Edited version of your written advice

Authorisation Number: 1013000301789

Date of advice: 19 April 2016

Ruling

Subject: Travel expenses

Question 1

Are you entitled to a deduction for the cost of your flights between city A and city B?

Answer

No.

Question 2

Are you entitled to a deduction for the cost of taxi fares in city B for travel between the airport and your rental apartment?

Answer

No.

Question 3

Are you entitled to a deduction for any accommodation, meal or incidental expenses incurred when in city B?

Answer

No.

This ruling applies for the following period

Year ended 30 June 20YY

The scheme commenced on

1 July 20XX

Relevant facts

You live in city A with your spouse and children.

In 20XX you secured a six month contract to work in city B. The contract has now been extended for another six months. You have not been advised by the employer of any further extensions or moving onto any new projects after this.

You were chosen for the job due to your extensive specialised experience in the relevant areas.

Due to the short term contract and extension you did not relocate your family. You did not want to interrupt your children's schooling. Your personal belongings including your vehicles, as well as your mailing address remain in city A.

You took the position due to the lack of employment opportunities in city A for your skills and experience.

You work a three week cycle. Two weeks are based in city B and the third week you fly back to city A to your family.

You have secured temporary rental accommodation in city B, initially for six months, now extended. You pay rent monthly for your furnished self-contained apartment. You also incur costs for electricity, water and gas, food and drink and other incidental expenses.

You are not reimbursed or receive an allowance for any of your expenses.

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, or a provision prevents you from deducting it.

A number of significant court decisions have determined that 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 (Lunneys case)), 

• there must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income (Ronpibon Tin NL v. FC of T, (1949) 78 CLR 47), and

• it is necessary to determine the connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces his or her assessable income (Charles Moore Co (WA) Pty Ltd v. FC of T, (1956) 95 CLR 344; FC of T v. Hatchett, 71 ATC 4184).

Although your work contract is currently in city B, this does not automatically mean you are entitled to a deduction for the associated travel expenses. The expenses must meet the criteria for deductibility under section 8-1 of the ITAA 1997.

Travel expenses

Generally a deduction is not 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). 

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 Income tax: transport allowances: deductibility of expenses incurred in travelling between home and work).

The Commissioner accepts that expenses incurred in travelling between home and work may be deductible in limited circumstances, for example:

• the taxpayer's employment is inherently of an itinerant nature and they regularly work at more than one site each day before returning home,

• the taxpayer has to transport by vehicle bulky equipment necessary for employment, or

• travel is between two places of employment or business.

The above exceptions do not apply in your case.

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. The income earning duties do not generally commence until the arrival at a place of work and will cease upon departure from work. This does not mean that the expenditure in getting to work is incurred in the course of gaining or producing assessable income (Case V111 88 ATC 712).

You do not commence your employment duties before or at the time of leaving your home in city A. Your travel expenses are not incurred in producing your assessable income.

While it is acknowledged that your home is in city A, it is not considered that your travel to and from city B is work related travel. Rather it is private travel carried out to enable you to be closer to the work site and commence your duties. The distance of the travel does not alter the private nature of the travel. Therefore no deduction is allowed for the cost of your flights between city A and city B or the taxi fares to and from the airport.

Accommodation, meal and incidental expenses

Expenditure on the daily necessities of life (for example, accommodation, meals and incidentals) 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. An exception to this is where you are undertaking work related travel and are required to stay away overnight.

No deduction is allowable if a taxpayer is merely incurring accommodation costs close to their usual work location. These expenses are incurred to enable a taxpayer to commence their income earning activities and are therefore considered private in nature. The distance from home does not alter the essential character of any accommodation, meal or incidental expenses incurred as they remain private in nature. The cost of accommodation close to work is generally incurred to put a person in a position to perform duties, rather than in the performance of those duties (IT 2543 and IT 112 Deductibility of travelling expenses between residence and place of employment or business).

As outlined above, your travel is not regarded as work related travel. That is, the travel to city B is not incurred in carrying out your employment duties. This is supported by the decision in Federal Commissioner of Taxation v. Toms 89 ATC 4373; (1989) 20 ATR 466 (Toms case), where 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 worker's 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.

Where a person obtains work in a new location, the new place is regarded as their normal place of work. The associated accommodation, meal and incidental expenses incurred are not related to the actual performance of their duties. They are more a convenience and a prerequisite to the earning of assessable income and are not expenses incurred in the course of gaining or producing that income. Furthermore, the essential character of the expense is of a private or domestic nature.

It is considered that city B is your normal place of work. Expenditure on your accommodation, meals and incidentals are not deductible, even though the expenditure had a causal connection with the earning of income. The expenditure is inherently of a private or domestic nature and not incurred in gaining or producing your assessable income. The fact that you return home every third week does not alter the nature of your expenses. Therefore no deduction is allowable under section 8-1 of the ITAA 1997 for your accommodation and meal expenses or other incidental expenses.