Edited version of your written advice

Authorisation Number: 1012858869475

Date of advice: 12 August 2015

Ruling

Subject: Accommodation expenses

Question

Are you entitled to a deduction for your accommodation expenses?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2015

The scheme commences on:

1 July 2014

Relevant facts and circumstances

Your employer is based in City A.

Your employment contract requires that you must equip a home office where you must work when you are not working onsite with a client.

Your employer does not provide you with a specific work desk in City A.

Your employer has requested that you work on a contract where the client requires that you be onsite in City B for the majority of the week.

You work the remainder of the week in your home office.

In City B you stay in an apartment as it is cheaper than staying in a hotel.

While working in City A you are mostly working on other work for your employer not directly associated with any individual client.

You live in City A with your spouse and family.

Your employer does not pay for any accommodation costs.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Summary

The accommodation expenses you incur while working in City B, are, of a private nature and are incurred as a consequence of having your home in one place and working in another. Therefore, they are not incurred in gaining or producing your assessable income and are not deductible.

Detailed reasoning

Section 8-1 of the Income Tax Assessment Act 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. 

Certain expenditure is incurred in order to be in a position to be able to derive assessable income, for example unless one 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 & Hayley v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 11 ATD 404; (1958) 7 AITR 166).

Generally accommodation and travel expenses incurred by a person, who lives away from home in order to carry out employment duties at the place of employment, will not be deductible. Expenses of this nature are private, or incurred before or after the activity of earning assessable income. 

The issue of expenses incurred in relation to accommodation near the work place while maintaining a family residence in another location has been considered by the courts on a number of occasions.

In the case Federal Commissioner of Taxation v. Charlton 84 ATC 4415; (1984) 15 ATR 711 (Charlton's Case), the taxpayer was a pathologist employed to carry out autopsies for the local coroner in Bendigo. He rented a flat in Bendigo while maintaining a permanent family home in Melbourne, located approximately 150kms away. There was evidence that there was difficulty in finding motel accommodation in Bendigo and the taxpayer was reluctant to make the round trip back to Melbourne without rest.  The taxpayer claimed that the rental expenses were incurred in the production of assessable income. 

Justice Crockett of the Supreme Court of Victoria ruled:

The Commissioner contends (correctly in my view) that, if the taxpayer should choose to reside so far from the place where it is necessary for him to be in order to gain his income that he, not only needs to incur expense in travelling to that place but, also to incur expense in the provision to him of some accommodation transitory or discontinuous in its use and secondary to or temporarily supplemental of his actual home, then that expense, too, is for the same reason non-deductible.

The taxpayer's election to live in Melbourne and not in Bendigo meant that the rental expended on the flat in order to enable him to secure accommodation in which to recuperate from the rigours of travel and the nature of his work was an expenditure dictated not by his work but by private considerations.

This is supported by the decision in Federal Commissioner of Taxation v. Toms 89 ATC 4373; (1989) 20 ATR 466 (Toms Case), 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.

Your circumstances are considered to be comparable to those in Charlton's case and Toms' case. While we acknowledge that your employer is based in City A, for the duration of the contract your primary place of employment is in City B. The fact that you are required to work out of a home office in City A and that you mostly do work that is not associated with any particular client when you are not required in City B further indicates that your primary place of employment is in City B and that the accommodation expenses are incurred because you live in one city and work in another.

Your accommodation expenses to stay in City B will be incurred to put yourself in a position to perform your duties and not in the actual performance of those duties. Therefore, your accommodation expenses are considered to be of a private or domestic nature and are not deductible under section 8-1 of the ITAA 1997.