Edited version of your written advice

Authorisation Number: 1051432498611

Date of advice: 26 September 2018

Ruling

Subject: Work related travel expenses

Question

Are you entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the costs of travel between home and your workplace?

Answer

No

This ruling applies for the following periods:

Year ending 30 June 20xx

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 reside at home with your wife and family in Location A.

You are a resident for taxation purposes.

You are engaged by an employer as permanent full-time employee at a mine site, near Location C.

The mine site is remote and some 1600km distant from your home of Location A.

You work on a Fly-in-Fly out basis.

The travel to and from your home of Location A requires:

● One air flight between Location A and Location B

● Second air flight between Location B and Location C

● In addition, a bus transfer is required between Location C and the mine site

The employer pays for flights between Location B and Location C.

The employer pays for bus fares between Location C and the mine site.

The employer pays 12 hours for fly in day; employees are required to fly in their own time.

The employer accepts liability for workplace incidents, injury or harm after the employee (taxpayer) has boarded the plane in Location B destined for Location C.

The employee is subject to company discipline for the point of Location B airport.

Any additional travel or liability costs are met by the taxpayer.

Travel and liability between Location A and Location B airport are at the taxpayers’ expense.

Flights

The flight’s at the expense of the taxpayer between Location A and Location B airport are $XXX each, one way.

Travel between Location A and Location B airport requires an overnight stay in Location B, and the taxpayer covers all costs associated with meals, taxis and accommodation. There are no connecting flights on the same day and overnight accommodation is required in Location B.

Accommodation

The overnight accommodation at the expense of the taxpayer in Location B is approximately $XXX for each one night stay.

Taxi Fares

The taxi fares at the expense of the taxpayer between:

● Location B airport and the accommodation is approximately $XX; and,

● Accommodation and Location B airport is approximately $XX

Relevant legislative provisions

Income Tax Assessment Act 1936, Section 8-1

Reasons for decision

Summary

Section 8-1 of the Income Tax Assessment Act 1997 (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.

You are not entitled to claim deductions for travel, taxi, accommodation expenses incurred in travelling between your place of residence and your commencement of employment location.

Detailed reasoning

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.

The John Holland Case

You rely on John Holland Group Pty Ltd & Anor v. Commissioner of Taxation (2015) ATC 20-510 (John Holland case) to support your claim for deductibility of travel expenses incurred between your place of residence in Location A and your point of hire in Location B.

The ATO issued a Decision Impact Statement in response to the John Holland case, recognising different facts may result in different conclusions as to deductibility. In the Decision Impact Statement, the ATO maintained the current approach to travel deductions. Decisions as to deductibility will be made by “weighing all the relevant facts and circumstances and applying the relevant tax law and authorities to those facts.”

The facts in your case differ from the John Holland case. Therefore, the John Holland case cannot be relied upon and deductibility will be considered by weighing all relevant facts and circumstances. Whether an employee is travelling in performance of their work duties is a question of fact and is determined in accordance with:

(a) whether the work activities require the employee to undertake the travel;

(b) whether the employee is paid, directly or indirectly, to undertake the travel; and

(c) whether the employee is subject to the direction and control of their employer during the period of travel.

Application to your circumstances

(a) Requirement to undertake travel

You must be required to undertake the travel in performance of your employment duties for travel expenses to be deductible.

Travel expenses must have been incurred ‘in’ gaining or producing assessable income. Travel to commence work is not in the performance of work duties, but is preliminary to work. It is not enough for travel expenses to be incurred in connection with the derivation of income, incurred for the purpose of deriving income, or incurred as a pre-requisite to the derivation of income: John Holland case [52], Commissioner of Taxation (Cth) v Payne (2001) 202 CLR 93; 177 ALR 270; [2001] HCA 3 [9], [16]. Travel undertaken as a result of a personal choice, such as where to live or work, is not incurred in gaining or producing an employee’s assessable income; the travel is of a private and domestic nature: Draft Tax Ruling 2017/D6 paragraph 25.

The decision to work out of Location C on a commuting basis is a personal choice. The requirement to travel between your home at Location A and Location B to commence your duties is a result of the choice to work intrastate. This travel is preliminary to your income earning activity and places you in a position to perform your duties; it is not a requirement of your employment duties you undertake the travel.

(b) Paid directly, or indirectly, to undertake the travel

Your travel expenses are not deductible unless the travel can be characterised as an income-producing activity for which the employee is paid.

An employee is not paid for their travel or entitled to deduct travel expenses simply because they receive a travel allowance: Draft Tax Ruling 2017/D6 paragraph 14. As you are paid on a salary basis, whether you are paid for travel in performance of employment duties must be evident, directly or indirectly, in your employment agreement: Draft Tax Ruling 2017/D6 paragraph 28.

Letter from Employer

The commuting support allowance provided by your employer is designed to assist with the cost of commuting, in recognition of the commuting nature of your employment. The allowance is not provided as remuneration for the time undertaken to travel and paid irrespective of the distance and time between your home of record and the commuting destination. The allowance does not place any restrictions on where you travel from and how you travel. The use of the term ‘employees are required to fly in their own time’ recognises the private nature of the travel, implying the employer does not consider the travel in performance of your employment duties and on employer time.

Location B is your point of hire and the point at which your employment duties and remuneration for actual performance of those duties commences and ceases. Your employment contract does not recognise a starting destination within Australia. In the John Holland case, the Perth Airport was identified as the employee’s point of hire and travel costs incurred after the Perth airport would have been deductible, had, the employees incurred these costs. Applying the principal of the John Holland case to your circumstances, costs incurred after you arrive in Perth WA would be deductible had you as an employee incurred these costs. Your employer has stated they pay for the flights between Location B and Location C. Costs incurred travelling between your place of residence in Location A and Location B are considered expenses of a private nature and not deductible.

The travel to and from the commuting destination of Location A and operating base of Location B is undertaken at the expense of the employee. This establishes the difference between preliminary travels to the operating base to commence duties, and travel between two operating bases i.e. Location B and Location C in the course of employment. In comparison to the John Holland case traveling from the commuting destination to another operating base would be analogous to the deductible travel of John Holland employees from the Perth Airport to their base in Geraldton.

Your employer does not consider travel between your home of record in Location A and Location B as paid travel undertaken in the performance of your employment duties. This travel is recognised by your employer as travel of a private nature undertaken at the expense of the commuting employee.

The letter provided by your employer indicates travel between your home of record in Location A and Location B is undertaken during an off duty period where you are not carrying out your duties. This letter recognises the travel places you in the position to carry out your duties and is preliminary to your work. Your employer recognises you are not in performance of employment duties during this travel. Therefore, this travel is not characterised as part of your income-earning activities.

The document provided by your employer does not, directly or indirectly; demonstrate you are paid to undertake the travel as part of your duties. The expenses you incur travelling between your place of residence in Location A and Location B are incurred in order to put you in a position to perform your employment duties; they are not incurred in the actual performance of your duties.

(c) Direction and control

Travel expenses are not deductible unless you are subject to the direction and control of your employer during your period of travel.

An employee is under the direction and control of an employer where they are subject to employer orders or directions, whether or not they are actually exercised. In the John Holland case, employment contracts contained a clause stating employees were bound to comply with all John Holland Rail directives and policies during travel on the employer’s time. This clause provided disciplinary action, including dismissal, could result if an employee breached any such requirement during this travel.

Further, employee travel was controlled, organised and paid by the company. John Holland employees could not exercise any control or discretion in relation to their travel arrangements. Employees travelled on flights organised and chartered by their employer and the actual costs of these flights were paid by the company. John Holland employees were directed to present themselves at their point of hire at a certain time in order to commence their employment duties.

The letter from your employer states your employer accepts liability for workplace incidents, injury or harm after you have boarded the plane in Location B destined for Location C and the employer pays for the flights to and from Location B and Location C. It does not contain any reference relating to travel between your home of record of Location A or a starting destination prior to Location B. This does not provide you are under the explicit direction and control of your employer during your period of travel before reaching Location B from Location A and after leaving Location B to Location A. The level of direction and control during your period of travel is no different to periods you are rostered off.

You organise your travel between your place of residence between Location A and Location B yourself. When arranging your travel, you are able to exercise your discretion and select a flight most convenient to your personal preferences. You fly between Location B from Location A to arrive to meet your first flight; however the travel to and from Location B and Location A is not a requirement set by your employer. You have not been directed by your employer to travel to and from Location A and Location B to perform your work duties. It is implicit in the letter from your employer that Location B is your place of employment in order to commence your employment duties. The requirement to travel is a result of your personal choice to undertake employment in an intrastate location.

The John Holland case considers direction and control set by an employer to their employees. You do not travel on flights chartered by your employer between your home of Location A and Location B; instead they pay for the flights to and from Location B and Location C. The terms and conditions of staff travel tickets are similar to terms and conditions set by airlines on regular fares and airline tickets and are not an added control placed on the employee.

You are not subject to the direction and control of your employer during your period of travel and travel expenses incurred i.e. taxi, accommodation and flights in travelling between your residence in Location A and your employment base in Location B are not deductible. Therefore, you are not entitled to a deduction for these expenses under section 8-1 of the ITAA 1997.