Edited version of your written advice

Authorisation Number: 1012882393808

Date of advice: 22 September 2015

Ruling

Subject: Work related expenses - Travel expenses

Question

Are you entitled to a deduction for accommodation and travel expenses incurred while working away from your family home?

Answer

No.

This ruling applies for the following periods:

30 June 2015

The scheme commences on:

1 July 2014

Relevant facts

You work for a firm, with clients in both City A and City B.

Your permanent place of residence is your family home in City A.

Your employer allocated you a new client in City B, which requires you to travel there on Monday's and return on Thursday's.

You will be required to travel to City B until the contract ends.

Your accommodation whilst in City B is a share house; rent is paid to your friend.

You pay for your own travel expenses to and from City A and City B.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 subsection 124-75(3)

Reasons for decision

Section 8-1 of the Income Tax Assessment Act 1997 allows a deduction for all outgoings to the extent to which they are incurred in gaining or producing assessable income, or are necessarily incurred in carrying on a business for that purpose. However, a deduction is not allowable for outgoings that are of a capital, private or domestic nature.

Accommodation

The issue of expenses incurred in relation to accommodation near the work place while maintaining a family residence in another location was considered in FC of T v. Toms 89 ATC 4373; (1989) 20 ATR 466 (Toms' Case).

In Toms' Case, the taxpayer was a forest worker who during the working week lived in a caravan in a bush camp 108 kilometres from his family home in Grafton. He claimed it was too far to travel each day to his work in the forest, so that it was necessary to establish a caravan at the camp. He would return home on weekends. He claimed the costs of maintaining his caravan and other living expenses such as the cost of heating and lighting. The Federal Court held that the expenses incurred in relation to the temporary accommodation near the workplace while maintaining a family residence in another location were dictated not by his work but by private considerations, and therefore were not deductible.

In your case, you incur expenses for renting share accommodation to enable you to work in a different city to where your principal residence is. However, as in Toms' Case, the expenses are a prerequisite to the earning of assessable income. They are incurred in order to enable you to earn income but are not incurred in the course of gaining or producing that income.

A deduction is therefore not allowable for your share house accommodation expenses.

Travel expenses (air and taxi fares)

In considering the deductibility of travel expenses, a distinction is made between travel to work and travel on work. It is only if the duties of the job require a taxpayer to travel that the taxpayer's expenses can be deducted.

In general, a deduction is not allowable for the cost of travel by an employee between their home and their normal workplace as it is considered private in nature. Taxation Ruling TR 95/34, paragraph 77 explains that the cost of such travel is incurred to put the employee in a position to perform their duties of employment, rather than in the performance of those duties.

The case, Lunney v. Commissioner of Taxation ALR 225; 1958 0311H HCA; 100 CLR 478; (1958) 11 ATD 404; (1958) 32 ALJR 139 introduced what is now regarded as the essential character test. This test requires that for an expense to be deductible, it must have the essential character of a business or income producing expense. The taxpayer in this case sought to deduct the cost of travelling from his home to his work. The expenses were disallowed as being private and domestic, establishing the broad principle that costs incurred because of living in one place while working in another cannot be regarded as deductible.

The fact that certain expenditure, such as travelling to work, must be incurred in order to be able to derive assessable income, does not necessarily mean that the expenditure is incidental and relevant to the derivation of assessable income. It is a prerequisite to the earning of assessable income rather than being incurred in the course of gaining that income.

The essential character of the travel to and from work is that of a private and domestic nature, related to personal and living expenses as part of the taxpayer's choice of where to live, in choosing to live away from and what distance from work.

In your case, you have incurred expenses for travel between your home and your work. This travel is incurred in order to put you in a position to perform your employment duties; it is not incurred in the performance of those duties. Travel is not a part of your actual work duties.

Taxation Ruling TR 95/34 paragraph 22 states that for the travel to be a fundamental part of an employees work, travel must be an essential feature of an employee's duties. Your duties will only commence when you reach the work site where you carry out your work. You are not considered to be travelling in the performance of your duties from the moment you leave your home.

The air and taxi fare expenses you have and will continue to incur in travelling between your places of residence and work are private in nature. Therefore, you are not entitled to a deduction for these expenses under section 8-1 of the ITAA 1997.