Edited version of your written advice

Authorisation Number: 1012739909716

Ruling

Subject: Travel and accommodation expenses

Question

Are you entitled to a deduction for your travel or accommodation costs?

Answer

No.

This ruling applies for the following periods

Year ending 30 June 2015

Year ending 30 June 2016

The scheme commenced on

1 July 2014

Relevant facts

You are currently employed.

You will be relocating overseas.

Your employment contract is based on the host country's work conditions and laws.

Your employer is not providing any allowances and you are responsible for your own airfares, travel insurance and accommodation.

Your employment contract is for 12 months.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

Allowable deductions

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 or are necessarily incurred in carrying on a business for the purpose of 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 (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 (Ronpibon's case)), 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).

Travel expenses - airfares

The general rule is that relocation and moving expenses are not incurred in earning the assessable income but are a prerequisite to the earning of that assessable income in the same manner as travel expenses to and from work.

Taxation Ruling IT 2481 Income tax: travelling expenses of an employee moving to a new locality of employment outlines the deductibility of travelling expenses of an employee moving to a new locality of employment and states that a deduction is not allowable. Where a taxpayer transfers from one locality to another, and incurs expenditure in moving from one place of residence to a new place of residence to take up the duties of the new position, that expenditure is not incurred in gaining or producing assessable income and is not deductible. The taxpayer is not travelling on his/her work, but is travelling to his/her work. Nor is the taxpayer travelling between two places of employment.

IT 2566 Income tax: deductibility of travelling expenses of employee, spouse and family incurred by employer in relocating the employee 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.

IT 2614 Income tax and fringe benefits tax: employee expenses incurred on relocation of employment states that removal and relocation expenses to take up an appointment with a new or existing employer are not allowable deductions, even if an allowance or reimbursement is received. This is so whether the transfer is voluntary or at the employer's request.

Therefore, you are not entitled to a deduction for your airfare costs in relocating to the overseas country. Such expenses are not incurred in gaining or producing your assessable income, but rather the expense is a prerequisite to your work. The expenditure is inherently of a private or domestic nature and is not allowable under section 8-1 of the ITAA 1997.

Travel insurance

No deduction is allowed for your travel insurance costs. Travel insurance expenses are inherently private in nature. This was highlighted in Case T78 86 ATC 1094 where a claim for travel insurance was found to be expenditure of a private and domestic nature and therefore not deductible. Travel insurance policies invariably cover items that are generally private in nature, for example, illness, loss of baggage and theft or damage to belongings. As travel insurance is regarded as private in nature, no deduction is allowed for the associated expense.

Accommodation expenses

Expenditure on the daily necessities of life (for example, accommodation, food and drink) 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.

Taxation Ruling TR 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business considers occasions where accommodation expenses and other travel expenses may have the essential character of an income-producing expense where the expenditure is incurred while away from home overnight on a work related activity. Such expenses incurred may be deductible under section 8-1 of the ITAA 1997.

However, where a taxpayer is away for an extended period of time and has established a new home, the associated costs including accommodation and meals remain private in nature and are not deductible under section 8-1 of the ITAA 1997.

Although TR 98/9 relates to self-education expenses, the principles outlined are relevant in your circumstances.

TR 98/9 lists the key factors to be taken into account in determining whether a new home has been established. They include:

• the total duration of the travel

• whether the taxpayer stays in one place or moves frequently from place to place

• the nature of the accommodation (hotel, motel, long term accommodation)

• whether the taxpayer is accompanied by his or her family

• whether the taxpayer is maintaining a home at the previous location while away, and

• the frequency and duration of return trips to the previous location.

TR 98/9 provides examples designed to illustrate factors and circumstances that are relevant in determining whether a taxpayer has established a new home in the new location. No one test will satisfy all circumstances. The question of whether a new home has been established depends on all the facts.

In your case, you will be living and working overseas for 12 months. The length of time that you will live overseas, and the fact that you have employment there for the 12 months indicate that, you will establish a new home for that period.

Therefore, you are not entitled to a deduction for your accommodation or meal expenses while living overseas, as the expenses are not incurred in gaining or producing assessable income. The expenditure is inherently of a private or domestic nature and is not allowable under section 8-1 of the ITAA 1997.