Edited version of your written advice

Authorisation Number: 1012881158503

Date of advice: 18 September 2015

Ruling

Subject: Meal and travel expenses

Question 1

Are you entitled to a deduction for your meals while working overseas?

Answer

No.

Question 2

Are you entitled to a deduction for your transport costs to the airport while working overseas?

Answer

No.

Question 3

Are you entitled to a deduction for the cost of tools used at work?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2015

The scheme commenced on

1 July 2014

Relevant facts

You are an Australian resident and live in Australia.

You are contracted to work overseas.

You travelled from Australia to country A for work.

Entity A paid for your accommodation while working overseas as well as your flights.

You paid for the transport costs to get to the airport in Australia while working this fly-in fly-out position. Entity A paid for all other travel.

You paid for all your meals and incidental expenses.

You took some of your work tools, but had to purchase some additional tools. The tools cost less than $300.

You have receipts for all your expenses incurred.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Income Tax Assessment Act 1997 Section 40-25.

Reasons for decision

Allowable deductions

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.

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)).

The receipt of an allowance or the fact that an allowance is not paid does not determine whether an associated expense is deductible. The expenses must meet the criteria for deductibility under section 8-1 of the ITAA 1997.

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

Similarly, a deduction is not generally allowable for the cost of travel between home and work as it is considered a private expense. Expenditure incurred in travelling to work is a prerequisite to the earning of assessable income rather than being incurred in the course of producing that income. Such expenses are incurred as a consequence of living in one place and working in another. That is, the essential character of the expenditure is of a private or domestic nature, relating to personal and living expenses and therefore not an allowable deduction. (Lunney's case and Federal Commissioner of Taxation v Cooper (1991) 29 FCR 177; 91 ATC 4396; 21 ATR 1616). 

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 close to their usual work location.

Travelling to commence duties at a new work location is not travelling on duty. The contractual duties do not commence until the person reports to work at the new location. This is so whether the transfer is voluntary or at an employer's request. When relocating to a new work site, a taxpayer is not travelling on their work, but is travelling to their work. Therefore any associated, travel, accommodation or meal expenses incurred are not regarded as deductible work related expenses.

Certain expenditure is incurred in order to be in a position to be able to derive assessable income, for example unless a person 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's case and Case V111 88 ATC 712).

The essentially private character of travel between home and work is not affected by factors such as the mode of transport, the availability of transport, the lack of suitable public transport, the erratic times of employment, the time of travel, the distance of travel and the necessity of travel (Taxation Ruling IT 2543).

In Federal Commissioner of Taxation v. Toms 20 ATR 466; 89 ATC 4373, 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 workers 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.

Although the above relates more to an employee's accommodation expenses, the principles are relevant to your circumstances. Where a person is contracted to a new place for work, the new place is regarded as their normal place of work. The associated meal expenses incurred are not related to the actual performance of their duties. That is, they are not expenses incurred in the course of gaining or producing that income. Even though the expenditure had a causal connection with the earning of income, the expenditure is inherently of a private or domestic nature.

In your case your travel to country A is not considered to be work related travel. It is considered that country A is your normal place of work. While it is acknowledged that your main residence is in Australia, it is not considered that your travel between Australia and country A was work related travel. Rather it was private travel carried out to enable you to commence your contractual duties. The distance of the travel does not alter the private nature of the travel. That is, you were not away from home overnight for work purposes, as country A is your new work base for the period of the contract.

As country A is your normal place of work, your meal expenses were not associated with any work related travel. Similarly, any incidental expenses incurred in relation to your travel to and from country A and/or living in country A, are not incurred during the actual performance of your work, that is, during the production of assessable income. The meals and incidental expenses incurred while living and working in country A are a private expense and no deduction is allowable under section 8-1 of the ITAA 1997.

Tools

Section 40-25 of the ITAA 1997 allows a deduction for the decline in value of a depreciating asset held for the purpose of producing assessable income during the year.

Tools are a depreciating asset. Where tools are less than $300 and used for work, you can claim an immediate deduction.

In your case you are entitled to a deduction for the cost of your tools purchased and used for your work.