Edited version of private advice

Authorisation Number: 1051603751727

Date of advice: 5 November 2019

Ruling

Subject: Travel expenses - fly in fly out

Question

Are you entitled to claim a deduction for your travel expenses?

Answer

No.

This ruling applies for the following periods:

Year ending 30 June 2019

Year ending 30 June 2020

Year ending 30 June 2021

The scheme commences on:

1 July 2018

Relevant facts and circumstances

You currently reside in State 1.

You work for an organisation.

You commenced working for the organisation in 2018.

You have been working for the organisation for three years.

The role is based in a remote area.

Given the remote location of the role it is carried out on a fly in/fly out (FIFO) basis.

You travel from your home State 1 to the airport in State 1 Airport car.

You then fly to State 2, from where you then fly on to the remote area.

You travel to State 2 the day before in order to be ready to start work the following day (e.g. you will travel on a Wednesday to start the shift on Thursday in the remote area).

You organise and pay for your airfares for your travel between State 1 and State 2 both ways.

A portion of these airfares are reimbursed by employer.

Your employment contract specifies that a percentage of your Base Salary as part of your Fixed Reward Remuneration is in respect of "Early Fly In Allowance".

The allowance is calculated as a percentage of Base Salary. The allowance will be reviewed if the requirement for early fly in changes in the future."

Your employment contract also specifies that a percentage of your Base Salary as part of your Fixed Reward Remuneration is in respect of "Work Allowance".

This is described as being "payable to the remote area based employees in consideration of the associated average working hours, hardship of the roster arrangement and all aspects of working at site operations. Work Allowance is calculated as a percentage of Base Salary".

Your employer pays for 100% of the travel costs for travel between State 2 and the remote area.

Clause XX.X of your contract states:

XX.X Travel - FIFO Employees

You will travel from and to state 2 by pre-booked commercial airline flights, or such other transport arrangements as determined by the relevant manager from time to time.

You will travel to the relevant work destination allowing sufficient time for sign-on for your first rostered shift. You will travel home after the conclusion of your last rostered shift. You are responsible for travel to and from the airport.

It is your responsibility and duty of care to manage your own fatigue and your commute arrangements to the airport in order to safely work your first shift and to safely manage your commute arrangements home on your fly-out day.

If you miss a scheduled prepaid flight, you will be responsible for alternative travel arrangements and any associated costs. Loss of luggage while on the course of travelling to or from site will be your responsibility.

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.

Travel Expenses

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 Commissioner has recently issued Draft Taxation Ruling TR 2017/D6 Income tax and fringe benefits tax: when are deductions allowed for employees travel expenses? in which the principles for determining whether an employee can deduct travel expenses under section 8-1 ITAA 1997 is discussed in detail. Specifically, paragraphs 39 - 41 of TR 2017/D6 in respect of Special Demands travel.

39. Special demands travel involves travel between home and a regular work location where:

the journey, or part of the journey, is included in the activities for which the employee is paid under the express or implied terms of their employment and this is reasonable because of the special demands of the work.

40. In this context, special demands are specific physical or logistical requirements of the work activity. Special demands include:

the remoteness of the work location

a requirement to move continuously between changing work locations

a requirement to work away from home for an extended period

other special circumstances of the work activity.

41. Part of an employee's journey between home and a regular work location may be 'special demands travel'. For example, where a work location is remote, another location may be designated as a 'point of hire' under the relevant employment arrangement. Employees must report to this point, after which they start being paid and are subject to the employer's direction and control.

To come within paragraph 39 of TR 2017/D6, the journey must be included in the activities for which the employee is paid under the express or implied terms of the contract. To come within paragraph 41 of TR 2017/D6 the employee must start being paid and be subject to their employer's direction and control when they get to the point of hire.

Application to your circumstances

In your circumstances, you fly from your home in State 1 to State 2 where you commence your employment. You then fly from State 2 to the work location in remote area.

Clause XX.X requires that you organise and pay for your airfares from State 1 to State 2.

You are also responsible for your own travel if you miss a pre scheduled flight.

You are responsible for your own fatigue management and safe commute to and from the airport.

Your contract implies that State 2 airport is your point of hire and you are rostered on when you arrive from State 1 to State 2 airport, your contract states that you will travel to the relevant work destination allowing sufficient time for your sign on for your first rostered shift. The destination in your case is State 2 where you sign on for your rostered shift.

You receive an early fly allowance from your employer. Receiving these payments however does not mean you would be considered rostered on from your home in State 1. The allowance would form part of an overall package of remuneration designed to attract and reward employees who were willing to work in distant and/or remote locations.

Overall, the occasion of the outgoings of the flights to State 2 from State 1 is to be found in off duty activities and not income producing activities. You have incurred expenses for travel between your home and your work. This travel is incurred in order to put you in a position to perform your duties of your employment; it is not incurred in the performance of the duties of your employment.

The receipt of the allowances doesn't mean that you are on paid duty. The work allowance is clearly a payment made in respect of the hardships associated with working in the remote area.

The expenses you incur in travelling between your home in State 1 and your work in State 2 are private in nature. Therefore, you are not entitled to a deduction for these expenses under section 8-1 of the ITAA 1997.