Edited version of your written advice

Authorisation Number: 1012716055397

Ruling

Subject: allowance

Question 1

Is the living away from home allowance as shown on your payment summary assessable income?

Answer

Yes.

Question 2

Are you entitled to a deduction for accommodation and electricity expenses?

Answer

No.

This ruling applies for the following periods

Year ended 30 June 2014

Year ended 30 June 2015

The scheme commenced on

1 July 2013

Relevant facts

The arrangement that is the subject of the Ruling is described below. This description is based on the following documents. These documents form part of and are to be read with this description. The relevant documents are:

• the application for private ruling,

• PAYG payment summary dated 30 June 2014, and

• enterprise agreement.

Your employment requires you to work on various job sites, usually at place A.

You were directed by your employer to undertake work at place B. You have been working in place B for more than six months and are likely to remain there for a further two months.

The distance between your home in place A and the place Bo workplace is more than 100km.

You have relocated to rental premises in place B.

You still have personal belongings in place A. You will return there once the project in place B is completed.

While living and working in place B, you are receiving a weekly allowance. This allowance is showing as an assessable living away from home allowance on your payment summary and not as a fringe benefit.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Income Tax Assessment Act 1997 Section 15-2.

Reasons for decision

Assessable income

Section 15-2 of the Income Tax Assessment Act 1997 (ITAA 1997) states that your assessable income includes the value to you of all allowances, gratuities, compensation, benefits, bonuses and premiums provided to you in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by you.

Allowances are generally regarded as assessable income except where they are fringe benefits within the Fringe Benefits Tax Assessment Act 1986 (FBTAA).

Income derived by a taxpayer through the provision of a fringe benefit by an employer is not assessable income in the employees hands by the operation of section 23L of the Income Tax Assessment Act 1936 (ITAA 1936).

In your case you received an allowance while working in place B. The employer has called this allowance a living away from home allowance on your payment summary. The payment summary states that this amount needs to be shown separately in your tax return.

Whether the allowance is a living away from home allowance for taxation purposes in determined under the FBTAA. Subsection 30(1) of the FBTAA defines living away from home allowance benefits.

There is no information to show that your employer has provided you with a fringe benefit. Also you have not advised that you have completed a living away from home declaration for your employer.

Based on the information provided, your allowance is not regarded as a living away from home allowance for taxation purposes.

There is no other relevant exemption in relation to your allowance. Therefore your allowance is assessable under section 15-2 of the ITAA 1997.

Allowable deductions

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.

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 (Lunney's case)), 

• 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).

Although an allowance is assessable income, you are not automatically entitled to a deduction for expenses incurred in relation to an allowance. The expenses must meet the criteria for deductibility under section 8-1 of the ITAA 1997.

Expenditure on the daily necessities of life (for example, accommodation and meals) is generally not deductible as it is not incurred in gaining or producing assessable income and is also considered to be private or domestic in nature.

Exceptions to this are where you are undertaking work related travel and are required to stay away overnight. However, no deduction is allowable if a taxpayer is merely maintaining accommodation close to their usual work location for convenience.

IT 2566 states that an employee who is travelling to commence employment duties at a new work location is not travelling on duty. The employment duties do not commence until the employee reports to work at the new location. This is so whether the transfer is voluntary or at the employer's request. When relocating to a new work site, a taxpayer is not travelling on their work, but is travelling to their work.

Certain expenditure is incurred in order to be in a position to be able to derive assessable income, for example unless a person arrives at work it is not possible to derive income. This does not mean that the expenditure is incurred in the course of gaining or producing assessable income. Rather, the expenses are incurred to enable the taxpayer to commence income earning activities (Lunney's case).

A deduction is generally not allowable for the cost of accommodation close to your normal work place because the expenses are not considered to be incurred in producing assessable income. These expenses are incurred to enable a taxpayer to commence their income earning activities and are therefore considered private in nature. The distance from a previous home does not alter the essential character of any accommodation or meal expenses incurred as they remain private in nature. The cost of accommodation close to work is generally incurred to put a person in a position to perform duties, rather than in the performance of those duties (Case V111 88 ATC 712, Taxation Rulings IT 2543 and IT 112).

This is supported by the decision in Federal Commissioner of Taxation v. Toms 89 ATC 4373; (1989) 20 ATR 466, where the Federal Court held that expenses incurred in relation to accommodation near the work place while maintaining a family residence in another location were not an allowable deduction as they were considered to be private expenses. The Federal Court disallowed the forest workers deduction for the cost of maintaining a caravan and other living expenses. The taxpayer's family home in Grafton was some 108 kilometres from the base camp so he lived in the caravan during the week and returned to the family home on weekends. The caravan was rendered necessary as much by the taxpayer's choice of the place of his residence in Grafton as by his employment in the State forest, and its purpose was to enable him to retain his residence in Grafton although he was employed in the State forest. Had he lived at a town closer to the forest, there is no question the caravan would have been unnecessary.

In your case, you receive an allowance for the time you are working in place B. You have been working in place B for more than six months. It is considered that place B is your normal place of work for this period. While it is acknowledged that your usual home is in place A, it is not considered that your travel between place A and B is work related travel. Rather it is private travel carried out to enable you to be closer to your work and commence your employment duties. The distance of the travel does not alter the private nature of the travel.

Expenditure on your accommodation is not deductible, even though the expenditure had a causal connection with the earning of income. The expenditure is inherently of a private or domestic nature and therefore no deduction is allowable under section 8-1 of the ITAA 1997 for your accommodation and electricity and other associated expenses.