Edited version of your written advice

Authorisation Number: 1012760634000

Ruling

Subject: Accommodation expenses

Question

Is a deduction allowed for accommodation expenses incurred in place A?

Answer

No.

This ruling applies for the following periods

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

Year ended 30 June 2016

The scheme commenced on

1 July 2012

Relevant facts

You operate a business in place A.

You previously maintained a private residence at place A.

You moved from place A to place B.

You maintain a private residence at place B.

You travel from place B to place A each week and generally stay in place A for a few nights. The sole purpose of travel to place A is for business.

You have rented a house in place A for this purpose. This is cheaper than staying at a motel.

You also carry out some business administration work at place B via remote access.

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 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.

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).

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

An exception to this is where you are undertaking work related travel and are required to stay away overnight. However, no deduction is allowable if a taxpayer is merely staying closer to their usual work location.

In Federal Commissioner of Taxation v. Toms 20 ATR 466; 89 ATC 4373, (Toms Case) 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 worker's 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.

Your situation is comparable to Toms case. In your case you incur accommodation expenses near your place of business. Although your business remains in place A, you have moved to place B to live. This move is regarded as a personal choice.

The travel between place B and place A is not incurred in earning the assessable income of the business and is not regarded as work related travel. We acknowledge the distance travelled, however, the distance travelled between place B and place A does not alter the private nature of the travel. Your accommodation expenses are incurred to put you in a place where you are closer to your business and are not related to the actual income earning activities of the business. They are more a convenience and a prerequisite to the earning of assessable income and are not expenses incurred in the course of gaining or producing that income. Furthermore, even though the expenditure may have a causal connection with the earning of income, the expenditure is inherently of a private or domestic nature. Accordingly, you are not entitled to a deduction for the accommodation expenses under section 8-1 of the ITAA 1997.