Edited version of private advice

Authorisation Number: 1051587483806

Date of advice: 1 October 2019

Ruling

Subject: Work-related travel expenses

Question

Are you entitled to claim a deduction for accommodation costs incurred while working away from home during the probationary period of a contract?

Answer

No

This ruling applies for the following period:

Year ended 30 June 2019

The scheme commences on:

1 July 2018

Relevant facts and circumstances

Prior to commencement of the scheme you resided in City X.

You provided a copy of an employment agreement. The document shows you entered into the employment agreement on XX/XX/20XX with your employer Y to work in state Z from XX/XX/20XX to XX/XX/20XX.

The employment agreement included a probationary period provision allowing either you or your employer to terminate your employment on one week's notice at any time during a probationary period of six months.

Your employer paid you an accommodation and utilities allowance of $X gross per month for the first three months of the employment contract. This allowance was shown separately on your 2019 Income Statement for an amount of $X

Your tax agent advised:

·        You rented accommodation in state Z on a 15 month lease from XX/XX/20XX when you and your spouse arrived in state Z to prepare for the commencement of work on XX/XX/20XX.

·        An option was for you to return home to City X if your employment was terminated during the probationary period. You decided to maintain your City X home and leave it unoccupied until you had a better understanding of your employment position during the probation period.

·        You decided to rent your City X home once you received feedback from your employer giving you confidence your employment would continue until the end of the contract in XX/20XX.

·        Your City X home was leased and a tenant moved in on XX/XX/20XX. You no longer intended to return home to City X within 12 months and the period you were living away from home ceased when your City X home was first rented on XX/XX/20XX.

·        A deduction is sought for accommodation costs of $X for the period XX/XX/20XX when you first rented accommodation in state Z to XX/XX/20XX being the day before your City X home was rented. Accommodation cost comprises rent paid for ten weeks and four days and utilities charges.

The claim sought for accommodation expenses is equivalent to the accommodation and utilities allowance of $X per month received for the period of two months and six days up to XX/XX/20XX.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

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.

In general, accommodation expenses are considered private expenses and consequently are not deductible.

Draft Taxation Ruling TR 2017/D6 provides guidelines for establishing whether an employee can deduct travel expenses under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997). A travel expense includes accommodation, meals and incidental expenses of an employee when they travel away from home for work. These guidelines have been established through the views taken by the Courts, Boards of Review and Administrative Appeals.

Relevant paragraphs of TR 2017/D6 include:

14. An employee is not entitled to deduct an expense simply because they receive an allowance, including expenses the allowance is intended to cover. The nature of the expense and its connection to the income producing activities determines whether it is deductible.

16. ..... employee costs of relocating for work and living away from home to work are preliminary to work and are not deductible.

52. ..... where accommodation, meal and incidental expenses are incurred by an employee in relocating to a place of work or in living away from home to work, they are preliminary to the work and not deductible.

96. Relocation or 'living away from home' accommodation involves accommodation, meal and incidental expenses for employees who relocate for work or live away from home to work.

97. Expenses in this category are not deductible, even though moving to a new location or working away from home may be required by the work. This can be concluded without referring to specific terms of employment. The fact that an employer has required the employee to relocate or live away from home does not alter the private nature of the expenditure.

Examples 16 and 17 in Draft TR 2017/D6 are also relevant. Example 16 involves an employee who is living away from home and example 17 involves employees who are have relocated and are living away from home. For example 16 refer to paragraphs 224 to 231 and refer to paragraphs 232 to 245 for example 17. These examples are summarised as follows:

In example 16, the employee (Yumi) works for an employer based in Brisbane and is paid a salary that recognises all aspects of her position, including the requirement to travel to fulfil work duties. The employer requires Yumi to travel to Townsville to set-up a new office for the employer. Yumi will be in Townsville for four months after which time Yumi will return to usual employment in the Brisbane office. During this period Yumi will have occasional, one or two day business trips to Brisbane and Sydney.

Yumi will be living away from home for the four month period of the work assignment because, even though she is required to stay in Townsville she:

·        Will be staying away from her permanent home at one work location for an extended period

·        Will be staying in home-like accommodation when she is in Townsville and

·        Will not be travelling regularly for work

The example says the meal and incidental expenses are not deductible (Paragraph 229). This would also apply to accommodation if Yumi had incurred that expense

In example 17, the employer is an Australian resident company and a project in Australia requires the employer to source employees from overseas on a temporary basis. The overseas employees will relocate to Australia to work for a period of time to complete their part of the project at one location under the direction and control of a project director. Employment arrangements include:

·        The employees are present in Australia for a period of between 90 days and 120 days. The period they stay away from home at the location is considerable

·        The employees are required to work for the entire period they are in Australia in one location. They are not regularly travelling from place to place and their work is not of a transient nature

·        The employees retain their permanent home outside Australia

·        The employees stay in apartment style accommodation arranged by the employer while in Australia. Their temporary accommodation is not their permanent home

·        Accommodation costs in Australia are either met by the employer or paid by the employee after which a reimbursement is made in full by the employer for the actual expenditure.

In the circumstances given in the example, the employees are living away from home and their accommodation, meal and incidental expense while in Australia are of a private or domestic nature (Paragraph 242).

If rather than the employer providing accommodation or reimbursing the employees, the employees receive an allowance to cover accommodation (and meals), this does not affect the character of expenditure (Paragraph 244).

The issue of expenses incurred in relation to accommodation near the work place while maintaining a family residence in another location was considered in FC of T v. Toms 89 ATC 4373; (1989) 20 ATR 466 (Toms' Case). This was one of the cases relied on in Draft TR 2017/D6.

In Toms' Case, the taxpayer was a forest worker who during the working week lived in a caravan in a bush camp 108 kilometres from his family home in Grafton. He claimed it was too far to travel each day to his work in the forest, so that it was necessary to establish a caravan at the camp. He would return home on weekends. He claimed the costs of maintaining his caravan and other living expenses such as the cost of heating and lighting. The Federal Court held that the expenses incurred in relation to the temporary accommodation near the workplace while maintaining a family residence in another location were dictated not by his work but by private considerations, and therefore were not deductible.

In your case, you incurred expenses for renting accommodation in state Z to enable you to work in a different state to where your principal residence was. The probationary period provision in the employment agreement does not alter the fact you were living away from home to work. The rental accommodation expenses do not cease to be private in nature and retain the character as a living expenses rather than becoming work-related expenses.

As in Toms' Case, the rental accommodation expenses are a prerequisite to the earning of assessable income. They are incurred in order to enable you to earn income but are not incurred in the course of gaining or producing that income.

Consequently you are not entitled to a deduction for rental accommodation expenses in state Z under section 8-1 of the ITAA 1997.