayer incurred the expenses in providing temporary accommodation at the base camp. These expenses were dictated not by work but by private considerations. Therefore the essential character of the expenditure was considered to be of a private or domestic nature.

Travel

The High Court in Lunney & Hayley v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 7 AITR 166; 77 ATC 4076: (Lunney's Case) found that the expenses in travelling from home to work did not have a connection with the activities carried out by the taxpayers to earn their income. It was accepted that although the travel expenses were necessary and a prerequisite to earning income, the travel itself was not an activity that earned the 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.

Conclusion

In your case, you have two places of employment and you have incurred accommodation and travel expenses when working in city B due to the distance your place of employment is from where you normally reside.

Your expenses of travelling to and living in city B are incurred in order for you to be closer to your work at your city B office.

While living and working in city B it is considered that you set up residence there for that period of time even though it is on a temporary basis.

However, while incurred in order to enable you to earn income, they are not incurred in the course of earning that income.

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 city B and the accommodation expenses that you incur while there are not deductible under section 8-1 of the ITAA 1997.