Edited version of your written advice

Authorisation Number: 1012875061400

Disclaimer

You cannot rely on this edited version in your tax affairs. You can only rely on the advice that we have given to you or to someone acting on your behalf.

The advice in the Register has been edited and may not contain all the factual details relevant to each decision. Do not use the Register to predict ATO policy or decisions.

Date of advice: 9 September 2015

Ruling

Subject: Business deductions

Question 1:

Are you entitled to a deduction for your accommodation and food expenses incurred while living in city B when you are also maintaining your family home in city A?

Answer:

No

Question 2:

Is the cost of the course for your employee that was incurred by you deductible?

Answer:

Yes

This ruling applies for the following period:

Year ended 30 June 2015

The scheme commenced on:

1 July 2014

Relevant facts

You operated a sole trading business.

You maintain a family home in city A where your family lives.

During part of the financial year you moved to city B to provided services as part of your business.

You returned to city A upon completion of your work in city B.

You paid accommodation and food expenses while you stayed in city B.

You employ a person as part of your business activity.

The taxpayer undertakes a number of duties as part of their employment with the business.

In order to enhance your businesses earning potential and to enhance your employee skills you have paid for your employee to undertake a course.

The course relates to the employee duties.

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 a loss and outgoing to the extent that it is incurred in gaining or producing assessable income. However, a loss or outgoing is not deductible if it is of a capital, private or domestic nature, or it is incurred in gaining or producing exempt income.

In order for a deduction to be allowable, it must be incurred in the course of gaining or producing assessable income. A deduction is not allowable if it is a prerequisite to the derivation of assessable income.

Accommodation and food expenses

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 food expenses incurred by a person who lives away from home in order to carry out his or her work duties, at the place of work, 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.

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 city B, 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 agreed with the Commissioner and stated:  

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 decisions 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 case is comparable to that of the taxpayers in Charlton's case and Toms' case. From the information provided it is clear you are based in city A and you have made a choice to move away from your family home in city A to relocate to city B for a period of time to provide services as part of your business activities. Any accommodation and food expenses you incurred 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.

Accordingly, your accommodation and food expenses are considered to be of a private or domestic nature. The expenses do not have the character of an outgoing incurred in gaining assessable income and, therefore, are not deductible under section 8-1 of the ITAA 1997.

The course expenses

Generally a deduction for employee training is an allowable deduction under section 8-1 of the ITAA 1997 where the loss or an outgoing is necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income.

Taxation Ruling TR 95/33 considers when a loss or an outgoing will be necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income.

Paragraph 9 states that this test requires that the expenditure in question must have the necessary connection with the operations or activities which more directly gain or produce assessable income. Paragraph 36 indicates that this will be the case where an examination of the objective facts and circumstances discloses an obvious commercial connection between the loss or outgoing and the carrying on of the taxpayer's business.

You are carrying on a business of providing services. You have employed a qualified person as a necessary part of your business. You have decided that your employee needed to improve their skills and to achieve this aim you have paid the cost for your employee to undertake a course.

It is considered that there is a commercial connection between the expenditure on improving the employee's skills and the carrying on of your business. This satisfies the test that the expenditure must have the necessary connection with the activities which directly gain or produce assessable income.

Therefore, you will be entitled to a deduction under section 8-1 of the ITAA 1997 for the cost of putting your employee through the course.

Other information

Employers pay fringe benefits tax (FBT) on certain benefits they provide to their employees or their employees' associates. The payment of training for an employee to enhance an employee's skills may be subject to FBT. However, the liability to FBT may be reduced by the 'otherwise deductible' rule if the employee would have been entitled to a deduction for the expense if they had incurred it. Further information on FBT is available on the Australian Taxation Office's website at www.ato.gov.au.