Edited version of your written advice

Authorisation Number: 1051444607480

Date of advice: 27 November 2018

Ruling

Subject: Work related deductions.

Question

Can your rental expenses incurred while staying away from home for work be claimed as a deduction?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 2018

The scheme commences on:

1 July 2017

Relevant facts and circumstances

You are a doctor.

You are employed by a health service.

You are temporarily appointed as an Advanced Trainee in Surgery.

Under this training you are required to work in another city for a period of X months.

You have rented accommodation in the other city.

Your employer did not pay any allowances or reimburse the cost.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

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 Income tax and fringe benefits tax: when are deductions allowed for employees travel expenses 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 Orthopaedic Surgery program in location C. While in location C, 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 location at C is what necessitates you having to stay away from home. You are not living in location C 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, 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).