Edited version of your written advice

Authorisation Number: 1012871949076

Date of advice: 2 September 2015

Ruling

Subject: Deductibility of travel expenses

Question and answer

Are you entitled to a deduction for the expenses you incur in travelling between home and the workplace?

No.

This ruling applies for the following periods:

Year ended 30 June 2015

Year ending 30 June 2016

The scheme commences on:

1 July 2014

Relevant facts and circumstances

You are an employee of the Australian Public Service.

You are required to abide by the Australian Public Service (APS) Values and Code of Conduct.

Each day you travel by car from your home to work and back.

You incur expenses in relation to your travel for fuel, insurance, registration, servicing, tolls and parking.

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, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

The courts have considered the meaning of 'incurred in gaining or producing assessable income'. In Ronpibon Tin NL Tong Kah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; 56 ALR 785; 8 ATD 431 the High Court stated that:

For expenditure to form an allowable deduction as an outgoing incurred in gaining or producing assessable income it must be incidental and relevant to that end. The words "incurred in gaining or producing the assessable income" mean in the course of gaining or producing such income.

Certain expenditure is incurred in order 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) 7 AITR 166).

The deductibility of travel expenses is discussed in Taxation Ruling IT 112 Deductibility of travelling expenses between residence and place of employment or business. The general rule is that travel between home and a person's regular place of employment or business is ordinarily private travel. While travel to work is a necessary pre-requisite to earning income, it is not undertaken in the course of earning that income.  Any expenses related to such travel are incurred at a point too soon to have the necessary connection with gaining or producing assessable income.

In your case, you travel from home to your workplace and believe your expenses may be deductible in light of the outcomes of two recent court cases.

In John Holland Group Pty Ltd & Anor v FC of T (2015) ATC 20-510 (John Holland case), which related to the taxable value of residual fringe benefits, the Full Federal Court found that travel costs incurred periodically by an employer to transport fly-in fly-out employees from Perth to Geraldton (WA) for a rail upgrade project and back again would have been an allowable deduction to the employees under section 8-1 of the ITAA 1997 if the costs had been incurred by them.

In this case, the employees commenced their 'rostered-on' employment duties from the time of their arrival at Perth Airport (the point of hire). Their travel on the flight from Perth Airport to Geraldton, and the return flight, occurred during rostered-on work time during which the employees were remunerated at the applicable hourly rate.

All travel between Perth Airport and Geraldton was controlled, arranged and paid for by the employer; the employees had no control over their travel arrangements. The employer specifically directed that the employees undertake travel by requiring them to present themselves at the point of hire, Perth Airport at a specified time to embark on a specified flight. The same procedure applied on returning from Geraldton.

The terms of employment required employees to act in accordance with directions from their employer and to observe certain codes of conduct. During travel on the employer's time, the employees were bound to comply with all the employer's directives and policies and disciplinary action (including dismissal) could result if an employee breached any of the requirements.

The court found that at no time were the employees travelling to work, they were travelling on work, and the cost of doing so would have been an allowable deduction to them.

In Kevin Cooper v Australian Taxation Office [2014] FWC 7551; [2015] FWCFB 868 (Cooper's case), a former employee lodged an unfair dismissal claim with the Fair Work Commission (FWC) after he was dismissed by the ATO for a breach of the APS Code of Conduct arising from criminal convictions unrelated to his employment duties. The former employee submitted that there was no valid reason for the dismissal as the convictions were not work related and there was no work nexus to the convictions. However, the FWC found that the dismissal was lawful and the former employee's subsequent appeal was dismissed.

The FWC agreed with the ATO submission that the relevant parts of the APS Code of Conduct require an ATO employee to behave 'at all times' in a way which maintains integrity and reputation of the APS and it was accepted that this creates an overriding obligation, not just in work time or workplaces, for an employee to behave with the highest ethical standards so the APS's reputation is maintained (paragraph 50). It was also accepted that public sector employment has a 'special value' which is particularly so with an agency like the ATO which must maintain the confidence of the general public in dealing with their taxation and financial affairs (paragraph 52).

The FWC also restated that a failure to comply with a lawful and reasonable policy is a breach of the fundamental term of the contract of employment that obliges employees to comply with the lawful and reasonable directions of the employer (paragraph 39).

In reference to Cooper's case, you state that as an APS employee, the contractual agreement between yourself and your employer infers that you 'must at all times' behave in accordance with the APS Values and Code of Conduct. As such, a reasonable assumption would be that you are never 'off duty'. When travelling between your home and workplace you are subject to a contractual agreement between yourself and your employer.

Further, in reference to the John Holland case, you state that while you do not receive payment for travelling between your home and workplace, you are travelling subject to the lawful directions of your employer and the APS Code of Conduct.

Therefore, you consider that the travel between your home and workplace is not travelling to work, it is travelling on work, and as such the expenses you incur should be fully deductible under section 8-1 of the ITAA 1997.

While it is clear that the contractual agreement between yourself and your employer requires you to behave in accordance with the APS Values and Code of Conduct and this behaviour may be expected to extend to 'at all times', we do consider that your employment conditions are similar to those of the employees in the John Holland case.

In the John Holland case:

• the employees commenced their paid employment duties from the time of their arrival at Perth Airport (the point of hire);

• the employees travel on the flight from Perth Airport to Geraldton, and the return flight, occurred during paid work time;

• the employer specifically directed that the employees undertake travel by requiring them to present themselves at Perth Airport at a specified time to embark on a specified flight; and

• all travel between Perth Airport and Geraldton was controlled, arranged and paid for by the employer with the employees having no control over their travel arrangements.

The above employment conditions can be contrasted to yours in which you are paid on arrival at the actual workplace and cease being paid when you leave the workplace each working day. You are not paid from when you leave your home, you are not travelling in the course of your employment and you are not subject to the directions of your employer in regard to how and when you should travel to and from work.

The expenditure you incur is not incurred in the course of gaining or producing your assessable income; rather, the expenses are incurred to enable you to commence your income earning activities.

Consequently, the travel between your home and workplace is private or domestic in nature and the car expenses incurred during this travel are not deductible.