Edited version of your written advice

Authorisation Number: 1012963525471

Date of advice: 22 February 2016

Ruling

Subject: Travel expenses

Question:

Are you entitled to a deduction for a portion of your travel expenses in relation to travelling to inspect and to undertake repairs and maintenance to your rental property?

Answer:

Yes.

This ruling applies for the following period:

Year ending 30 June 2016

The scheme commenced on:

1 July 2015 

Relevant facts

You intend to travel to visit your rental property in order to undertake an inspection and to carry out repairs and maintenance to the property.

You also intend undertaking a short holiday as part of the travel.

You will not be accompanied by anyone while travelling.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Summary

You are entitled to a deduction for the portion of your travel expenses that relate to the activities connected to your rental property. You must apportion your travel expenses using a fair and reasonable basis and you must meet the substantiation requirements.

Detailed reasoning

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.

Rental property deductions

The Commissioner issues a Rental property guide on a yearly basis which is the Commissioner's view on how to treat rental income and expenses. As noted in the Rental properties guide 2015 at page 14 if you travel to inspect your rental property, you may be able to claim the costs of travelling as a deduction.

You are allowed a full deduction where the sole purpose of the trip relates to the rental property. However, in other circumstances (such as when your travel is combined with a holiday or other private activities) you may not be able to claim a deduction or you may be entitled to only a partial deduction.

To be eligible to claim a deduction for travel costs the property must be used or held for the purpose of gaining or producing assessable income, and the expenses must not be capital in nature.

In your case, the property has been tenanted in previous financial years and has returned rental income over these financial years.

Due to the length of time the property was tenanted you are intending to travel to inspect, repair and maintain the property.

The purpose of the trip is to inspect the property, carry out repairs and make changes to the decor of the property by sourcing materials and furnishings, attend various meetings in relation to the operation of the property and to holiday for a number of days.

You are entitled to a deduction for the portion of your various travel expenses that relate to the activities you undertake in connection to your rental property.

Apportionment

In your case, you argue that X% is a reasonable basis for apportioning your expenses in relation to your intended travel. The courts have considered various circumstances and cases around the issue of apportionment and generally expenses are apportioned into deductible and non-deductible parts.

The inclusion of the words 'to the extent' in section 8-1 of the ITAA 1997 implies that the apportionment of expenses is contemplated. Each case depends upon its own facts and the method of apportionment adopted is one which is fair and reasonable based upon those facts (Ronpibon Tin NL Ltd v Federal Commissioner of Taxation (1949) 8 ATD 431; 1949 78 CLR 47 at p 437; p 59.)

As you have yet to undertake the trip, the times you have included in your travel itinerary on the various activities are merely estimates. It is possible that the times actually spent may vary significantly from your estimates. Therefore, the Commissioner cannot provide a ruling on the actual portion of your travel expenses that are deductible. It is only after the trip has been undertaken that a conclusion can be reached on this issue as it depends on the actual time you have spent on rental property related activities compared to private activities and what expenses have been spent in relation to each activity.

In order to enable you to make a reasonable apportionment, you should keep note of the times and any direct costs you spend on each activity each day in your travel diary.

Meals and incidentals

Meal and incidental expenses incurred on a day spent entirely on rental property activities are deductible in full. However, meal and incidental expenses incurred on a day only partly devoted to rental property activities must be apportioned, for example, on a day where you only spend three or four hours in relation to your rental property.

It is noted in your ruling application that you have referred to Taxation Determination TD 2014/19 as a basis for claiming meal and incidental expenses. You cannot rely on the exception from substantiation as noted in TD 2014/19 as the exception only applies if an employee is paid an overtime meal allowance or a travel allowance. The allowance must have an identifiable connection with the nature of the expense covered (refer to paragraph 3 in TD 2014/19). In your case, you should keep all relevant documentation in regards to your meals, incidentals, laundry and other expenses that you seek to claim a deduction for.

Further information on travel diary requirements and record keeping is available on the Australian Taxation Office website at www.ato.gov.au

Airfares expenses

The cost incurred on airfares, booking fees, and seat allocation costs may be based on the overall percentage of the trip devoted to the activities in relation to the property.

Car hire expenses

In relation to your car hire and associated car hire expenses, these are deductible to the extent they relate to activities in relation to the property and a reasonable apportionment should be applied in relation to business-related use and private use of the hire car.

Tolls, Public transport and parking expenses

The tolls, public transport and parking expenses are deductible to the extent they relate to rental property activities. Any tolls, public transport and parking expenses incurred in relation to private activities are not deductible.

Internet and telephone expenses

The costs associated with the internet and telephone use are deductible to the extent they relate to rental property activities. If you use the internet or telephone for private use you must apportion the cost between business related use and private use.

The business-related telephone calls may be identified from an itemised account. If such an account is not provided by the provider company, records (such as diary entries) will be accepted as establishing the use of the telephone for the trip.

In regards to the internet use the Commissioner will accept a diary covering the period of the trip.