Edited version of your written advice

Authorisation Number: 1051338834562

Date of advice: 21 February 2018

Ruling

Subject: General deductions – section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)

Question

Can you deduct expenses for transport, meals and incidentals incurred in travelling to and staying at Location A under section 8-1 of the ITAA 1997?

Answer

Yes

Question

Are you required to substantiate claims for transport, meals and incidental expenses in accordance with subdivision 900-B of the ITAA 1997?

Answer

Yes

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 January 20XX

Relevant facts and circumstances

You are the trustee and beneficiary of a Trust.

You are employed by the Trust. There is no written employment contract between the Trust and yourself.

End-to-end process

You have a home office at which you monitor weather and prices, conduct accounting and banking and carry out repairs to equipment required for business activities. You determine at home when is the best time to travel to Location A to conduct your business activities.

You travel to Location A to conduct your employment duties and reside at a relevant shack.

There is no other suitable accommodation nearby due to the isolated location of The Island.

You carry tools and equipment in a commercial vehicle (one tonne ute) to and from Location A for any repairs and maintenance at the relevant shack and at home.

From Location A you travel by boat to conduct business. Your product is then sold by the Trust to a wholesaler.

Your product is not transported back to your home for storage, processing, or sale. A contractor collects the product from you at Location A on behalf of the wholesaler and transports them to the wholesaler.

The Trust has already made a significant investment leases, shares and owns relevant licences.

The Trust has a significant number of valuable licences. The Trust has been allocated a quota for based on the number of licences held.

The Trust is paying you a travel allowance for the overnight stays at Location A to perform your duties. The allowance includes food and incidentals incurred while staying at Location A.

The Relevant Shack

The shack is leased by the Trust from related Trust for the purpose of providing you with accommodation.

Facilities in the shack include:

● Toilet

● Shower

● Basic Kitchen

● Office desk

● 3 rooms which can be used as bedrooms if required

● Workshop

● Garage

Your living and travel arrangements

You had lived in Suburb 1 which is located approximately 40km away from Location A.

You have relocated to Suburb 2 situated about 130km from Location A for personal reasons.

Your family remain in the Suburb 2 property and you return to the property on a minimum of a weekly basis.

In the off season you would only stay in the shack four to five times for a night or two just to undertake maintenance and repairs on the shack and other essential gear.

In peak business times you will stay five or six days at the shack at a time. You travel home back to your home in Suburb 2 at least one night a week mostly to get supplies, gear, food and fuel as there are no shops of any kind at Location A.

In months outside of the off peak period there are shorter peak periods. These periods vary year by year, depending on stock quality, prices and weather.

Outside the peak and off-peak seasons, you undertake two to three trips a week and generally stay one to three nights at a time.

You travel to and from Location A 70 times in a year staying approximately 130 nights.

Your family generally remain at the home in Suburb 2 and do not accompany you to Location A. The exception is during certain holidays. You continue to work during the time they accompany you.

No family belongings have been transferred to the relevant shack other than transported to and from during certain holiday periods.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 subdivision 900-B

Reasons for decision

Question 1

Can you deduct expenses for transport, meals and incidentals incurred in travelling to and staying at Location A under section 8-1 of the ITAA 1997?

Summary

Yes. The Commissioner considers your travel between Suburb 2 and Location A to be travel between co-existing work locations. Therefore, subject to the substantiation requirements, you will be able to deduct the expenses you incurred for transport, meals and incidentals while undertaking your duties of employment.

Detailed reasoning

Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent they are incurred in gaining or producing your assessable income and are not of a capital, private or domestic nature.

It is a question of fact whether an expense for transport, meals or incidentals associated with travel is incurred in gaining or producing assessable income or is of a private or domestic nature.

Paragraphs 50 to 54 of Draft Taxation Ruling TR 2017/D6 Income tax and fringe benefits tax: when are deductions allowed for employees’ travel expenses (TR 2017/D6) set out the requirements for travel expenses to be deductible.

A transport expense is deductible where the travel is undertaken in performing the employee’s work activities.

Meal and incidental expenses are incurred by an employee in performing an employee’s work activities and are therefore deductible only where:

(a) the employee’s work activities require them to undertake the travel

(b) the work requires the employee to sleep away from home overnight

(c) the employee has a permanent home elsewhere, and

(d) the employee does not incur the expenses in the course of relocating or living away from home

Required to travel

To determine whether travel is undertaken in performing an employee’s work activities, the following factors are considered:

● whether the work activities require the employee to undertake the travel

● whether the employee is paid, directly or indirectly to undertake the travel

● whether the employee is subject to the direction and control of their employer for the period of the travel, and

● whether the above factors have been contrived to give a private journey the appearance of work travel.

You have chosen to recently relocate from Suburb 1 (40km from Location A) to suburb 2 (130km away from Location A) for personal reasons.

As per paragraph 25 of TR 2017/D6 if travel by you is required in performing your work duties or work activities, little regard is given to a choice you may have had which would have avoided or reduced the need for travel.

A private journey is not in the performance of employee’s work activities merely because an obligation to travel has been contrived to create the appearance of work travel.

In determining whether a travel arrangement is contrived, it is relevant to consider whether the travel is attributable to you having co-existing work locations.

Paragraphs 43 to 45 of TR 2017/D6 describe the circumstances where there would be co-existing work locations or an alternative work location.

Co-existing work locations travel involves travel which can be attributed to you having to work in more than one location.

This includes where travel is directly between work locations and it is reasonable to conclude that the travel is undertaken in performing your work activities because of the requirement to work in more than one location.

You have a home office in Suburb 2 in which you monitor weather and prices, conduct accounting and banking and carry out repairs to equipment required for your business activities. There you determine when is the best time to travel to Location A to conduct the activities of the business.

Your home office is considered to be one work location.

You travel to and from the shack 70 times in a year staying approximately 130 nights.

The length of your stay at the shack varies depending on whether it is peak or off peak season.

You do repairs and maintenance work on the shack and other relevant gear. Your family visits you at the shack during certain school holidays although you continue to work throughout this period.

The shack is considered another work location.

You carry tools for repairs and equipment in a commercial ute to and from Location A.

Therefore, you are required to travel for work and paid to do so on all 70 occasions during the year that you travel from your home to your co-existing work location at the shack. There is no contrivance to create the appearance of work travel.

Required to sleep away from home

The accommodation, meal and incidental expenses are only deductible to the extent that the work requires you to sleep away from home. Where you are required to stay away from home overnight for work, such expenses that would otherwise be private have an employment-related character.

The requirement to sleep away from home overnight is a practical test that considers the circumstances of the work and the need for employees to have sufficient rest to perform their duties effectively. Your choice to return home and avoid staying away overnight does not affect the character of the expenditure if an overnight stay is reasonably required from a practical point of view.

Given Suburb 2 is 130km from the Location A relevant shack, it would be impractical during peak business periods for you to travel back to your home in Suburb 2 other than to get supplies, gear, food and fuel as there are no shops of any kind at Location A.

During the off peak season you would only sleep overnight in the relevant shack away from your family solely for work.

Therefore you are required to sleep away from home whenever you are residing at the relevant shack.

Permanent home elsewhere

Expenditure on transport, meals and incidentals are only deductible where you have a permanent home elsewhere.

For these purposes, ‘permanent home’ is the residential accommodation where you ordinarily live when not temporarily absent and where you intend to return to live immediately after the work travel.

Indicators that residential accommodation is your permanent home include your ownership or possession of the premises and occupation by members of your family.

You have a permanent home in Suburb 2. While you are at Location A your family remain in the Suburb 2 property and you return to the property on a minimum of a weekly basis. Travel back to Suburb 2 is for getting supplies, gear, food and fuel.

It is accepted you have a permanent home elsewhere.

Not relocating or living away from home

Expenditure on transport, meals and incidentals is only deductible where the employee is travelling in performing their work activities and not living away from home.

Living away from home for work is preliminary to work. The costs of doing so are not incurred in performing your work activities. Such expenses also have a private or domestic nature, often reflecting your choice about where to live.

Whether you are living away from home depends on the following factors as set out at paragraph 72 of TR 2017/D6:

(a) the time spent working away from home

(b) whether the employee has a usual place of residence at a previous location

(c) the nature of the accommodation, and

(d) whether you are or can be accompanied or visited by family or friends

Time spent away from home

The longer you spend working away from home, the more likely that you are living away from home.

‘Time spent working away from home’ means the time you spend working away at a particular work location. Where you work at one location for an extended period, that period is not broken by short trips you take from that location. However, where an employee works at different locations for extended periods, each period is considered separately.

The time you spend living away from home is ad hoc and unpredictable. Normal and peak periods are not clearly distinguishable on a forward looking basis. This is because the business strategy is determined daily. This would mean that you could be at the shack anywhere from one to six nights a week.

Therefore ‘time spent working away from home’ is not considered a determinative factor.

The nature of the accommodation

The nature of the employee’s accommodation while working away from home is relevant but does not determine whether the employee is travelling in performing their duties or living away from home.

An employee may live and make their home in any kind of accommodation, including huts and caravans. If the accommodation has amenities common in a home, such as an equipped kitchen and laundry, this would support the view that the employee is living away from home.

While the shack has home-like characteristics we accept that this is due to convenience and ease of having a base when you are required to travel to The Island for work.

Whether you are or can be accompanied by family or visited by family or friends

No family belongings have been transferred to the relevant shack other when your family accompanies you during certain holiday periods each year.

Although there is no restriction to your family joining you, it would be impractical as you travel to the shack often whereas your family reside and go about their daily lives at Suburb 2.

Therefore we do not consider you to be living away from home. You are considered to be travelling between co-existing work locations.

As expenditure on transport, meals and incidentals are incurred in travelling to perform work activities for the purpose of gaining or producing assessable income, subject to the substantiation rules you are able to deduct these expenses under section 8-1 of the ITAA 1997.

Question 2

Are you required to substantiate your claims for transport, meals and incidental expenses in accordance with subdivision 900-B of the ITAA 1997?

Summary

Yes. You will be required to have written evidence in accordance with subdivision 900-E of the ITAA 1997 in order to deduct your travel expenses for transport, meals and incidentals as the exceptions in Subdivision 90-B of the ITAA 1997 do not apply.

Detailed reasoning

In respect to travel expenses, where employees are required to sleep away from home as part of their employment duties, a deduction for transport, meals and accommodation may be allowable.

Section 900-30 of the Income Tax Assessment Act 1997 (ITAA 1997) states that travel allowance expenses are work expenses if they are incurred for travel, food or drink and are covered by a travel allowance. A travel allowance is an amount that an employer pays you to cover specific work-related travel expenses you incur for accommodation, food, drink or incidental expenses when travelling in the course of your duties as an employee.

As a general rule, written evidence is required to substantiate any expense you wish to claim as a deduction (for example, receipts or invoices of the expense).

Subdivision 900-B if the ITAA 1997 sets out substantiation rules for work-related deductions and provides for exceptions in the case of some types of expenses. Taxation Ruling TR 2004/6 Income tax: substantiation exception for reasonable travel and overtime meal allowance expenses explains the way in which the substantiation exception operates for work expenses of employees that are either reasonable travel allowance expenses or reasonable overtime meal allowance expenses.

TR 2004/6 references section 900-50 of the ITAA 1997 which states that an exception to the substantiation requirement applies if you receive a bona fide travel allowance to cover accommodation or food and drink and the expenses do not exceed amounts the Commissioner deems reasonable. A bona fide travel allowance is an amount that could reasonably be expected to cover transport, meals or expenses incidental to travel.

It is the Commissioner's practice to publish reasonable amounts for accommodation at daily rates, meals (showing breakfast, lunch and dinner), and deductible expenses incidental to travel. These amounts are set out for various travel destinations and employee categories as considered appropriate by the Commissioner. Taxation Determination TD 2017/19 Income tax: what are the reasonable travel and overtime meal allowance expense amounts for the 2017-18 income year sets out the amounts that the Commissioner considers are reasonable amounts for the substantiation exception in Subdivision 900-B of the ITAA 1997.

The amounts set for domestic accommodation expenses represent amounts that could reasonably be expected to be incurred at commercial establishments such as hotels, motels and serviced apartments. The relevant amounts for accommodation are only considered reasonable amounts to claim if the expense is incurred for accommodation at these types of establishments, generally at daily rates. If alternative accommodation is used, these rates do not apply.

As you do not incur expenses at qualifying establishments the reasonable amounts published by the Commissioner do not apply to you.

Therefore, in order to deduct travel expenses for transport, meals and incidentals written evidence of the expense must be obtained and detailed by you in accordance with subdivision 900-E of the ITAA 1997.

Transport, meals and incidentals incurred while on holiday with your family are not considered to be incurred in gaining or producing assessable income and are of a private or domestic nature. Travel expenses incurred in such circumstances are therefore not deductible to that extent.