Edited version of private advice

Authorisation Number: 1052106110372

Date of advice: 23 May 2023

Ruling

Subject: Deductions - home to work travel expenses

Question 1

Are you entitled to a deduction, under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997), for travel expenses such as meals, accommodation, incidentals and flights you incur between your home in X (Location A) and your regular workplace in X (Location B) and vice versa?

Answer

No.

This ruling applies for the following periods:

For the income year ending 30 June 20XX

For the income year ending 30 June 20XX

The scheme commenced on:

9 January 20XX

Relevant facts and circumstances

You live in X (Location A).

You accepted a fixed term full time contract of employment (the contract) as a X (the position) with a company (your employer), effective DDMM20YY until DDMM20YY.

The position location is in X (Location B).

Your employer does not have an office or worksite location in Location A where you live.

When home in Location A you can work from home, and you have a dedicated home office set up that is used exclusively for work purposes.

The offer signed with your employer was conditional upon you attending the workplace in Location B and commencing the performance of work in accordance with the contract.

Clauses X and X of the contract states that your employer may ask you to travel to and work at different locations to meet business needs from time to time, such as travel interstate for temporary periods. You may also be required to relocate to another place of work from time to time without any additional payment in accordance with the needs of the employer's business.

Your ordinary weekly office hours of work (37.5 hours) in Location B were defined in the contract as Monday to Friday 8:30am to 5:00pm, averaged out over a period of up to X weeks.

Your employer may however direct you (subject to consultation) to work shift work whenever it so requires meeting its operational needs.

You agreed to work any additional hours necessary to achieve the efficient and effective performance of your duties, and these additional hours have been considered by your employer when setting your annual remuneration of $X (excluding superannuation).

You are not paid a travel allowance or reimbursed for any costs incurred for travel from Location A to Location B, or vice versa however your salary was negotiated to include travel costs throughout the year.

From MMYYYY until the end of the contract in MMYYYY, you will travel to Location B for one week at a time, and then return to Location A for one week. You will repeat this cycle for the remainder of the calendar year as you and your family remain living in Location A.

You have not relocated your family to Location B due to the nature of the short trips.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Summary

You are not entitled to a deduction for travel expenses because the occasion of the outgoings are not explained by your employment. Rather, the expenses are explained by your personal circumstances of living in Location A while choosing to work in Location B. The expenses you incur are private and domestic in nature.

Detailed reasoning

Section 8-1 of the(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.

The Commissioner has recently issued Taxation Ruling TR 2021/1 Income tax: when are deductions allowed for employees travel expenses? in which the principles for determining whether an employee can deduct travel expenses under section 8-1 of the ITAA 1997 are discussed in detail. TR 2021/1 explains that transport expenses incurred for ordinary travel between home and a regular place of work are not deductible.

The deductibility of transport expenses where the employee is travelling between home and a regular place of work has long been regarded as settled. With limited exceptions, such expenses are not deductible.

The High Court considered transport expenses incurred between home and work in Lunney v. Commissioner of Taxation [1958] ALR 225; 1958 0311H HCA; 100 CLR 478; (1958) 11 ATD 404; (1958) 32 ALJR 139 which 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 being deductible.

With limited exceptions, an employee's costs of travelling between home and a regular place of work are not deductible. Such costs are not incurred in the course of gaining or producing an employee's assessable income. This expenditure is regarded as a prerequisite to earning an employee's assessable income. They are explained by where the employee lives in relation to where they report for work. Further, transport expenses incurred in travelling between an employee's home and their regular place of employment are private in nature (paragraph 21 of TR 2021/1).

Specifically, paragraphs 24 - 28 of TR 2021/1 explains the term 'Regular place of work'. The usual position that the cost of travel between home and the employee's regular place of work is not deductible does not change merely because the employee's home is very distant (for example, requiring a flight) from their regular place of work.

For example, an employee takes a job based wholly in Sydney but chooses to continue to live in Brisbane with their family and flies to their work in Sydney each week (refer to Example 5 of TR 2021/1).

Specifically, paragraphs 24 - 28 of TR 2021/1 explains the term 'Regular place of work'. The usual position that the cost of travel between home and the employee's regular place of work is not deductible does not change merely because the employee's home is very distant (for example, requiring a flight) from their regular place of work.

For example, an employee takes a job based wholly in Sydney but chooses to continue to live in Brisbane with their family and flies to their work in Sydney each week (refer to example 5 of TR 2021/1).

Further, example 8 in paragraphs 61 and 62 of TR 2021/1 shows that travel between home and a work location is not part of employment duties. The transport expenses are not deductible.

61. Sue lives with her family in Sydney. Sue takes on a leadership role with a company that has offices all around Australia. The role is based in Melbourne and the duties attached to it can be primarily performed in Melbourne. However, Sue enters into an arrangement with her employer where she must attend the Melbourne office at least three days per week, but at her discretion (or choice) can work out of the Sydney office up to two days per week.

62. Although the Melbourne office is a distant work location and Sue carries out her duties at the Melbourne and Sydney offices, Sue's travel from home to those offices will not be deductible. This is not a case where the role Sue undertakes necessarily requires travel to be undertaken. The substantive duties attached to Sue's role do not require her to travel between Sydney and Melbourne. The travel is attributable to Sue's choice to remain living in Sydney whilst taking on a Melbourne-based role. Sue is required to work in Melbourne, and, for convenience, she may also work part of the time in Sydney. The transport expenses incurred in travelling between Sydney and Melbourne are not incurred in gaining or producing her assessable income. The travel is better characterised as travel from home to a regular work location which is attributable to her private circumstances, that is, her choice about where to live rather than being a necessary incident of her employment.

Application to your circumstances

You are not entitled to a deduction for travel expenses because the occasion of the outgoings are not explained by your employment. Rather, the expenses are as a necessary consequence of choosing to live in Location A and working in Location B. The expenses are considered a prerequisite to gaining or producing assessable income. The travel between your home and your regular workplace is also private in nature.