Edited version of your written advice

Authorisation Number: 1013034486444

Date of advice: 15 June 2016

Ruling

Subject: Accommodation expenses

Question

Is a deduction allowed for accommodation expenses incurred in place A?

Answer

No.

This ruling applies for the following periods

Year ended 30 June 2017

Year ended 30 June 2018

The scheme commenced on

1 July 2016

Relevant facts

You are an employee of entity B which operates a business in place C and place A.

As a key employee of the business you are required to spend periods of time away from your usual place of residence at place C to be in place A where you will be training a manager and then providing oversight as part of your normal routine.

The periods of time in place A will initially be 10 days per fortnight and 4 days at place C and then decreasing as the manager is trained until it is 3 days in place A and 4 days at place C each week.

Your main place of residence is at place C. Your family continue to live in the family home while you are in place A.

The accommodation in place A is a studio apartment and you only use it as a place to stay while carrying out your employment duties in place A.

You do not allow family members to stay in the apartment and you will not be entertaining visitors there.

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 or are necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature.

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 (Lunney's 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).

Expenditure on the daily necessities of life (for example, accommodation) 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. However, no deduction is allowable if a taxpayer is merely staying closer to their usual work location. That is, no deduction is allowable for accommodation expenses where a taxpayer works at a different location to where they normally live. The place where a taxpayer stays whilst away from home is considered to be their usual place of residence for that period. These costs are essentially living expenses of a private or domestic nature. The fact that income cannot be earned unless certain expenses are necessarily incurred is not determinative of deductibility.

Your travel to place C is not considered to be work related travel.

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 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).

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

While it is acknowledged that your usual place of residence is at place C, it is not considered that your travel to and from place A is work related travel. Rather it is private travel carried out to enable you to be closer to your place of employment and commence your duties. The distance of the travel does not alter the private nature of the travel.

In Case X4 90 ATC 116; 21 ATR 3120 (Case X4) a specialist radiologist with a practice in a small provincial town over 100 kilometres from a capital city was denied a deduction for the costs of maintaining a house which had been purchased in the city where the taxpayer also had professional obligations. The taxpayer travelled to the city every week. The house was not used for business purposes. The sole purpose of purchasing the house was to provide accommodation while the taxpayer was in the city.

The AAT found that the expenses were incurred for the purposes of maintaining domestic premises and they did not have any relevant connection with income producing activities. It also held that even if it could be shown that the outgoings were incurred for the purpose of producing assessable income the deductions would be disallowed as outgoings of a private or domestic nature.

While your situation is different to Case X4, the principles are relevant. In your case you have two places of employment in different locations and you incur accommodation expenses near your place of employment in place A. Although you also work at the place C, place A is also your normal place of work. Your place A, accommodation expenses are incurred for the purpose of providing accommodation near your workplace. Such expenses do not have the relevant connection with your income production activities. It is acknowledged that your family do not stay at your place A accommodation and the accommodation is smaller than your home at place C, however this does not change the private nature of the expense.

Your accommodation expenses are incurred to put you in a place where you are closer to your place of employment and are not related to your actual income earning activities. 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, even though the expenditure may have a causal connection with the earning of income, the expenditure is inherently of a private or domestic nature. Accommodation near your place of employment is private in nature. Accordingly, you are not entitled to a deduction for the accommodation expenses under section 8-1 of the ITAA 1997.