Edited version of private advice

Authorisation Number: 1051685604861

Date of advice: 5 August 2020

Ruling

Subject: Work related expenses

Question

Are the expenses you incurred for travel, accommodation and meals deductible?

Answer

No.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You were employed by Company X to oversee projects within Australia.

Company X approached you due to your reputation in the field.

You were offered a fixed term contract as Property Manager on a project (The Project).

You wished to remain in your current location (City A) to support your spouse instead of re-locating to City B.

Company X agreed to you being able to remain in City A and work from home, however some travel to City B would be required.

The employment contract with Company X was for a period of three years or upon completion of the project, whichever was earlier.

A clause of your employment contract stated your work location was City B.

A clause of your employment contract also stated the following:

You may be required to travel within the State or Territory in which you work, interstate or overseas to perform your duties. In this circumstance, Company X will pay for the reasonable costs of travel required as part of your duties. Our travel policy provides further information.

You have a letter from Company X stating that your employment base was City A.

You were responsible for the development of certain project Management Plans, Stakeholder Strategies and oversaw the management for the delivery of all Land and Building Matters and adjustments for the private properties adjacent to the project site.

The strategic planning and administrative phases of the work undertaken did not require daily attendance at any locations along the construction site.

The Project Site based Property Team worked in accordance with your Strategic Management Plans for the delivery of the property programs and reported real time outcomes electronically directly to you.

You oversaw the Team's work and performance. The Team consisted of Engineers, Architects, Building Co-ordinators, and Stakeholder Liaison Officers who in turn engaged sub-contractors.

All Property Team correspondence, Stakeholder Engagements, designs, scopes of work, and commercial matters were circulated to you for review and approval to proceed. You also reviewed Quality checklists and when on site randomly conducted Quality Audits and occasionally Damage Claim inspections.

You were required to step in and directly handle site issues that the Property Team could not resolve, especially where an issue had the potential to delay the Project, or be escalated to the appropriate Ministers.

You also instructed registered surveyors and legal counsel to prepare the necessary documentation to effect contracts, licences and adjustments.

You worked a minimum of a XX hour day, and generally X days a week, but more when The Project required.

This role is unique and it is difficult to source people experienced in the strategic management of such work.

You have a dedicated home office set up in your home in City A. You have not claimed any deductions in association with your home office.

There is no set roster for working from home or on site, it is always based on The Project's requirements.

At the time of accepting the position it was believed that there wouldn't be a great deal of travel required.

Initially, despite it not being specified in the contract, Company X agreed to pay for your travel from City A to City B. However, once problems with The Project starting occurring, the amount of time you were required to be on site in City B increased and therefore so did the amount of travel required.

It was no longer possible for Company X to continue to pay for your travel from City A to City B and you incurred the costs of travel, accommodation and food associated with your trips to City B.

You did not travel for a day at a time. It was more appropriate due to project requirements and scheduling to be working on site for a period of a week or more at a time.

When travelling you would do one of the following:

·         Drive from City A to City C and park in the long term car park

·         Catch a flight to City D to transfer to a City B flight

·         Occasionally due to flight times, an overnight stay in City D was required. During City D stop overs you were available and on call

·         Arrive in City B and hire a car to travel to various locations along the Project Site.

OR

·         You would drive from City A to City D

·         You would then stay overnight in City D

·         A long drive from City D to City B.

You found that the drive was more cost effective and productive. It allowed you to be available to take and make work related hands free phone calls throughout the trip.

Company X provided you with a computer and a mobile phone so you had the ability to work from any location.

When in City B you stayed in an apartment or occasionally a hotel.

When working in City By, the site offices had limited desk space so you would work from the rented accommodation/hotel.

You were not reimbursed by Company X for the costs you incurred for the travel, accommodation or food.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Summary

The costs you incurred for travel, accommodation and meals while travelling from your home in City A to the site in City B are considered to be of a private nature and are incurred as a consequence of having your home in one place and working in another. Therefore, they are not incurred in gaining or producing your assessable income and are not deductible.

Detailed reasoning

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA1997) allows a deduction for all outgoings to the extent to which they are incurred in gaining or producing assessable income, or are necessarily incurred in carrying on a business for that purpose. However, a deduction is not allowable for outgoings that are of a capital, private or domestic nature.

It has been well established that the cost of travel between home and work is not deductible.

Taxation Ruling 2019/D7 Income tax: when are deductions allowed for employees' transport expenses? (TR 2019/D7) represents the Commissioner's preliminary view on the general principles for determining whether an employee can deduct travel expenses under section 8-1 of the ITAA 1997. Paragraphs 15 to 16 of the draft Ruling state the following:

With limited exceptions, an employee's costs of travelling between home and a regular place of work are not deductible. This is because such costs are explained by where the employee lives in relation to where they report for work. They are not incurred in the course of gaining or producing an employee's assessable income. This expenditure is merely a prerequisite to earning an employee's assessable income and is private in nature.

This is not changed by the fact that the employee performs work-related tasks at home as a matter of choice or for their convenience. Nor does the conduct of some work activities whilst travelling (for example, answering emails on the train) convert the travel to being part of the employment if it otherwise private. This is because the travel itself is a prerequisite to commencing work duties.

You were employed by Company X to oversee projects in Australia, specifically The Project which was located in City B. A condition that you insisted upon should you accept the offer to take on this role, was that you could remain living in City A due to family reasons. Whilst your employer agreed to allow you to work in this manner, you still had a requirement to be onsite in City B at various times, which meant travel from City A to City B would be necessary.

The need to travel from City A to City B arose because of a personal choice about where you wanted to live, not because it was a necessary incident of your employment. Some would say that travel between a place of residence and a place of work may be necessary for work purposes but it does not make the expense of travel deductible because the travel is not part of the process by which income is earned. The distance between your home and work does not change the character of your travel.

This situation is different where the income producing activity may be said to commence prior to or upon leaving home. In that situation, the travel forms part of the gaining or producing of assessable income.

You assert that when you do travel, you are traveling on work. Some discussion around working from home, remote working and flexible working arrangements can be found in TR 2019/D7.

Travel expenses are deductible where an employee travels between home based employment and

another place of employment. However, the fact that the employee chooses to perform work at

home associated with employment conducted elsewhere is not sufficient for the home to constitute

as a base of operations.

Example 13 in paragraphs 70 and 71 of TR 2019/D7 state the following:

70. Nico works as a travel agent. As he has a small child, his employer allows him to work from home rather than in the office. Nico has a home office that he uses exclusively for work. At least twice per month, Nico is required to attend the office for regular staff meetings. Nico's home office is not a place of business because Nico's employer would normally accommodate him at their office. At Nico's request they have agreed to let him work from home so that he can work at whatever time is convenient for him. The travel from Nico's home to the office is not incurred in gaining or producing his assessable income. Nico works from home for his mere convenience so he can look after his small child and work flexible hours. Accordingly, his travel from home to his regular place of work at the office is not explained by his work duties, that is, the travel is not relevant to the practical demands of carrying out Nico's work duties. It is a consequence of Nico's choice to work from home rather than in the office. Nico is not entitled to claim a deduction for his travel as it is private or domestic in nature.

71. The fact that the employee might choose to undertake their duties at a location other than home or a regular place of work at their convenience, does not make the cost of travel to that place deductible. For example, a person working remotely cannot deduct the cost of travel to a resort that they choose to work from. Such expenses are private in nature.

There are several similarities between your case and Nico's. Like Nico, due to reasons concerning family, your employer allowed you to work from home. You too needed to attend a work site when required. Nico's home office is not a place of business because his employer would normally accommodate him at their office. If you had moved to City B, offices would be available for use on the jobsite. Because of this, your travel from your home in City A to the project site in City B is not incurred in gaining or producing assessable income. You work from your home in City A as a convenience, not because of your work duties. It is a consequence of your choice and therefore the costs incurred are considered private or domestic in nature.

Taxation Ruling TR 95/34 Income Tax: employees carrying out intinerant work - deductions, allowances and reimbursements for transport expenses provides guidelines for establishing whether an employee is carrying out itinerant work.

Paragraph 56 of TR 95/34 states that an employee's home may constitute a base of operations if the work is commenced at or before the time of leaving home to travel to work and the responsibility for completing it is not discharged until the taxpayer attends at the work site.

Whether an employee's home constitutes a base of operations depends on the nature and the extent of the activities undertaken by the employee at home. In the Federal Court Case FC of T v. Collings 76 ATC 4254; (1976) 6 ATR 476 it was held that the taxpayer, a computer consultant was allowed the expenses of travel between home and work as;

·         she had commenced performance of her duties before leaving home and travelled to work to complete those duties. Her obligation was more than just being on stand-by duty at home; and

·         she did not choose to do part of the work in two separate places. The two places of work were a necessary obligation arising from the nature of the special duties of her employment.

In your case you work from home in City A, then as required, travel to the project site in City B, either by car or plane or a combination of both. You have also advised that during your travel time you make and receive work related phone calls.

However, your two places of work are not a necessary obligation arising from the nature of your work as in Collings case. They have arisen because of a choice you made about where you would live. Nothing related to your employment requires you to be in City A, rather it was a choice to remain there for personal reasons. Therefore the expenses you incurred to travel to the site in City B are considered to be private or domestic in nature and are not deductible.

Accommodation, meal and incidental expenses

Expenditure on the daily necessities of life (for example, accommodation, meals and incidentals) is generally not deductible as it is not incurred in gaining or producing assessable income and is also considered to be private or domestic in nature. An exception to this is where you are undertaking work related travel and are required to stay away overnight.

No deduction is allowable if a taxpayer is merely incurring accommodation costs close to their usual work location. These expenses are incurred to enable a taxpayer to commence their income earning activities and are therefore considered private in nature. The distance from home does not alter the essential character of any accommodation, meal or incidental expenses incurred as they remain private in nature. The cost of accommodation close to work is generally incurred to put a person in a position to perform duties, rather than in the performance of those duties.

The issue of expenses incurred in relation to accommodation near the work place while maintaining a family residence in another location has been considered by the courts on a number of occasions.

In Lunney v. FC of T (1958) 100 CLR 478 the Full High Court laid down the principle that for a deduction to be allowable it is not enough for the expenditure to be an essential prerequisite to the derivation of assessable income. In that case it was held that the costs incurred by a taxpayer in travelling to the place where they work are expenses incurred in order to enable them to earn income but are not expenses incurred in the course of earning that income.

In the case Federal Commissioner of Taxation v. Charlton 84 ATC 4415; (1984) 15 ATR 711 (Charlton's Case), the taxpayer was a pathologist who carried out autopsies for the local coroner in Bendigo. He rented a flat in Bendigo while maintaining a permanent family home in Melbourne, located approximately 150kms away. There was evidence that there was difficulty in finding motel accommodation in Bendigo and the taxpayer was reluctant to make the round trip back to Melbourne without rest. The taxpayer claimed that the rental expenses were incurred in the production of assessable income.

Justice Crockett of the Supreme Court of Victoria ruled:

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.

This is further 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.

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, you incurred expenses for accommodation and meals due to having your home in one city and your employment elsewhere. This scenario was the result of a private choice, it was not the result of a requirement of your employment. As such, the expenditure incurred for the accommodation and food associated with the travel from City A to City B, and the cost of the accommodation and food while staying in City B, are considered to be private in nature and not deductible.