Edited version of your written advice

Authorisation Number: 1012692417273

Ruling

Subject: tour expenses

Question

Are you entitled to a deduction for your tour?

Answer

No.

This ruling applies for the following period

Year ended 30 June 2014

The scheme commenced on

1 July 2013

Relevant facts

You are a full time teacher.

In order to maintain your registration you are required to undertake both prescribed school funded and independent self-funded professional development in academic and sociological areas relevant to the students you teach.

Some of this training and educational experience is undertaken during the term breaks.

Currently your students represent a mix of cultures. You are required to teach local history, culture, geography, science, social skills and physical education.

You are not a local. You came to the area to teach a few years ago.

Competent teachers require sound, ongoing academic and field knowledge of the subjects they teach and a deep and sensitive knowledge of the cultural, environmental backgrounds of their students in order to provide a relevant, meaningful and enjoyable education.

You undertook a self-funded educational and relaxing tour of nearby areas during the school term break.

The tour provided you with a very real informal study of the area's culture and history, geography and natural science, that included seeing the diverse native fauna and flora.

The students need to be educated to appreciate and care for their environmentally rich natural and cultural heritage. Your new knowledge will be embedded in the subject topics you are required to teach. You took photos to show the students to help educate them about the area where they live.

You paid for the tour in the 2013-14 financial year. You went on the tour in the 2014-15 financial year.

You provided a letter from your employer who endorsed your tour to be part of your self-funded professional development.

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, 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.

Taxation Ruling TR 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business considers occasions where travel expenses may have the essential character of an income-producing expense. Whilst the ruling discusses self-education expenses the principles contained in it are relevant to your situation.

TR 98/9 explains that travel expenses incurred on study tours or sabbatical may be deductible if the necessary connection with a person's income producing activity exists.

However, TR 98/9 explains that if the subject of the self-education is too general in terms of the taxpayer's income-earning activities, the necessary connection between the expense and the income earning activity does not exist.

Taxation Ruling IT 2198 Income tax: Allowable deductions: expenditure voluntarily incurred by employee taxpayers deals with allowable deductions for voluntary expenditure incurred by employee taxpayers. Paragraph 13 states that the Taxation Boards of Review have seen a number of teachers seeking income tax deductions for travelling expenses. Most of the claims were rejected because the teachers were not able to establish a positive connection between the travel and the performance of their duties of employment as teachers. In the ultimate the claims have been based on a general proposition that the travel has made the taxpayers better able to carry out their duties which, of itself, is not sufficient to enable the expenditure to be allowed as a deduction.

In Case R94 84 ATC 628 a college librarian was disallowed overseas travel expenses in making a study tour of China organised by the Library Association. The benefits derived by the taxpayer might have made her a better librarian, but the nexus between the outgoings and deriving assessable income was too remote. The taxpayer voluntarily made the trip and the expenditure was essentially of a private nature.

In the Board of Review Case R47 84 ATC 380; (1984) 15 ATR 824, the taxpayer, a French language teacher, claimed a deduction for part of the expenses in travelling to France. The trip was not undertaken at the request of the taxpayer's employer. She asserted that the trip increased her teaching skills.

The Board of Review stated that the fact that the taxpayer became a better teacher because of the trip did not mean that expenses were incurred in the course of gaining her assessable income as a teacher. The expenditure was incurred in relation to a period during which the taxpayer was without obligation to render service to her employer. Notwithstanding that her experience would be of value when she resumed performing the duties of her employment, the essentially recreational nature of the journey did not alter.

In Case U109 87 ATC 657, the taxpayer was a science teacher who specialised in geology and was the head of the school science department. He undertook a 17 day trip to Indonesia organised by a natural museum history society of which he was a member. During the course of the trip he visited several volcanoes and other geological sites, and attended a geological congress. He also visited some tourist attractions. The taxpayer took many slides of the geological sites and prepared a taped commentary which he used in his teaching on his return.

The Administrative Appeals Tribunal (AAT) examined previous court decisions dealing with teachers who had claimed for the cost of overseas travel. It concluded that the trip was essentially recreational in character and not deductible. The AAT also stated that some taxpayers are fortunate in finding personal and recreational satisfaction in their field of endeavour and that in this case the trip was recreational in character and not deductible.

In Case J68 77 ATC 572, the taxpayer, a geography and history teacher, and his wife travelled to South East Asia (Indonesia, Singapore and Malaysia). Prior to the relevant year, the taxpayer had attained deputy principal status. The taxpayer claimed a deduction of $720 representing expenses incurred by him in relation to the trip and this was disallowed by the Commissioner. Before the Board the taxpayer sought to justify his claim, firstly, by reference to the fact that his specialised subject was geography, the syllabus for which course included South East Asia, and, secondly, by reference to the circumstance that the school at which he was situated was part of a community school which had cultural problems with Aboriginals and that his overseas trip had enabled him to consider at first hand other cultures and their problems. The claim was disallowed as the outgoing claimed was not incurred in the gaining or production of the taxpayer's assessable income.

The circumstances of your case can be compared to the above decisions. It is acknowledged that the tour will provide you with first hand knowledge, but it does not in itself mean that the expenditure is incurred in gaining or producing your assessable income. The tour may broaden your knowledge and benefit you as a teacher. However, as with the cases quoted above, the courts have held that these reasons alone are not enough to demonstrate a sufficient connection between the expenses and your income-producing activities.

While we acknowledge the benefits of the trip, the knowledge to be gained from your trip is not considered to be incurred in the course of gaining your assessable income. There are many experiences and places of interest which may help a teacher however this does not automatically mean that the associated expenses are deductible. Improving your knowledge of the local area may impact on your working life, however, it is not a cost that is sufficiently connected to your assessable income.

The tour and places visited are open to all to experience and are equally relevant to other occupations and members of the public. The fact that your tour will include visits to various areas does not change the nature of your expenses into work related expenses. The knowledge and experience gained from your trip is too general in nature for the expenses to be incurred in the course of gaining your assessable income.

We acknowledge that the tour was recognised as professional development. However the tour activities are largely recreational and personal in nature.

Although your employer supported your tour, it was not a requirement of your employer to do the tour. There is no evidence to show that the trip will result in any promotion or increase in assessable income or have any identifiable impact on your assessable income.

Accordingly, the expenses for the tour are not considered to be sufficiently connected to your income earning activities. That is, the trip does not have a close enough nexus to your assessable income. Furthermore, the trip is considered to be essentially recreational and private in nature. Therefore, the costs you incurred are not deductible under section 8-1 of the ITAA 1997.