Edited version of your written advice

Authorisation Number: 1051316660946

Date of advice: 5 December 2017

Ruling: Travel expenses

Question

Are you entitled to a deduction for rent of a residence, meals and transport incurred in City under s8-1 Income Tax Assessment Act 1997?

Answer

No

This ruling applies for the following period

Year ended 30 June xxxx

The scheme commenced on

1 July xxxx

Relevant facts

You are currently employed in City 1.

Your normal residence is in City 1 but for the course of the six month project you lived in City 2.

Prior to relocating to City 2 you rented a share house in City 1 for which you had a formal lease. When you relocated to City 2 another person took over your lease in City 1.

Whilst working in City 2 you rented a room in a share house.

You did not receive a living away from home allowance from your employer and thus you paid all living expenses yourself including accommodation, meals and transport.

On two occasions during the six month project in City 2 you had two short work trips, the first to City 3 and the second to City 1 which were paid for by your employer.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Section 8-1 of the Income Tax Assessment Act 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 to and from work

In Lunney v. FC of T (1958) 100 CLR 478 the Full High Court laid down the principle that for a deduction to be allowable it is not enough for the expenditure to be an essential prerequisite to the derivation of assessable income. In that case it was held that the costs incurred by a taxpayer in travelling to the place where they work are expenses incurred in order to enable them to earn income but are not expenses incurred in the course of earning that income.

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 travel between home and work is generally incurred to put the employee in a position to perform duties of employment, rather than in the performance of those duties. Such costs are “preliminary to the work” and are not incurred in performing the work activities Taxation Ruling TR 95/34.

The essential character of travel between home and 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 at what distance from work.

The travel expenses you incur are not incurred in the course of undertaking your income earning activities. Rather the expenses are incurred by you in putting yourself in a position where you can commence performing your duties. Therefore you are not entitled to a deduction for the travel expenses you incur as they are considered private in nature.

Accommodation and meal expenses

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 or meal 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 highlighted above, your travel is not regarded as work related travel. 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 and meal 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 2 is your normal place of work. Expenditure on your accommodation and meals 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 as an impact producer. Therefore no deduction is allowable under section 8-1 of the ITAA 1997 for your accommodation and meal expenses.

ATO view documents

ATO ID 2002/829

ATO ID 2002/451

Taxation Ruling IT 112

Draft TR 2017/D6

Other references (non ATO view, such as court cases)

Lunney v. Commissioner of Taxation [1958] ALR 225; 1958 0311H HCA;

FC of T v. Toms 89 ATC 4373; (1989) 20 ATR 466