Edited version of your written advice

Authorisation Number: 1012990903681

Date of advice: 1 April 2016

Ruling

Subject: Work related expenses

Question and answer

Are you entitled to a deduction for vehicle expenses, meals and incidentals whilst on a fly in, fly out arrangement to a work site in a foreign country?

No.

This ruling applies for the following period:

Year ended 30 June 2015

The scheme commences on:

1 July 2014

Relevant facts and circumstances

You are an Australian resident for tax purposes and have a residence in Australia.

You are contracted by your foreign agent to work with an entity on a fly in, fly out basis in a foreign country.

The contract for services between you and your agent provides for you to work on an eight weeks on, two weeks off basis; however, your actual periods of work can be for 10 to 12 weeks.

You are provided with apartment accommodation near the work site and are also provided with air flights to and from the foreign country.

You are also provided with a vehicle and travel to and from work each day in the vehicle. You are required to pay for your own fuel.

In addition to your daily rate of pay, you are paid a hardship allowance and a living allowance.

The hardship allowance generally compensates you for the difficult living conditions at the location.

The living allowance generally assists you in maintaining a standard of living overseas similar to what you have in Australia.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Section 900-30

Reasons for decision

Travelling to and from place of work

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.

Lunney v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 11 ATD 404; (1958) 7 ATR 166 (Lunney's case) 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 place of 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 or that it is incurred in the course of gaining or producing 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 travel to and from work each day at your own expense.

Consequently, the general principles established in Lunney's case, that have been followed in many subsequent cases, will hold equally for the travel expenses in your case. That is, the travel expenses are a prerequisite to the earning of your income and are not expenditure incurred in the course of gaining or producing income.

You are not entitled to a deduction for the motor vehicle expenses you incur in travelling to and from work each day.

Meals and incidental expenses

Sections 8-1 and 900-30 of the ITAA 1997 provide that 'travel allowance' expenses may be deductible as work expenses.

A travel allowance expense is a loss or outgoing incurred for travel that is covered by a travel allowance. A travel allowance is an allowance paid by an employer to cover travel expenses incurred for travel away from the employee's ordinary residence, undertaken in the course of performing duties as an employee and which involves sleeping away from home overnight. The work-related travel expenses must be for accommodation, or food or drink, or expenses incidental to the travel.

Generally, when an employee travels overnight for work, there is no change of usual employment location and accordingly no change of residence. The employee simply travels to another location, generally for a short period of time, in order to carry out the requirements of the job.

Taxation Determination TD 2014/19 lists the reasonable amounts that may be claimed as deductions without substantiation by individuals who are in receipt of certain allowances. These allowances include 'overseas travel allowance' expenses such as food, drink and incidentals that are specifically covered by the allowance. It should be noted that TD 2014/19 does not deal with determining whether a particular expense is deductible under the law or what an employer should pay an employee; it only deals with the substantiation requirements in relation to claiming an allowable deduction.

Taxation Determination TD 94/14 states that allowances in the nature of 'location allowances' are customarily paid to attract employees to live in, or continue to live in, a particular (usually remote) location. In most cases the allowances are paid to all employees of the employer at that location, regardless of whether or not the employees have a place of residence somewhere else.

Consequently, it is the Commissioner's view that these allowances are not travel allowances (or living away from home allowances) as they are not paid because the employee is required to live away from home. They are assessable as salary or wages and no deductions are available for expenses, or additional expenses, incurred by the employee.

In your case, you have taken up an employment contract to work at an overseas location on a fly in, fly out basis and you receive a hardship allowance and a living allowance as part of your conditions of employment.

From the information provided, you are required to live and work at the one location for the entire period of the contract; that is, you have not been required to work at a different work location for a temporary period of time before resuming at your regular location.

Consequently, we consider that the allowances you receive are not travel allowances and you are not entitled to deduction for the meals and incidental expenses you incur at the foreign work location. The expenses you incur are considered to be of a private or domestic nature.