Edited version of private advice

Authorisation Number: 1051883022812

Date of advice: 12 August 2021

Ruling

Subject: Deductions

Question

Are you entitled to a work-related deduction for rent, mortgage payments, strata fees, water, electricity and Council rates, duplicate furniture and appliances, storage fees and regular travel expenses between your Town 1 home and Town 2 work accommodation?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 2018

Year ended 30 June 2019

Year ended 30 June 2020

Year ended 30 June 2021

The scheme commenced on:

1 July 2017

Relevant facts and circumstances

You are a professional.

You live in Town 1.

In in the 2019 income year you obtained work as a professional 500km away, at Town 2.

This was for less than 12 months and was temporary part-time work.

You kept your home in Town 1.

You incurred extra expenses in relation to travel to your workplace along with renting a property. You also obtained furniture and appliances for the rental property.

You initially rented accommodation through your employer and then moved into a less expensive unit which was through a real estate agent.

You were promised further work, so you decided to borrow and purchase a 1-bedroom unit.

Your additional costs include rent/mortgage payments, strata fees, water, electricity and Council rates, plus duplicate furniture and appliances, storage fees (between renting and buying, while home in Town 1 over the summer holidays (due to settlement delays), and regular travel expenses between your Town 1 home and Town 2 work accommodation.

You return to your Town 1 home during holidays, and between jobs, to maintain your home and garden, and access personal items.

You were not paid an allowance by your employer.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

According to section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997), you can deduct a loss or outgoing if it is incurred in producing your assessable income except where the outgoing is of a capital, private or domestic nature.

The term 'incurred in gaining or producing assessable income' means incurred 'in the course of gaining or producing assessable income'.

For an expense to be incurred in gaining or producing assessable income it is both sufficient and necessary that the occasion of the expense should be found in whatever is productive of assessable income.

Draft Taxation Ruling 2021/D1 Income tax and fringe benefits: employees: accommodation and food and drink expenses, travel allowances, and living-away-from-home allowances (TR 2021/D1) considers the deductibility of accommodation and food.

Accommodation and food and drink expenses are ordinarily private or domestic in nature and are generally not deductible under section 8-1.

Paragraphs 13-14 of TR 2021/D1 states:

13. Living expenses are a prerequisite to gaining or producing an employee's assessable income and are not incurred in performing an employee's income-producing activities. Living expenses are also private or domestic in nature. This means that even if these expenses were incurred in gaining or producing assessable income, they still would not be deductible due to the application of paragraph 8-1(2)(b).

14. While living expenses must be incurred before any assessable income can be derived, a loss or outgoing is not incurred in gaining or producing an employee's assessable income merely because it is necessary. This is particularly relevant to living expenses. A person must eat and sleep somewhere, whether or not they engage in employment.

To be deductible, the accommodation and food and drink expenses must have a sufficiently close connection to the performance of the employment duties and activities through which the employee earns income. It will not be enough to show some general link or causal connection between the expenditure and the production of income.

The occasion of the outgoing on accommodation and food and drink must be found in the employee's income-producing activities, rather than in the personal circumstances of where the employee lives.

The courts have concluded that accommodation and meal expenses incurred while working away from home are essentially living expenses of a private or domestic nature and therefore are not deductible.

The expenses you incur enable you to stay in proximity to your workplace. They are a prerequisite to the earning of assessable income and are not expenses incurred in the course of gaining or producing that income.

In the case Federal Commissioner of Taxation v. Charlton 84 ATC 4415; (1984) 15 ATR 711 (Charltons Case), the taxpayer was a pathologist employed to carry 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 allowed the Commissioner's appeal and 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 supported by the decisions 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.

Your case is comparable to that of the taxpayers in Charltons case and Toms case. You live away from your workplace and incur expenses in renting accommodation and utilities along with furniture etc.

You now incur mortgage expenses and other expense that go along with owning a home.

However, these expenses are considered to be private in nature and are not deductible under section 8-1 of the ITA 1997.

You stated you found information on the Australian Taxation Office website at QC 26602 that supports your case. That webpage has links to the relevant employee declaration for Fringe Benefits Tax (FBT) purposes for employees receiving a Living Away from Home Allowance (LAFHA). Taxpayers that receive a LAFHA are required to submit these employee declarations to their employer so the employer can calculate the correct amount of FBT liability.

The submission of these forms does not mean that the expenses are deductible. In the document Fringe benefits tax - a guide for employers, it states that for the allowance to be considered a Living Away from Home Allowance, the whole or part of the allowance is to be in the nature of compensation for non-deductible expenses your employee might be expected to incur. Therefore, these types of allowances are given when the expenses are specifically considered non-deductible.

The declarations on the page are so employers can calculate the liability appropriately. The reasonable allowance limits mentioned in the declarations are primarily used for substantiation exceptions. They are not an indication of the deductibility of those items.

Employees can receive other types of allowances, such as travelling allowances. These allowances, unlike the LAFHA, are assessable to the employee as income. They can then claim associated deductions against this allowance if they meet the deductibility criteria mentioned above. The receipt of allowance does not automatically mean the deductions can be claimed.

The deductibility of the various expenses in your situation will be based on the interpretation of section 8-1 of the ITAA 1997 as described above. Accordingly, your expenses are not deductible based on the reasoning above.