Edited version of your written advice

Authorisation Number: 1012692852690

Ruling

Subject: Work related travel

Question 1

Are the travel expenses between your home office and your business office deductible?

Answer

No

This ruling applies for the following period(s)

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

Year ended 30 June 2017

Year ended 30 June 2018

The scheme commences on

1 July 2013

Relevant facts and circumstances

You are the managing director of a company. You travel between your home office and your business office on a daily basis.

On an average day you spend x hours a day working from your home office and then travel to the business office to supervise your employees. After the employees leave you travel back to your home office to do x hours more work. On the return trip you transport 2 to 3 boxes of goods for your spouse a home based employee to make ready for sale.

The boxes are 40 x 30 x 30 cm

Your employment duties at home include account reconciliations, inventory management, banking, product research, writing of product descriptions and responding to customer emails.

Your primary role at the office is to manage staff, prepare parcels for daily collection by Australia Post and overseeing aspects of production.

You work from home for the following reasons:

• your home office has a dedicated computer

• quieter surroundings as production is noisy at the office

• requirements to provide instructions to your spouse for production of work

• so work can be completed at odd hours

• to spend time with your family given you work 12 to 16 hours a day.

You do not receive any allowance or reimbursement for the travel from your employer.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Section 8-1 of the 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.

Home to work travel

A deduction is generally not allowable for the cost of travel by an employee between home and their normal workplace as it is considered to be a private expense. The cost of travel between home and work is generally incurred to put the employee in a position to perform duties of employment, rather than in the performance of those duties (Lunney v. FC T (1958) 100 CLR 478; (1958) 11 ATD 404).

There are limited situations where it has been accepted that travel by employees from home to work is deductible. This is where:

• the employee's employment is inherently of an itinerant nature (FCT v Weiner 78 ATC 4006, 8 ATR 335)

• the employee has to transport by vehicle bulky equipment necessary for employment (see FCT v Vogt 75 ATC 4073, 5 ATR 274)

• where the employee starts a work activity at home and then by necessity has to travel to an alternative workplace to complete that work activity (FCT v Collings 76 ATC 4254, 6 ATR 476).

In your circumstances it is not considered that the nature of your employment is inherently itinerant.

Bulky Tools

One of the general exceptions to the non-deductibility of travel between home and work is where a taxpayer is required as part of their employment to carry bulky tools or equipment such as a large musical instrument or a heavy tool box and there is nowhere to store the above at the place of their employment.

In Vogt a professional musician was allowed deductions for motor vehicle expenses incurred by him in travelling between his place of residence and the various places which he performed. In reaching this conclusion Justice Waddell had regard to the facts the taxpayer earned his income by performing at several places on musical instruments and that he brought the instruments to the place of performance, the instruments were of substantial value and bulk which meant they could only be transport conveniently by the use of a motor vehicle.

Taxation Ruling IT 112 provides the Commissioner's view on the deductibility of home to work travel. At paragraph 21 the ruling provides that home to work travel will be deductible due to bulky tools and equipment where:

… income is earned by performing his duties at several palaces by using his own equipment which he brings to the place of performance; the equipment is of substantial value and of such bulk that it can only be conveniently transport by the use of a motor vehicle; and, there are justifiable reasons for the taxpayer to keep the equipment at home; and

The essential character of the expenditure itself is such that the expenditure is incurred as part of the operation why which the taxpayer earns his income; there is no other practicable way of getting his equipment to the places where he is to perform; and, the expenditure may be attributable to the carriage of the equipment rather than to his travel to the place of performance.

It is considered in your circumstances you do not meet the above criteria as the goods transported are not equipment or tools that you use to perform your duties. Additionally it is not accepted that if the goods are produced at the office and those goods are collected from the office by Australia Post, that there is not space to store them at your business office. Consequently the travel is based more on the personal convenience of choosing to work from home and the travel will not be deductible due to the transport of boxes containing goods.

Completing work started at home

Paragraph 56 of Taxation Ruling 95/34 states that an employee's home may constitute a base of operations if the work is commenced at or before the time of leaving home to travel to work and the responsibility for completing it is not discharged until the taxpayer attends at the work site.  Whether an employee's home constitutes a base of operations depends on the nature and the extent of the activities undertaken by the employee at home. 

In Collings v. FCT 76 ATC 4254 a highly trained computer consultant was required by her employer to be on call 24 hours a day. The taxpayer was allowed a deduction for car expenses incurred by her in travelling between home and work solely outside the normal daily journeys to and from work. In order to assist in diagnosing and correcting computer faults while at home, she was provided by her employer with a portable terminal.

In accordance with the terms of her employment, she used the terminal at home in the performance of her duties. If she could not resolve the problem over the telephone, she would return to the office in order to get the computer working. In these particular circumstances, the expenses were found to be incurred in gaining or producing her assessable income and were not of a private or domestic nature. The abnormal journeys to and from home were made necessary by the very nature of the employment and of her duties.

Your situation is distinguishable in that you do not commence a work activity at your residence and then complete that activity at another work site. Rather you on a regular scheduled basis travel between your home office and your business office. The duties you complete at your business office are different to those completed at home and are not a continuance of work started at home. Consequently due to the above it would be considered the travel expenses are incurred in relation to your personal choice to work from home and therefore not deductible under the principles from Collings.

Travel on work

As discussed above we do not believe that your situation fall under any of the common law exceptions which allow deductions for travel from home to work. The question then remains as to whether the travel is deductible by virtue of being travel as part of your employment duties. In your situation you transport goods for the business from your business office to another employee's residence to clean and prepare for sale, and then subsequently transport the goods back to your business office to the be picked up by Australia Post.

However in this situation the relationship between you the managing director of the company and the employee is not arms-length, in that the employee who prepares the goods is also your spouse who lives at the same residence. If the relevant goods are produced at your business office and sent out to customers from the same location, it makes little commercial sense to then clean and prepare the goods from another location and incur the additional expenses in traveling to and maintaining that location. Therefore we consider that this arrangement lacks the commerciality of a normal business arrangement and any business travel is incidental to a choice made by you and your spouse to work from home for personal convenience. Consequently the travel expenses will not be deductible under section 8-1 of the ITAA 1997 as they are private and domestic in nature as normal home to work travel.