Edited version of private advice

Authorisation Number: 1051601495600

Date of advice: 6 November 2019

Ruling

Subject: Work-related travel expenses

Question

Are you entitled to claim a deduction for the cost of return flights to Country D from City A to remote work?

Answer

No

This ruling applies for the following period:

Year ending 30 June 201X

The scheme commences on:

30 April 201X

Relevant facts and circumstances

You commenced a fixed term contract with your employer Y on XX/XX/20XX.

You arrived in Australia on XX/XX/20XX

When in Australia, you reside in capital city A.

You advised:

You relocated to Australia first and your family were to join you at the end of XX/20XX after your children finished school in Country B.

Your family came for a visit in XX to look for a place to live and find a school.

Owing to your spouse's personal illness your family decided to stay in Country B.

Your employer agreed for you to work remotely in Country B.

You currently work X weeks in City A and X weeks in Country B.

Your employer does not pay for flights between City A and Country B.

You are seeking to claim deductions for the cost of X return flights during the 20XX income year to Country B from City A.

Each trip was directly from City A to Country B without any stops other than for transit.

You have all receipts for travel costs.

Your employer did not pay you a travel allowance or reimburse you for the cost of the flights.

Your employer supports you to work from home and provided you with two computers and remote working software. The agreement was made verbally and allowed under the circumstances. You were required to complete a remote working form for the company record. You do not have a copy.

You have a home office which is purely for your own use. You work from home between X to X. hours a day. All weekdays were spent working.

Your duties are computer modelling of the geology of those oil and gas fields operated by your employer data analysis, powerpoint presentation and report writing.

When in Country B, you reside in City C.

Each trip was for X nights or more.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Summary

The expenses for the return flights are a prerequisite to the earning of assessable income and are not expenses incurred in the course of gaining or producing that income. You were not travelling in the performance of your duties of employment. These are private expenses and not tax deductible.

Detailed reasoning

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 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.

Taxation Ruling TR 2017/D6 states at paragraph 23:

A transport expense is not deductible unless the work requires the employee to undertake the travel. Travel to start work is not required by the work activity but is preliminary to the work.

And at paragraph 25:

Travel undertaken because of an employee's choice, such as where to live, is not usually incurred in gaining or producing the employee's assessable income and has a private or domestic character.

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.

For travel to be a fundamental part of an employees work, travel must be an essential feature of an employee's duties. Paragraph 22 of Taxation Ruling TR 2017/D6 (Income tax and fringe benefits tax: when are deductions allowed for employees' travel expenses?)lists factors to consider when determining whether travel is undertaken in performing employee's work activities. Factors include whether the work activities require the employee to travel (a); whether the employee is paid to undertake the travel (b) and whether the employee is subject to the direction and control of the employer for the period of the travel (c)

In your case, you incurred expenses for return flights to travel between City A where you work to City C in Country B where you work remotely from home. This travel was incurred in order to put you in a position to perform your duties of employment, not in the performance of those duties. Your work activities did not require you to undertake the travel. Your employer provided you a place to work in City A, agreed to the arrangement based on your personal circumstances but the arrangement for you to work remotely from Country B was not a requirement of the role.

Salaries generally recognise all aspects of an employee's position, including any requirement to travel to fulfil their duties. You were not paid directly or indirectly to undertake the travel. Your employer did not pay for your return flights or reimburse you for the cost of the flights. Your employer did not pay you a travel allowance to cover travel away from your home overnight in the course of your employment duties.

You travelled directly from City A to Country B and return without any stops other than for transit. However, you were not subject to your employer's orders or directions during the period of the travel.

The expenses you incurred in travelling between City A and your home in Country B to work remotely are private in nature. Therefore, you are not entitled to a deduction for these expenses under section 8-1 of the ITAA 1997.