Edited version of your written advice

Authorisation Number: 1012800338383

Ruling

Subject: Self-education - travel expenses

Question 1

Are you entitled to a deduction for accommodation, meals and public transport expenses incurred while staying in long term accommodation, and in connection with your appointment as a visiting research fellow at an overseas university?

Answer

No.

Question 2

Are you entitled to a deduction for short term accommodation, meals and incidental expenses incurred when travelling to conferences and presenting your research away from your home in an overseas country A, where the expenses were not paid by your employer and where they can be substantiated?

Answer

Yes.

Question 3

Can you rely on the Commissioner's reasonable allowance amounts without substantiation for meal and incidental costs incurred when travelling to conferences and presenting your research away from your home in overseas country A?

Answer

No.

Question 4

Are you required to amend your 2012-13 income tax return to remove deductions for pre-paid accommodation expenses claimed in relation long term accommodation in overseas country A?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2014

Year ended 30 June 2013

The scheme commences on:

1 July 2012

Relevant facts and circumstances

You are employed as a lecturer at an Australian University.

You participated in an 'outside studies program' and travelled to overseas country A for a period of six months.

Your children accompanied you and attended school in overseas country A for the duration of your stay.

You were officially appointed as a visiting research fellow at the overseas university for the full period you were stationed there.

The overseas university provided you with an office space and secretarial support, but did not pay a salary.

You were required to rent a two bedroom apartment while in overseas country A. An apartment was chosen over short term accommodation as it was a cheaper option. You have receipts to support this expenditure.

Your Australian employer continued to pay your salary whilst overseas.

Your Australian employer paid you a $ 'outside studies program award', which is referred to by the University as a "travel grant". It is a set amount granted to all awardees for undertaking a one-semester overseas 'outside studies program'. It is for the purpose of defraying costs associated with the outside studies program. This amount was included in your 2012-13 income tax return.

Whilst overseas you travelled to and presented research papers in several European countries, and used the travel grant to defray the following costs:

• accommodation, transport and meal costs in the overseas country A

• hotel accommodation in overseas country B

• train costs within in overseas country B

• train costs within overseas country C

• taxi fares in overseas country C and overseas country B, and

• all meals in overseas country C and overseas country B.

Your Australian employer paid the following expenses directly:

• the return airfare from Australia to the overseas country A

• the return airfare from overseas country A to overseas country B

• the return airfare from overseas country A to overseas country C, and

• accommodation in overseas country C.

You and your family incurred expenses for meals totalling $A. You wish to claim one third of the amount that can be substantiated through bank statements, the other two thirds being attributable to your spouse and your two young children.

In addition it is estimated that a further $B in cash was spent on food, mainly on lunches at the overseas university.

You and your spouse incurred commuting expenses (trains and buses) totalling $C.

Whilst overseas you rented your fully furnished family home in Australia, which was declared in your income tax return for the relevant financial year.

You did not return to Australia during the period you were overseas.

In your 2012-13 income tax return you have claimed a deduction for your share of prepaid rent in relation to the long term accommodation in overseas country A.

You maintained a travel diary showing particulars of each business activity undertaken during the period away from Australia.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Division 900

Income Tax Assessment Act 1997 Subsection 900-30(2)

Income Tax Assessment Act 1997 Subsection 900-30(3)

Income Tax Assessment Act 1997 Section 900-55

Income Tax Assessment Act 1997 Subsection 900-55(2)

Reasons for decision

Please note all references are to the Income Tax Assessment Act 1997 (ITAA 1997) unless otherwise stated.

Section 8-1 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.

The Commissioner's view on the deductibility of self-education expenses is contained in Taxation Ruling TR 98/9 and at paragraph 89 states:

89. Where a taxpayer is away from home overnight in connection with a self-education activity, accommodation and meals expenses incurred are deductible under section 8-1. (Examples include an overseas study tour or sabbatical, a work-related conference or seminar or attending an educational institution.) They are part of the necessary cost of participating in the tour or attending the conference, the seminar or the educational institution. We do not consider such expenditure to be of a private nature because its occasion is the taxpayer's travel away from home on income-producing activities.

However, paragraph 24(c) of TR 98/9, states that expenditure on accommodation and meals will not be allowable where you have travelled to another location and established a new home. The key factors to be taken into account in determining whether a new home has been established are:

• the total duration of the travel

• whether you stay in one place or move frequently from place to place

• the nature of the accommodation, for example, hotel, motel, or long-term accommodation

• whether you are accompanied by your family

• whether you are maintaining a home at your previous location while away, and

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

The question of whether a new home has been established depends on all the facts; there is no one test to satisfy all the circumstances. For this reason we look to the examples provided in TR 98/9 to assist in determining how these factors apply to you.

There are three possible examples in TR 98/9 that we will examine and compare with your circumstances. The first is example 3 at paragraph 99:

99. Example 3: Madonna undertakes a 5 month study tour in Europe. Her husband and family remain at the family home in Melbourne. The study tour involves travel to four separate locations in Europe for periods of between four and six weeks each. At each location, Madonna stays in serviced apartments.

100. The relevant factors are the short-term nature of the tour and accommodation, travel to several locations and the fact that she is maintaining a home in Melbourne. Together, they indicate that Madonna is travelling away from her home. The conclusion is the same if Madonna was accompanied by her husband and family and their Melbourne home was rented out for the period of the study tour.

In this example, the study tour was for a five month period but the fact that the taxpayer moved around and travelled to four different locations for a period of four to six weeks each, during that period determined the eligibility of her deductions.

The second example is at paragraph 101:

101. Example 4: James, a university lecturer, travels overseas for 12 months to undertake a studies program. He spends 10 months in the USA where he attends a university and 2 months based at an academic institution in the UK. He is accompanied by his wife and the family home in Australia is rented out while he is away. While in the USA, he resides with his wife in an apartment leased for the duration of their stay.

102. The facts indicate that James has established a new home in the USA for the period of his stay. He stayed in one place in leased accommodation with his wife for the 10-month period and the family home in Australia was rented out during the period he was away.

103. The facts in Case V15 88 ATC 177; AAT Case 4075 (1988) 19 ATR 3147 (Case V15) are similar to this example. In that case, the Commissioner argued that the taxpayer had established a new residence in the USA. While the AAT held that, on balance, the taxpayer had not established a new residence, the tribunal found the Commissioner's argument could not easily be dismissed. The AAT considered that in the particular circumstances it was more appropriate to regard the apartment as a place temporarily occupied by the couple in order that the taxpayer might perform the duties of his employment.

The third example is at paragraph 104:

104. Example 5: Katherine travelled overseas for 6 months to study at a university in Germany. She was accompanied by her husband and three children. An apartment suitable to accommodate the family was rented for the period of her stay and the family home in Australia was rented out.

105. The relevant factors are the period of time away, the renting of the family home and staying in one place with her family. These factors indicate that a new home was established in Germany.

106. A similar factual situation occurred in Case S80 85 ATC 589; 28 CTBR (NS) Case 88 (Case S80). While the case concerned the question of the appropriate apportionment of a rental expense, preliminary comments made by T J McCarthy (Member) support our view. He did not consider that any part of expenditure on accommodation was allowable as a deduction under section 8-1. He stated (85 ATC at 595; 28 CTBR (NS) at 690):

'Between ... the taxpayer was not travelling away from his home on his work. The apartment in Bonn was, and was intended to be, the family residence for five months. The older children went to school in Bonn and family life was centred in Bonn. Whilst in some cases questions of degree may be involved, I do not think there is any doubt in the present circumstances. The essential character of the rental expenditure is of a private or domestic nature.'

We note that you have only recognised Case V15 in your argument for deductibility of travel expenses that has accompanied the application for the private ruling. However as noted above, the Commissioner's view on the deductibility of self-education is contained in TR 98/9, which must be considered in its entirety.

In your case we consider the facts of your case to be most similar to Case S80.

• Total duration of the travel

The period that related to your outside studies program was six months.

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

With the exception of short trips to present papers in Europe, you established a home base in long term accommodation for the duration of your outside studies program.

• The nature of the accommodation, for example, hotel, motel, long-term accommodation

Your accommodation for the duration of the outside studies program was a two bedroom apartment, which is considered to be long-term accommodation for you and your family while overseas.

• Whether the taxpayer is accompanied by his or her family

Your spouse and children accompanied you and your children attended an overseas school for the duration of your stay.

• Whether the taxpayer is maintaining a home at the previous location while away

Your family home was tenanted for the duration of your travel overseas.

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

You did not return to Australia during the period you were overseas.

Long term accommodation and meals

The fact that you were accompanied by your family, your children attended school overseas, and the long term nature of your accommodation leads us to the conclusion that you established a new home whilst overseas.

It is acknowledged that you travelled to different locations to present your research while overseas. However your case can be distinguished from example 1 above, in that the occasions where you travelled to different locations were of a short duration, after which you returned to your home in overseas country A. You did not move from one place onto the other like in that example.

As you are considered to have established a new home, the travel expenses you incurred for accommodation and meals while staying at long term accommodation in overseas country A is not deductible under section 8-1 as they are considered private and domestic in nature.

Short term accommodation and meals - presenting research away from your home

Since you were away from your home and staying in the short term accommodation when presenting your research at various locations, you are entitled to a deduction for expenses you may have occurred that were not paid by your Australian employer directly, provided the substantiation requirements of Division 900 are met.

Other travel and public transport costs

Generally commuting between home and a person's regular place of employment or business is private travel. This was highlighted in the case of Lunney v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 11 ATD 404; (1958) 7 ATR 166. The reason for this decision is firstly, expenditure incurred must be in the course of deriving assessable income. Unless one arrives at work it is not possible to derive income. That is, 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. Secondly, the expenditure is of a private or domestic nature.

In your case you relocated overseas on an outside studies program and continued to be paid by your Australian employer. Once you arrived in overseas country A and commenced the program, it became your regular place of employment. Therefore other travel and public transportation expenses incurred when travelling between your home and place of employment (the overseas university) are private and domestic in nature and are not deductible under section 8-1.

Substantiation requirements

The substantiation rules that apply to certain types of expenses, including travel allowance expenses, are set out in Division 900 together with some exceptions available for certain work-related expenses.

A travel allowance expense is a loss or outgoing you incur for travel that is covered by a travel allowance (subsection 900-30(2)).

A travel allowance is an allowance your employer pays or is to pay to you to cover losses or outgoings that you incur for travel away from your ordinary residence that you undertake in the course of your duties as an employee and that are losses or outgoings for accommodation or for food or drink or are incidental to the travel (subsection 900-30(3)).

Section 900-55 provides an exception from the substantiation requirements for overseas travel allowance expenses. Taxation Ruling TR 2004/6 Income tax: substantiation exception for reasonable travel and overtime meal allowance expenses explains the way in which this substantiation exception operates.

The exception from substantiation for overseas travel allowance expenses provided by section 900-55 will only apply where all three of the following criteria are met:

• you receive a bona fide travel allowance

• your claim for travel expenses does not exceed the reasonable amounts set out by the Commissioner for travel allowance expenses, and

• you have actually incurred the amount of the expense claimed.

However subsection 900-55(2) states that exception from substantiation does not apply to accommodation expenses for overseas travel. As such substantiation must be provided for such expenses.

Bona fide travel allowance

What is considered to be a bona fide travel allowance depends on the facts of each case. The amount paid must be an amount that could reasonably be expected to cover the relevant expenses. This does not require that the amount paid by the employer must equate dollar for dollar to the employees actual expenditure. However the quantum of the travel allowance must be relative to the purpose for which it is said to be paid.

The Commissioner publishes reasonable amounts for accommodation, meals and deductible expenses incidental to travel each year. Taxation Determination TD 2013/16 sets out the amounts the Commissioner considers are reasonable for the 2013-14 financial year. The amounts set for meal and incidental expenses represent what could reasonably be expected to be incurred for such expenses.

In your case, you were paid a travel grant to assist in defraying costs associated with the outside studies program. This grant is a set amount of $ paid to all staff who undertake the research program. As you participated in the outside studies program for X days, the payment equates to approximately $Z per day. This amount would not reasonably be expected to cover the meals and incidental expenses associated with the outside studies program and as such, the allowance you receive is not a bona fide travel allowance. Therefore it does not fall within the definition of a travel allowance in subsection 900-30(3).

Consequently, you are not able to rely on the substantiation exception contained in section 900-55 in regard to the meal and incidental expenses you incur during the outside studies program.

While you are unable to rely on the exception from substantiation, it does not mean that you cannot claim deductions for your accommodation, meal and incidental expenses incurred when away from your home and staying in the short term accommodation when presenting your research at various overseas locations. To be entitled to claim a deduction for these expenses you will need to have the relevant written evidence to substantiate the expenses you have actually incurred.

Please note, you are required to amend your 2012-13 income tax return to remove any deductions for travel expenses claimed in relation to the outside studies program.