Edited version of private advice

Authorisation Number: 1051871344394

Date of advice: 8 October 2021

Ruling

Subject: General deductions - accommodation expenses

Question 1

Are you entitled to a deduction for your accommodation expenses in a foreign country?

Answer

No.

Question 2

Are you entitled to a deduction for the running expenses in relation to your home office?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ended 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commences on:

19 July 20XX

Relevant facts and circumstances

You are a professional sportsperson. You receive a variety of income from sponsors, participating in competitions and grants.

Your home is in Australia.

Your contract with a sponsor requires that you reside in a foreign country. You would have been based in this foreign country for the majority of the 20XX financial year, however, you made the decision to return to Australia due to unforeseen circumstances.

You are currently renting an apartment which has close proximity to your sponsor's headquarters. Your lease at this property commenced on 19 July 20XX and has been renewed through to 18 July 20XX. During 20XX, you spent a total of XX nights at the residence while you trained at your sponsor's headquarters for a planned sporting event.

You use your foreign apartment as a home office and gym. Your home office is located in the corner of your living room and is used to complete your personal administration tasks, including podcast recording, endorsement co-ordination (social media engagements and interviews), meetings with your coaches as well as your managers and agents. Your home gym is situated on your veranda, and is also equipped to support your training.

Your family do not visit you whilst you are in the foreign country.

You only visit the foreign country for work commitments. Your sponsorship contract 20XX and the lease will essentially remain as your residence in the foreign country until then. Your Visa for this foreign country is also valid until 31 October 20XX.

You have lodged a tax return in the foreign country and have not claimed any rental expenses in your return for the year ended 31 December 20XX.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Question 1

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.

Taxation Ruling TR 2021/4 Income tax and fringe benefits tax: employees: accommodation and food and drink expenses travel allowances, and living-away-from-home allowances (TR 2021/4) sets out general principles for determining whether an employee can deduct 'living expenses' under section 8-1 of the ITAA 1997, which includes accommodation, and food and drink expenses (paragraph 9 of TR 2021/4).

As a general rule, living expenses are of a private or domestic nature and not deductible. This includes the ordinary costs of maintaining a home and consuming food and drink to go about your daily activities, such as to attend work. These costs are preliminary to the work and are not incurred in the course of performing those activities (paragraph 14-15 of TR 2021/4). However, if the employee is found to be travelling on work in the course of performing their income earning activities, these expenses will generally be deductible under section 8-1 (paragraph 10 TR 2021/4; see also The Roads and Traffic Authority of New South Wales v. Commissioner of Taxation [1993] FCA 445 (Roads and Traffic)).

Hence, an important distinction is whether you are 'travelling on work' or are incurring 'living expenses' whilst staying at your apartment in the foreign country. In determining whether an employee is travelling on work, consideration must be had to the employee's personal circumstances, whether the employee is living at a location or whether the expense is incurred as a result of relocating from their usual residence (paragraph 24 TR 2021/4).

Where an employee incurs accommodation expenditure while they are living away from their usual residence, the accommodation expenses will be classified as 'living expenses' and is therefore private or domestic in nature (paragraph 40 of TR 2021/4). The private or domestic nature of these expenses often reflects a choice the employee has made which results in their usual residence not being located near their new workplace (paragraph 41 TR 2021/4).

The issue of expenses incurred for accommodation near the workplace 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). In that case, a forest worker lived in a caravan in a bush camp near his workplace during the week and returned home on weekends. 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. 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 were therefore not deductible.

Your circumstances, although being an independent contractor with your sponsor, are similar to Toms' case. You have made the choice to take up the income earning activities in the foreign country, and remain living in Australia. Your accommodation expenses in relation to your apartment arise from this choice. It is considered that the costs of leasing an apartment are incurred to enable you to stay in the proximity of your head office and are incurred in order to put you in a position to be able to derive assessable income, they are not expenses incurred in the course of gaining or producing your assessable income. For these reasons you are found to be living away from your usual residence, not simply travelling for work. Therefore, your accommodation expenses are private in nature and not deductible.

Question 2

Detailed reasoning

Taxation Ruling TR 93/30 Income tax: deductions for home office expenses discusses home office expenses. It states that deductible expenses in respect of a home office can be divided into two broad categories:

•         Occupancy expenses, i.e., expenses relating to ownership or use of a home which are not affected by the taxpayer's income earning activities. These include rent, mortgage interest, municipal and water rates and house insurance premiums.

•         Running expenses, i.e., expenses relating to the use of facilities within the home. These include electricity charges for heating/cooling, lighting, cleaning costs, depreciation, leasing charges and the cost of repairs on items of furniture and furnishings in the office.

Occupancy Expenses

Taxation Ruling TR 93/30 outlines the factors that indicate whether or not a home office has the character of a 'place of business'. This is likely to be the case where part of a residence is set aside exclusively for the carrying on of a business by a self-employed person, such as a doctor or dentist with a surgery or consulting rooms at home or a tradesperson with a workshop at home. Another example is where part of the home is used exclusively as the sole base of operation for an employee and no other work location is provided by the employer.

In your case you are not carrying on a business. As your home office and gym do not have the essential character of a place of business and are not used directly for income producing activities, you are unable to claim occupancy expenses as a deduction.

Running Expenses

The nature of your work is that all your income producing activities are undertaken at your work location, and not in the home office. Your circumstances are clearly distinguishable from situations such as a hairdresser with a home salon, a doctor with a home surgery or a tradesperson with a home workshop where income producing activities are being undertaken at home.

While the home office and gym do not have the essential character of a place of business, the office and gym is used in connection with your income earning activities. As such, you are entitled to a deduction for your home office running expenses. Running expenses are the increased costs of using the home's facilities for work-related activities.

Further information about claiming deductions for running expenses for an area of a home that is used in connection with income earning activities, including how to calculate your claim, is available here or search for 'QC 31977' on ato.gov.au