Edited version of your written advice

Authorisation Number: 1051388402625

Date of advice: 22 June 2018

Ruling

Subject: Work related expenses – accommodation and airfares

Question

Are you entitled to a deduction for accommodation and flight expenses?

Answer

No

This ruling applies for the following periods:

Year ending 30 June 20xx

Year ending 30 June 20xx

Year ending 30 June 20xx

The scheme commences on:

1 July 20xx

Relevant facts and circumstances

You currently reside in City A.

You are registered with a recruitment agency.

You have chosen to accept an assignment to work in City B.

You are under no obligation to accept an assignment offered to you by the agency.

You are responsible for your own accommodation in City B.

You return to City A every few weeks to visit your family and pay your own airfares.

Relevant legislative provisions

Income Tax Assessment Act 1997 (ITAA 1997) Section 8-1

Reasons for decision

Detailed Reasoning

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for a loss or an outgoing to the extent to which it is incurred in gaining or producing assessable income, except where the loss or outgoing is of a capital, private or domestic nature.

Travel Expenses

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 their home and their normal workplace as it is considered private in nature. The cost of such travel is generally incurred to put the employee in a position to perform their duties of employment, rather than in the performance of those duties (paragraph 77 of Taxation Ruling TR 95/34).

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 his home to his 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.

In your case, you have incurred expenses for air travel between your home 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.

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

Accommodation Expenses

In general, accommodation expenses are considered private expenses and consequently are not deductible. Court decisions and decisions of the Administrative Appeals Tribunal/Board of Review provide an independent view and confirm this.

The Federal Court decision in FC of Taxation v. Toms 89 ATC 4373; (1989) 20 ATR 466, 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. Although the expenditure must be incurred in order to put one in a position to be able to derive assessable income, it does not necessarily mean that the expenditure is incurred in the course of gaining or producing that income.

In your case, the accommodation expenses are incurred to enable you to stay in the proximity of your work location in City B and are a prerequisite to the earning of assessable income.

They are not expenses incurred in the course of gaining or producing your assessable income. Consequently you are not entitled to a deduction for accommodation expenses in City B under section 8-1 of the ITAA 1997.