Edited version of private advice

Authorisation Number: 1052148451418

Date of advice: 20 September 2023

Ruling

Subject: Work related expenses

Question 1

Are you entitled to a deduction for accommodation, airfares, travel and car expenses incurred in association with your job listed in Group A under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

Question 2

Are you entitled to a deduction for airfares, travel and car expenses incurred in association with your job listed in Group B under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes. You are entitled to a deduction for the expenses listed in Group B if you are not reimbursed for them.

This ruling applies for the following periods:

Year ended XX June 20XX

Year ended XX June 20XX

Year ended XX June 20XX

Year ended XX June 20XX

The scheme commenced on:

XX July 20XX

Relevant facts and circumstances

You are contracted by to perform services.

You reside in Location A

You travel from Location A to Location B. From Location B you then travel to perform your work.

Your employer does not have power and control over you when you travel from the Location A to Location B. You are not considered at work until the day you travel out from Location B.

When travelling from the Location A to Location B you can advise your employer of which flights to book. When you are in Location B, you are required to stay.

You were contacted and advised you needed to quarantine.

Part way through your travel to quarantine you were contacted and advised you needed to quarantine elsewhere.

For all times you were quarantining, you were quarantining at approved accommodation.

You hired an exercise bike to stay fit and healthy.

Your vehicle broke down near the end of a work period and you needed to make travel and accommodation arrangements to return to Location B. You also incurred expenses from keeping the vehicle in storage due to the COVID lockdown.

Group A

•         Expenses incurred travelling from the Location A to Location B and Location B to Location A

•         Expenses incurred with renting out the exercise bike

•         Expenses incurred in quarantining

•         Expenses incurred in the aborted trip to quarantine

•         Expenses incurred while in Location B.

Group B

•         Expenses incurred in travelling out from Location B.

You do not get paid for time spent travelling from the Location A to Location B. During the XXXX financial year you did not receive any reimbursement or allowance by anyone for expenses incurred in relation to your job.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Section 8-1 of the ITAA 1997 allows a deduction for a loss and outgoing to the extent that it is incurred in gaining or producing assessable income. However, a loss or outgoing is not deductible if it is of a capital, private or domestic nature, or it is incurred in gaining or producing exempt income.

A number of significant court decisions have determined that for an expense to be an allowable deduction:

•         it must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income-producing expense (Lunney v. FC of T; (1958) 100 CLR 478 (Lunney's case)),

•         there must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income (Ronpibon Tin NL v. FC of T, (1949) 78 CLR 47), and

•         it is necessary to determine the connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces his or her assessable income (Charles Moore Co (WA) Pty Ltd v. FC of T, (1956) 95 CLR 344; FC of T v. Hatchett, 71 ATC 4184).

In Lunney v. FC of T (1958) 100 CLR 478 (Lunney's case) the Full High Court laid down the principle that for a deduction to be allowable it is not enough for the expenditure to be an essential prerequisite to the derivation of assessable income.

Although certain expenditure must be incurred in order to be able to derive assessable income, in that unless one arrives at work it is not possible to derive income, it does not necessarily mean that the expenditure is incidental and relevant to the derivation of assessable income or that it was necessarily incurred in the course of gaining or producing assessable income. It is a prerequisite to the earning of assessable income rather than being incurred in the course of gaining that income.

Accommodation, airfare, quarantining, travel and car expenses

TR 2021/1 provides commentary on work-related travel expenses. Paragraph 63 states that it is possible that the location where an employee reports for work will be different to where they carry out their substantive duties. The employee travels to a place (a transit point) from which further travel is needed to reach the place substantive duties are carried out. Paragraph 64 provides that in these cases, the cost of travel between home and where the employee regularly reports for work at the transit point is not deductible as it is a prerequisite to gaining or producing their assessable income. However, the cost of travel between the transit point and the place where they carry out their substantive duties will be deductible where it can be said that the employment is the occasion for the expense.

Paragraph 68 has an example of a person who travels between their home and a transit point, and then travels from that transit point to a work location. While you may have been stuck in Location B for a period of time, we would consider Location B to be a transit point as you would normally travel here, then travel out, and then travel back to Location B. It follows that any expense incurred travelling from the Location A to Location B including accommodation expenses are not deductible as these expenses are considered private in nature and merely a prerequisite to gaining or producing your assessable income.

Exercise bike

The Commissioner generally takes the view that expenses incurred in keeping fit are inherently private in nature as it ultimately involves the person's own physical wellbeing. This position does not change even if the person is employed to undertake physical activity as part of their duties.

The principle outlined in TR 95/17 is that unless a taxpayer's normal duties require an advanced (above and beyond normal) fitness level, deductibility of expenses will be denied. That is, expenses incurred in keeping fit (for example, gym memberships or gym equipment) are generally considered to be of a private nature, unless strenuous physical activity is an essential and regular element of performing the employee's duties.

Taxation Determination TD 93/114 Income tax: is a police officer, who is required to maintain an adequate level of physical fitness in order to undertake police duties, entitled to claim a deduction for fitness related expenditure states that where police duties do not require an officer to undertake regular strenuous physical activity, expenses of keeping fit are not deductible. This type of expense does not have the essential character of being incurred in the course of gaining or producing assessable income. Whilst Police Regulations may require an officer to remain in a physically fit condition, this does not mean expenditure related to keeping fit is allowable as an income tax deduction.

In this case, we acknowledge that the taxpayer's duties may require them to maintain a certain level of fitness. However, the level of fitness required cannot be considered to be at the highest level nor at a level which makes it an essential and regular element of their employment. There is an insufficient connection between the fitness expenses and the derivation of assessable income. Whilst the expenses may benefit and help keep the taxpayer fit, this does not in itself mean that the expenditure was incurred in gaining or producing assessable income. The hiring of an exercise bike to stay fit and healthy for your job is considered private in nature. Therefore, you are not entitled to a deduction for the exercise bike expenses incurred under section 8-1 of the ITAA 1997.

Question 2

Are you entitled to a deduction for airfares, travel and car expenses incurred in association with your job as a General Practitioner listed in Group B under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Summary

Yes. You are entitled to a deduction for the expenses listed in Group B if you are not reimbursed for them.

Detailed reasoning

Paragraph 64 of TR 2021/1 provides that the cost of travel between the transit point and the place where a person carries out their substantive duties will be deductible where it can be said that the employment is the occasion for the expense.

When considering whether the cost of travel from a transit point is deductible, it is also relevant, but not determinative to consider where the employee commences their employment duties, and whether the employee is substantively under the 'direction and control' of the employer during that travel. It is important however to consider direction and control in the overall context of the facts and circumstances of each case, because direction and control alone is not sufficient to establish the relevant connection with employment. The other combinations for factors that needed to be considered are:

•         the terms of the employee's employment only requires their attendance at the work location (that is, the employee does not have to consistently attend a specified transit point)

•         the employee does not work for the same employer on other projects after the project at the work location has concluded

•         the employee is rostered on duty and paid from the time they arrive on site at the work location (not the transit point)

•         the employee is free to arrange their own travel and they can travel from and to a destination of their choice before their rostered duty commences and after it ceases.

Here, you are not considered at work until the day you travel out from Location B. You consistently travel to Location B as your transit point. After you finish your work in the communities, you do not start work for a different employer. You are not free to arrange how you travel by virtue of travel availability which your employer books for you taking into consideration your preferences. You are paid from the time you depart the transit point to when you reach your actual work location. You do not need to stay in Location B although you do due to the availability of travel as opposed to your employer mandating it. It follows that the expenses you incurred travelling out from Location B are deductible pursuant to section 8-5 of ITAA 1997.