Edited version of private advice

Authorisation Number: 1052084211616

Date of advice: 7 February 2023

Ruling

Subject: Deduction - accommodation, food and drink

Question 1

Is the cost of accommodation, food and drink incurred in City A for Period A an allowable deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

Question 2

Is the cost of accommodation, food and drink incurred in City A for Period B an allowable deduction under 8-1 of the ITAA 1997?

Answer

Yes, provided you do not exceed 90 days in City A in the 20XX-XX FBT year.

This ruling applies for the following periods:

Period ended 30 June 20XX

Period ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

Your main residence is located in City B.

You entered into a work contract with Company A whose office is located in City A.

You travelled to City A for Period A to visit business premises located in City A.

During your time in City A you primarily stayed at Accommodation A. The other time was spent staying with friends and/or family located in City A.

You are travelling to City A for Period B to visit business premises located in City A. You will return to City B after this visit.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Section 8-1 of the Income Tax Assessment Act 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.

PCG 2021/3 Determining if allowances or benefits provided to an employee relate to travelling on work or living at a location - ATO compliance approach (PCG 2021/3)sets out the general principles for determining whether an employee is travelling on work or living at the location.

PCG 2021/3 paragraph 12 provides that the Commissioner will accept that an employee is travelling on work and not living at a location when all of the following circumstances are satisfied:

•         is away from their normal residence for work purposes

•         does not work on a fly-in fly-out or drive-in drive-out basis

•         is away at the same work location for no more than 21 calendar days at a time continuously

•         is away at the same work location for no more than 90 calendar days in total in an FBT year, and

•         must return to their normal residence as soon as practicable when their period away ends.

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 activities 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 the accommodation in City A. 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 new workplace (paragraph 41 TR 2021/4).

In your situation, the time you spent in City A during Period A exceeded the continuous 21 calendar days at the same location. However, at the time of this ruling you have not exceeded the more than 90 calendar days in total in an FBT year at the same location. Consequently, for Period A you were living away from your usual residence and not travelling for work.

Therefore, deduction the expenses for accommodation, food and drink are as follows:

•         Period A - not deductible under section 8-1 of the ITAA 1997; and

•         Period B - deductible under section 8-1 of the ITAA 1997 provided you do not exceed 90 days in City A in the 20XX-XX FBT year.