Edited version of your written advice

Authorisation Number: 1051424252929

Date of advice: 1 September 2018

Ruling

Subject: Work related expenses - accommodation

Question

Are you entitled to a deduction for accommodation expenses that you incur whilst undertaking income earning activities as a under s8-1 of the ITAA 1997?

Answer

No

This ruling applies for the following period

Year ended 30 June 2018

The scheme commenced on

1 July 2017

Relevant facts and circumstances

You are currently employed.

You work is based at Town B and you currently reside at Town A.

The trip is xxx km round trip and takes approximately x hours each way.

For fatigue management, due to the turnaround between some shifts, you pay for accommodation.

You have receipts to verify these costs.

On the days that you do not have a short turnaround between shifts you return to Town A.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for Decision

These reasons for decision accompany the Notice of private ruling.

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our decision.

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 by an individual 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.

A number of significant court decisions have determined that for an expense to be an allowable deduction:

● it must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income-producing expense (Lunney v. FC of T; (1958) 100 CLR 478 (Lunneys case)),

● there must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income (Ronpibon Tin NL v. FC of T, (1949) 78 CLR 47), and3

● it is necessary to determine the connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces his or her assessable income (Charles Moore Co (WA) Pty Ltd v. FC of T, (1956) 95 CLR 344; FC of T v. Hatchett, 71 ATC 4184).

Although your work is based at Town B and you currently reside at Town A, this does not automatically mean you are entitled to a deduction for the associated expenses. The expenses must meet the criteria for deductibility under section 8-1 of the ITAA 1997.

Expenditure on the daily necessities of life (for example, accommodation and meals) is generally not deductible as it is not incurred in gaining or producing assessable income and is also considered to be private or domestic in nature. An exception to this is where you are undertaking work related travel and are required to stay away overnight.

We therefore need to consider if your travel is regarded as work related travel.

Travel expenses

Generally a deduction is not allowable for the cost of travel between home and work as it is considered a private expense. Expenditure incurred in travelling to work is a prerequisite to the earning of assessable income rather than being incurred in the course of producing that income. Such expenses are incurred as a consequence of living in one place and working in another. That is, the essential character of the expenditure is of a private or domestic nature, relating to personal and living expenses and therefore not an allowable deduction. (Lunney’s case and Federal Commissioner of Taxation v Cooper (1991) 29 FCR 177; 91 ATC 4396; 21 ATR 1616).

The essentially private character of travel between home and work is not affected by factors such as the mode of transport, the availability of transport, the lack of suitable public transport, the erratic times of employment, the time of travel, the distance of travel and the necessity of travel (Taxation Ruling IT 2543 Income tax: transport allowances: deductibility of expenses incurred in travelling between home and work).

The Commissioner accepts that expenses incurred in travelling between home and work may be deductible in limited circumstances, for example:

● the taxpayer's employment is inherently of an itinerant nature and they regularly work at more than one site each day before returning home,

● the taxpayer has to transport by vehicle bulky equipment necessary for employment, or

● travel is between two places of employment or business.

The above exceptions do not apply in your case.

Accommodation

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 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.

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

It is considered that location B is your normal place of work. Expenditure on your accommodation is 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. Therefore no deduction is allowable under section 8-1 of the ITAA 1997 for your accommodation expenses.