Edited version of your written advice

Authorisation Number: 1051411894900

Date of advice: 15 August 2018

Ruling

Subject: Deductions for accommodation, meals and incidentals

Question 1

Is the expenditure incurred on renting a house or apartment an allowable tax deduction?

Answer

No

Question 2

Can you claim a deduction for any expenditure on meals and incidentals?

Answer

No

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ended 30 June 20XX

The scheme commences on:

1 July 2017

Relevant facts and circumstances

1. You are an Engineering Graduate employed full time. Your work location is described as “Various” (starting location is A).

2. Your employment as a Graduate Engineer requires a number of geographic rotational placements ranging from one month to 18 months to various sites.

3. Your normal place of residence is at B which is near work location A.

4. After completing an initial period of work at location A, near your normal place of residence, you were required to take up a rotation to location C for 12 weeks, and this rotation was then extended by another 5 weeks.

5. You were then returned to work at location A, near your normal place of residence, but 3 weeks later you were required to take another rotational placement to location D for 7 months.

6. Both location C and location D are a considerable distance from your normal place of residence at location B.

7. For these geographic rotational placements you were required to arrange your own accommodation and temporary relocation expenses were paid for by your employer in accordance with their Relocation Assistance Procedure for Graduates. This consists of a Temporary Rental Allowance for periods away greater than four weeks and is described as a taxable allowance up to the value of $X per week, determined on a case by case basis. This payment is processed through payroll.

8. While working at location C you rented an apartment under a tenancy agreement.

9. While working at location D you rented a house under a tenancy agreement.

10. In both cases you were paid a Temporary Rental Allowance equal to the weekly rent paid and this was processed through payroll in accordance with the Relocation Assistance Procedure.

11. These Temporary Rental Allowances are detailed on payslips and included and taxed as part of gross wages, and not shown separately on the PAYG payment summary at the end of the financial year.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 6

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 15-2

Income Tax Assessment Act 1936 subsection 23L(1)

Taxation Administration Act 1953 subsection 359-50

Fringe Benefits Tax Assessment Act 1986

Reasons for decision

Question 1

Summary

The expenditure incurred on renting a house or apartment while working in a different location is not an allowable tax deduction.

Detailed reasoning

Subsection 8-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for losses and outgoings to the extent that they are incurred in gaining or producing assessable income.

However, outgoings that are of a capital, private or domestic nature, or relate to the earning of exempt income are specifically excluded from being deductible. In particular, paragraph 8-1(2)(b) of the ITAA 1997 specifically denies a deduction for expenditure that is of a private or domestic nature. Expenditure that is private in nature generally relates to a taxpayer in their personal or private capacity.

An employee’s ordinary costs of maintaining a home are of a private or domestic nature and are not deductible. Such costs are preliminary to work and are not incurred in performing work activities, in the same manner as travel expenses to and from work are preliminary to work and are not incurred in performing work activities. These expenses are incurred to enable an employee to commence their income earning activities and are therefore considered private in nature.

Similarly the costs of relocating for work or living away from home to work are preliminary to work and are not deductible, regardless of whether commencing new employment or transferring permanently or temporarily within an existing employment. The costs of relocating or living away from home are not incurred in performing an employee’s work activities. They are of a private or domestic nature and reflect an employee’s choice about where to live. This is the case even though a taxpayer may, as a matter of practicality, need to incur the expenditure to earn assessable income.

It is also the case that an employee is not entitled to deduct an expense simply because they receive an allowance or other payment for that expense. The nature of the expense and its connection to the income producing activities determine whether the expense is deductible.

Draft Taxation Ruling TR 2017/D6 discusses employee costs of relocating for work and living away from home to work. These expenses are considered preliminary to the work and are not deductible.

Example 16 of TR 2017/D6 looks at working at a different location for an extended period (four months). In this example the taxpayer is living away from home for a four month period due to a work assignment. The Commissioner has concluded that in this case the living away from home accommodation is not deductible.

The issue of expenses incurred in relation to accommodation near the work place while maintaining a residence in another location has been considered by the courts on a number of occasions.

In the case Federal Commissioner of Taxation v. Charlton 84 ATC 4415; (1984) 15 ATR 711 (Charlton’s Case), the taxpayer was employed in Bendigo. He rented a flat in Bendigo while maintaining a permanent family home in Melbourne. The taxpayer claimed that the rental expenses were incurred in the production of assessable income. Crockett J stated at 84 ATC 4419-4420:

The Commissioner contends (correctly in my view) that, if the taxpayer should choose to reside so far from the place where it is necessary for him to be in order to gain his income that he not only needs to incur expense in travelling to that place but also to incur expense in the provision to him of some accommodation transitory or discontinuous in its use and secondary to or temporarily supplemental of his actual home, then that expense, too, is for the same reason non-deductible.

The taxpayer's election to live in Melbourne and not in Bendigo meant that the rental expended on the flat in order to enable him to secure accommodation in which to recuperate from the rigours of travel and the nature of his work was an expenditure dictated not by his work but by private considerations.

The decision in Charlton’s Case 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 principle from Charlton’s Case and Toms’ Case, that expenses for accommodation near the workplace while maintaining a residence elsewhere are private in nature, is applicable to your case. You temporarily lived away from your home at location B to undertake rotations of your Graduate Engineer program in locations C and D. While in location C, and then again in location D, you rented accommodation in which to live and you continued to maintain your home in location B.

Your case is comparable to example 16 in TR 2017/D6 in that the distance between your normal place of residence in location B and the locations at C and D is what necessitates you having to stay away from home. You are not living in location C and location D in the course of your work. Rather, you are living there so that you can work. The expenses are preliminary to the work and not deductible.

Your rental expenses were incurred as a result of your relocation to location C, and then to location D, to gain closer proximity to your workplace and were not incurred in the actual performance of your work duties. The expenses you incurred were expenses of a private or domestic nature. You are not entitled to a deduction for your expenses under section 8-1 of the ITAA 1997, as the expenses were not incurred in gaining or producing assessable income and were expenses of a private or domestic nature (paragraph 8-1(2)(b) of the ITAA 1997).

Question 2

Summary

The expenditure incurred on meals and incidentals while working in a different location is not an allowable deduction.

Detailed reasoning

Section 8-1 of the 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.

As a general rule, expenditure on meals and incidentals while working away from home is not allowed as a deduction. 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.

The issue of expenses incurred in relation to meals and incidentals near the work place while maintaining a family residence in another location has been considered by the courts on a number of occasions.

In Toms’ Case the Federal Court disallowed a forest worker's deduction for the cost of maintaining a caravan and other living expenses. The taxpayer incurred the expenses in providing temporary accommodation at the base camp because the taxpayer had chosen to reside at a place far from the worksite. These expenses were dictated not by work but by private considerations. In this case, the taxpayer's meals, accommodation (running and depreciation expenses associated with the caravan, plus interest paid on the loan used to acquire the caravan) and incidental expenses do not have a sufficient connection with his income producing activities. The extra expenses of food and accommodation are considered to be of a private and domestic nature as the taxpayer chooses the location of their normal place of residence. Accordingly, a deduction for the cost of meals, accommodation and incidental expenses is not allowable.

Your circumstances are considered to be comparable to those in Toms’ Case. While we acknowledge that your workplace location is subject to geographical changes, it is considered that these locations constitute your normal place of work. Consequently, any meal and incidental expenses you may incur are considered to be private in nature. Also, these expenses will be incurred to put yourself in a position to perform your duties and not in the actual performance of those duties. Therefore, these expenses are not deductible under section 8-1 of the ITAA 1997.

In your case, you have established a temporary second residence. Your rent, utilities, groceries, meals and car expenses are considered to be of a private and domestic nature. Accordingly, a deduction for these expenses is not allowable

Matters we have not ruled on

We have not ruled on all of your questions. Here, we list each question that we have not been able to rule on, and explain why.

Question 3

Should your employer be treating the reimbursement of your rental accommodation expense as a fringe benefit, specifically a Living Away From Home Allowance?

Your application for a private ruling on this question is not valid because you are not the relevant taxpayer in this matter, nor their agent nor their legal personal representative. You must be one of these to apply for a ruling.

Reasons for decision

Subsection 359-5(1) of Schedule 1 of the Taxation Administration Act 1953 (TAA) provides that the Commissioner may make a ruling on the way in which a relevant provision would apply to an entity in relation to a specified scheme.

The Commissioner must respond to a private ruling application by making a ruling, however under certain circumstances, the Commissioner may decline to make a private ruling (section 359-35 of Schedule 1 of the TAA).

In relation to whom a private ruling can be provided to and the matter the private ruling can address, paragraph 4 of Taxation Ruling TR 2006/11 – Private Rulings (TR 2006/11) states:

4. A private ruling is a written expression of the Commissioner's opinion about the way in which a relevant provision applies or would apply to you [emphasis added].

Paragraph 29 of TR 2006/11 elaborates on paragraph 4 of TR 2006/11:

29. The relevant provision must be capable of applying to you personally in order for you to be able to obtain a private ruling on it. So, for example, a private ruling on whether a person is considered to be an employee for the purpose of withholding under section 12-35 of Schedule 1 to the TAA can be applicable only to the entity making the payment since that relevant provision applies only to the payer in determining the extent of their obligation to withhold instalments. The appropriate applicant for such a private ruling would therefore be the entity making the payment. The payee cannot apply for the ruling. On the other hand, a private ruling on whether a person is entitled to a deduction for car parking expenses having regard to subsection 51AGA(1) of the ITAA 1936 will require consideration of whether that person is an employee in the course of applying that provision to them. In this case, the person seeking the deduction can obtain a ruling on whether he or she is an employee for the purposes of that provision.

You have requested a ruling in respect of whether the payment to you is a fringe benefit.

While the circumstances in your case, involving periods of geographical rotation of several months away from your normal place of residence, may be described as having the characteristics of “living away from home” rather than “working away from home”, whether a payment by an employer is a fringe benefit is defined in subsection 136(1) of the FBTAA. The provisions in the FBTAA determine fringe benefits tax obligations as they relate to an employer. Accordingly, only an employer can request a private ruling concerning whether a payment to their employee is a fringe benefit as defined in the FBTAA. Therefore, an application for a private ruling in relation to whether the temporary rental allowance payments to you by your employer is a fringe benefit would need to be made by the entity which has liability for any potential fringe benefits tax on that payment, namely your employer. The Commissioner therefore declines to rule on this particular matter.