Edited version of private advice

Authorisation Number: 1052088366925

Date of advice: 29 March 2023

Ruling

Subject: Travel deductions

Question

Are you entitled to a deduction for the cost of airfares interstate to carry out site inspections?

Answer

No.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You live in State Z.

You are a qualified professional.

You have a fixed term salary contract to carry out your employment duties in State Y.

The salary was increased to cover your travel expenses as the employer on this project does not organize any interstate flights to State Y. They only supply flights to the site.

Your work is carried out in a specific location and surrounding areas.

You do this both incoming and outgoing from site.

Onsite you do the same activities.

You go to State Y for a specific period of time.

You then return to State Z and carry out any duties as needed then you do your own company duties.

You carry tools with you to be able to undertake your duties.

The tools are kept in your travel bag when your interstate and locked in the travel bag in the site office with you or are with you when conducting vendor workshop inspections.

When within the state you live, they are locked in the travel bag in your car and used as needed.

Bag size is approximately 900 high x 550 wide x 450 deep expanded and weight is approx. 27 kg

Your employment contract specifically states at clause 4: "...the Company will pay for or reimburse you for, reasonable travel and out of pocket expenses incurred in the performance of your duties for the Company".

You advised that if flights or accommodation are required for these inspections, they will provide, or you provide and claim as an expense".

The point of hire under your employment contract is specifically stated in schedule 1 of the contract as State Y.

Your primary work location as stated in Schedule 1 of the employment contract as Location Z.

You are the director and sole employee of an ABN listed company which operates in State Z when you're at home. This is totally separate to the above fixed term salary contract above.

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 Income tax: employees carrying out itinerant work - deductions, allowances and reimbursements for transport expenses and paragraphs 21 to 23 of Taxation Ruling TR 2021/1 Income tax: when are deductions allowed for employees' transport expenses?).

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.

An exception to the deductibility of home to work travel is where a taxpayer's work is itinerant. The Commissioner's view as regards to when a taxpayer's work would be considered itinerant is contained in Taxation Ruling TR 95/34.

TR 95/34 sets out the following characteristics as being indicators of itinerancy:

(a)          travel is a fundamental part of the employee's work;

(b)          the existence of a 'web' of workplaces in the employee's regular employment, that is, the employee has no fixed place of work;

(c)          the employee continually travels from one work site to another;

(d)          other factors that may indicate itinerancy (to a lesser degree) include:

                     i.        the employee has a degree of uncertainty of location in his or her employment (that is, no long term plan and no regular pattern exists)

                    ii.        the employee's home constitutes a base of operations

                   iii.        the employee has to carry bulky equipment from home to different work sites

                   iv.        the employer provides an allowance in recognition of the employee's need to travel continually between different work sites.

Whilst the above characteristics are not exhaustive, they provide guidelines for determining whether an employee's work is itinerant. It is considered that no single factor on its own is necessarily decisive.

A deduction may also be allowable for the cost of travel between home and work for an employee who is required to transport bulky equipment. Paragraphs 79 and 81 of Taxation Ruling TR 2021/1 explain that a deduction may be allowed under this narrow exception where:

•         the equipment is essential for the performance of the employee's employment duties

•         the equipment is bulky such that transportation by car or other private vehicle is the only realistic option and

•         transporting the items to and from their regular place of work is a practical necessity because there is no secure area for the storage of the equipment provided at the employee's regular place of work or the equipment needs to be transported to a different site each day.

However, if equipment is transported by the employee as a matter of mere convenience or personal choice, the transport costs are private, and no deduction is allowable.

The question of what constitutes 'bulky' equipment must be considered according to the individual circumstances in each case.

In FC of T v. Vogt 75 ATC 4073, 5 ATR 274 (Vogt's Case), the taxpayer was a professional musician who used his vehicle to transport bulky musical instruments and associated equipment from his home to his places of employment. It was found in Vogt's Case that the taxpayer was entitled to a deduction for home to work travel expenses as he was using his vehicle for work related purposes to transport bulky equipment.

In Crestani v. FC of T 98 ATC 2219; (1998) 40 ATR 1037 (Crestani's Case), Senior Member J Block was of the opinion that the term 'bulky' should not be construed to refer only to an article of large size, such as the musical instrument subject to the decision in the Vogt's Case, but more aptly construed as similar to 'cumbersome' in the sense that it is not portable. In Crestani's Case, the tribunal was of the opinion a toolbox was 'bulky'; it was not easy to lift and could not be carried for any distance. The toolbox measured 57 cm x 28 cm x 25 cm (that is, having a volume of about 0.04 cubic metres) and weighed 27 kg. The toolbox was considered as 'bulky', in the sense of 'cumbersome', and the transport cost was 'attributable' to the transportation of such bulky equipment rather than private travel between home and work. The employer did not provide a secure storage area for the toolbox and the use of public transport was not a viable option.

Conversely, in Case 43/94 94 ATC 387, a flight sergeant with the Royal Australian Air Force was denied a deduction for the cost of transporting his flying suit and other items used for work purposes. These items were carried in:

•         a duffle bag measuring 75 cm long, 55 cm wide, 50 cm deep and weighing 20 kilograms when packed

•         a suit bag which weighed 10 kilograms when packed, and

•         a briefcase-sized navigational bag which contained charts, work manuals and study materials.

It was held that the mode of transporting the items was simply a consequence of the means adopted by the taxpayer to convey him to work. It was considered that the duffle bag was not of sufficient size or weight to impede transport.

Application to your circumstances:

You have incurred expenses relating to your employment with your employer.

You fly from your home in State Z to State Y to carry out your work.

The point of hire under your employment contract is specifically stated in schedule 1 of the contract as State Y.

Your primary work location as stated in Schedule 1 of the employment contract as Location Z.

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.

According to the information provided to us you are not an itinerate worker as you do not have a number of work sites that you visit.

The tools you carry to be able to do your work are not considered to be bulky; they are reasonably portable.

The case of Crestani may be distinguished from the facts here. In this case, the taxpayer was an aircraft engineer who worked at Sydney Airport. They transported their toolbox home at the end of each shift as there was no secure storage at work. The Tribunal held that the home to work travel was attributed to the transportation of these tools and the expenses incurred in transporting these tools were deductible.

While the dimensions and especially the weight of the toolbox and luggage bag are similar, a luggage bag is more portable than a toolbox, due to the wheels and travel handle attached to the luggage bag. In addition, transporting the items home is not a practical necessity because there is a secure area for storage of the equipment provided at the employee's regular place of work and the equipment does not need to be transported to a different site each day.

The facts here are more closely aligned to Case 43/94, so that the mode of transporting the items was simply a consequence of the means adopted by you to convey yourself to work

In terms of the requirements for the bulky items exception in Taxation Ruling TR 2021/1 at paragraphs 79 to 81, the conditions for the exception are not satisfied on the facts:

•         It is accepted that the equipment is essential for the performance of your employment duties;

•         However, as noted above, the equipment is not bulky such that transportation by car or other private vehicle is the only realistic option (you take regular aircraft flights with your tools in your luggage bag);

•         Transporting the items to and from their regular place of work is not a practical necessity because there is a secure area for storage of the equipment provided at your regular place of work (the tools are locked in the travel bag and stored in the site office) and the equipment does not need to be transported to a different site each day.

The equipment is transported by you as a matter of mere convenience or personal choice, so that you can carry on your own business activities independently of the contract of employment, such that the transport costs are private and non-deductible.

You are therefore not entitled to a deduction for your airfares from State Z to State Y.