Edited version of your written advice

Authorisation Number: 1013116965524

Date of advice: 2 November 2016

Ruling

Subject: Travel expenses

Question

Are you entitled to claim a deduction for expenses incurred to travel to Australia to work and return to your overseas residence?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are an Australian citizen residing permanently overseas. You are not an Australian resident for tax purposes. You pay taxes at a non-resident rate.

You come to Australia two to three times a year for temporary work. You incur travel expenses for the round trip airfare from your overseas country of residence to Australia, petrol for a car, road tolls and taxi fare.

Your expenses are not reimbursed, and are out of pocket.

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.

In considering the deductibility of travel expenses, a distinction is made between travel to work and travel on work. It is only if the duties of the job require a taxpayer to travel that the taxpayer's expenses can be deducted.

A deduction is generally not allowable for the cost of travel by an employee between home and their normal workplace as it is considered to be a private expense. The cost of this travel is incurred to put you in a position to perform your duties of employment, rather than in the performance of those duties. (Taxation Ruling TR 95/34 Income tax: employees carrying out itinerant work - deductions, allowances and reimbursements for transport expenses).

Lunney v. Commissioner of Taxation [1958] ALR 225; 1958 0311H HCA; 100 CLR 478; (1958) 11 ATD 404; (1958) 32 ALJR 139 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 their home to their 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 reasons given by the High Court were twofold.

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. 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.

Application to your circumstances

In your case, you have incurred expenses for the travel between your home overseas and your work. This travel is incurred in order to put you in a position to perform your duties of your employment; it is not incurred in the performance of the duties of your employment. Travel is not a part of your actual work duties.

For the travel to be a fundamental part of an employees work, travel must be an essential feature of an employee's duties (paragraph 22 TR 95/34). Your duties will only commence when you reach the work site where you carry out your work. You are not considered to be travelling in the performance of your duties from the moment you leave your home. Your home residence is in XYZ, your temporary place of residence is in Australia when you travel here for work.

The expenses you incur for the travel between your overseas home and work in Australia are private in nature. Therefore, you are not entitled to a deduction for these expenses under section 8-1 of the ITAA 1997.