Edited version of your written advice

Authorisation Number: 1012988573760

Date of advice: 29 March 2016

Ruling

Subject: Travel expenses

Question and Answer

Is a deduction allowable for the cost of travel from X's residence in one state (state A) to their employment in another state (state B) and back where the trustee directs her/him to travel to state B on a regular basis?

No

This ruling applies for the following periods

Year ended 30 June 2016

Year ended 30 June 2017

The scheme commenced on

1 July 2015

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

The Trust is involved in running a professional business.

The Trust will employ one employee, X to perform professional services.

The trustee of the Trust will be in charge of invoicing the clients and distributing workload commitments. The trustee will also be responsible for super guarantee and employer obligations such as PAYG withholding.

X has been providing professional services in state B for many years and has established a client base in that state. X runs practices in state B that are about one hour drive apart.

Due to the nature of the business, X performs one hour sessions with clients at either of the practices in state B for a work day 9am till 5pm.

X moved to city M in state A. She/He has not retained her/his residence in state B.

X will usually be travelling from city M in state A on a Monday morning to the capital of state B to perform services during the week at both her/his practices. She/He will return to her/his residence in city M in state B at the end of the week.

The Trustee is in negotiations to establish a practice in city M where X will work one week in city M in state A and one week at her/his other practices in state B.

When working in state B, X will be staying with family or friends. X has a residence in city M.

It is not possible for X to work in both state A and state B in the same day due to the time involved in getting from one place of work to the airport, flight time and travel time to the other place of employment..

The employment contract for X will stipulate that it is a condition of their employment to travel between city M in state A and state B to perform professional services at her/his practices in both states.

X will not receive an allowance from the Trust to cover any of the costs incurred for travel.

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.

Travel between two workplaces

Generally, the expenses of travel between work and home are not deductible (Lunney & Haley v. FC of T (1958) 100 CLR 478; (1958) 11 ATD 404 (Lunneys Case)). The general rule, as discussed in Taxation Ruling IT 2199, is that travel between home and a person's regular place of employment or business is ordinarily private travel.

However, Income Tax ruling IT 2199: Income tax: allowable deduction: travelling expenses between place(s) of employment and/or place(s) of business also states that claims for income tax deductions for expenses incurred in travelling directly between two places of employment should be allowed where the taxpayer does not live at either of the places and the travel has been undertaken for the purpose of enabling the taxpayer to engage in income producing activities. Therefore, the costs of travel between two places of employment, as part of the same job, are deductible.

For direct travel between two places of employment to be deductible, the expenses must be incurred in gaining or producing assessable income. To ensure a taxpayer is undertaking income producing activities, they must engage in substantial work duties at both locations before the expenses incurred to travel directly between the two employment places will be allowable as a deduction.

What amounts to substantial work is a matter of fact and degree. For example, where an employee travels to his place of employment and merely performs incidental tasks en route such as general administrative tasks, dropping off materials, collecting newspapers or mail, the travel would not be accepted as business travel.

In comparison, when a taxpayer is required to attend meetings, conduct interviews, action urgent work items and do research; it is likely that they will be undertaking substantial work.

Applying the law

In this case, the Trust is running a professional services business. X provides professional services and already has clients at her/his other practices in state B. X has moved to city M In state A and the Trust is negotiating a work base in city M.

Due to the distance and substantial time involved in travelling between two states due to departure plane times, waiting at the airport, flying time, travel time to the other practice, it is not possible to work in both city M in state A and one or both of the practices in state B on the same day.

As X will not be able to travel directly between her/his employment in city M in state A and employment in state B, and perform substantial work at both workplaces, such as a engage in a few consultations, the question of claiming travel expenses between two places of employment in two different states does not arise.

We shall now consider the deductibility of travel expenses between X's residence in city M and workplace (either of the two practices) in state B.

Travel between residence in State A and workplace in State B

As stated above, generally the expenses of travel between home and work are not deductible. While travel to work is a necessary pre-requisite to earning income, it is not undertaken in the course of earning that income. However, a deduction is allowable for the cost of travelling between home and work if an employee's work is itinerant.

Itinerant worker

Taxation Ruling TR 95/34: Income tax: employees carrying out itinerant work - deductions, allowances and reimbursements for transport expenses discusses when an employee may be considered to be carrying out itinerant work. Paragraph 7 of TR 95/34 details the characteristics that are considered to be the indicators of itinerancy as follows:

a) travel is a fundamental part of the employee's work;

b) the existence of a 'web' of work places in the employee's regular employment, that is, the employee has no fixed place of work;

c) the employee continually travels from one work site to another. An employee must regularly work at more than one work site before returning to his or her usual place of residence;

d) other factors that may indicate itinerancy (to a lesser degree) include:

(i) the employee has a degree of uncertainty of location in his or her employment (that is, no long term plan and no regular pattern exists)

(ii) the employee's home constitutes a base of operations

(iii) the employee has to carry bulky equipment from home to different work sites;

(iv) he employer provides an allowance in recognition of the employee's need to travel continually between different work sites.

Whilst the above characteristics are not exhaustive, they provide guidelines for determining whether an employee's work is itinerant. It is considered that no single factor on its own is necessarily decisive.

a) Travel a fundamental part of the employee's work

It must be the very nature of an employee's work that makes it necessary to carry out their duties in several places. It is not sufficient for an employee to choose to perform his or her duties in an alternative location for convenience. In this case, travel is not a fundamental part of X's employment as a health professional. This is so even though the employment contract will require X to travel between state A and state B on a regular basis.

b) 'Web' of workplaces

Although an employee may perform duties at more than one work location, this fact in itself is insufficient to constitute a 'web' of work places for the purpose of itinerancy as each work place may be regarded as a regular or fixed place of employment.

Paragraph 33 of TR 95/34 provides the following example:

Leo works for an accountancy firm and attends head office three days a week. He works the remaining two days at a suburban office. Leo's work does not display a 'web' of work places because:

(a)  upon commencement he is not required to travel in the course of his duties; and

(b)  Leo has two regular places of work.

In this case, X does not have a 'web' of workplaces. She/He is not required to travel between locations in the course of a working day. Therefore, both the state B's workplaces and the city M workplace would be considered regular or fixed places of employment and do not constitute a 'web' of workplaces. The concept of regular place of employment is discussed below.

c) Continual travel from one work site to another

X is not engaged in continual travel and is not required to regularly work at more than one site before returning home. Continual travel refers to the frequency with which an employee moves from one work site to another. It envisages that the employee regularly works at more than one work site.

d) Other factors

In relation to the other factors that can be taken into consideration (under section (d) paragraph 7 of TR 95/34):

(i) there is no uncertainty in the location of X's employment;

(ii) neither X's home in city M in state A or her/his place of accommodation in state B constitutes a base of operations;

(iii) there is no indication that X is required to carry bulky work equipment between State B and State A; and

(iv) X will not receive an allowance from the Trust to cover any of the costs incurred for travel.

In weighing up all the factors in the above discussion, X's work is not considered to be itinerant. Therefore, the costs incurred for travel between city M in state A and state B are not deductible.

Alternate work place

Consideration needs to be given to determine whether the state B practices constitute an alternative workplace, whereby travel to state B is considered to be made on work, or do they merely represent another regular workplace in which travel is required to get to work.

Whilst the issue of what constitutes an alternative workplace will be dependent on the individual facts of the case, the features that may be taken into consideration as to what will characterise an alternative workplace include: 

• The short term or temporary duration of the work undertaken there;

• The irregularity of the visits to the place; and

• The absence of any regular pattern of travel to the place.

These features are derived from MT 2027 Fringe benefits tax: private use of cars: home to work travel at paragraphs 28 to 36. These paragraphs provide three principles in determining whether expenses incurred in travel from home to an alternative workplace are deductible.

These three principles are:

• The employee has a regular place of employment to which he or she travels habitually;

• In the performance of his or her duties as an employee, travel is undertaken to an alternative destination which itself is not a regular place of employment; and

• The journey is undertaken to a location at which the employee performs substantial employment duties.

In X's case, she/he will usually be travelling from city M in state A on a Monday morning to the capital city of state B to perform services during the week at both the practices in state B. She/He will return to her/his city M residence at the end of the week. The Trustee is in negotiations to establish a professional practice in city M.

Once X's practice in city M is established, she/he will work one week in city M and one week at the other practices in state B. The locations where she/he will work will be fixed.

As X will usually be travelling twice a month to state B, on an ongoing basis, her/his two established practices in state B will be a regular place of employment. The regularity of the travel to state B will prevent it from satisfying the second principle set out in MT2027 which requires that the alternative destination be one that is not a regular place of employment. Therefore the practices in state B are not considered as an alternative workplace according to MT 2027 but another regular workplace. Consequently the travel expenses incurred on any leg of journey between X's place of residence in city M in state A and her/his employment in state B is not deductible.

Long distance

Due to the long distance between city M in state A and state B, and flight schedules, it is not possible for X to work in both city M and state B in the same day.

We acknowledge that this is due to the time involved in getting from one place of work to the airport, flight time and travel time to the other place of employment.

The law as it currently stands does not take into account the distance that is required to be travelled. In circumstances such as X's, if she/he starts her/his journey from a place which is not a place of employment and where substantial duties have not been performed, the travel is not deductible.

The circumstances in X's case are similar to those in Case V111 88 ATC 712, where a taxpayer worked at a power station site located approximately 400 km from his home. Each Monday the taxpayer departed his family home and travelled by car directly to the work site, and commenced the return journey on the following Saturday. During the week the taxpayer resided in employer provided accommodation at a camp near the work site. In his judgment, P.M. Roach (Senior Member) stated at p 714 (emphasis added):

... nothing in High Court decisions turns on the significance of the length of distance travelled (even 400 kms each way) or the frequency of such travel (once per week each way). Although the High Court accepted that incurring the expense was a necessary prerequisite to the earning of income, it none the less held that the expenses of getting to and from work were not expenses incurred "in the course of" deriving income by working.

Accordingly a deduction is not allowable for the cost of travel between X's residence in city M in state A and her/his place of employment in state B, even where the trustee directs her/him to travel to

state B.