Edited version of private advice

Authorisation Number: 1052365963659

Date of advice: 25 February 2025

Ruling

Subject: Work-related expenses

Issue 1

Question 1

Are you entitled to a deduction for your transport expenses when travelling between home and work under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) on the days you visit multiple clients as part of your activities?

Answer 1

Yes.

Question 2

Are you entitled to a deduction for your transport expenses when travelling between home and work under section 8-1 of the ITAA 1997 on the days you primarily work at the office?

Answer 2

No.

Question 3

Are you entitled to a deduction for your travel when travelling between workplaces under section 8-1 of the ITAA 1997?

Answer 3

Yes.

Issue 2

Question 1

Is the interest on the loan used to pay business expenses deductible under section 8-1 of the ITAA 1997?

Answer 1

Yes.

This ruling applies for the following periods:

Year ending 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 July 20

Relevant facts and circumstances

Travel expenses

You work as a sole trader contractor.

As part of your duties, you are required to travel to client's homes.

You carry two boxes with dimensions of approximately XXxXXxXXcm and they each weigh less than Xkg.

You spend XX days per week primarily on your duties which requires travelling from client to client. The remaining days you primarily work at the office.

Interest expenses

You have a home loan for your main residence.

You intend to split an amount from the loan and immediately repay the amount from your savings.

When you are required to pay business expenses, you will redraw funds from your home loan and organise a transfer to directly pay for these expenses.

Any repayments of the of the principal amounts will be applied proportionately to the home and business loan balances.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Issue 1

Questions 1 and 2

You can deduct from your assessable income any loss or outgoing to the extent that it is incurred in gaining or producing your assessable income, or it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income, except where the loss or outgoing is capital or private in nature (section 8-1 of the ITAA 1997).

The expenses of travelling between home and a place of work are generally not deductible as these expenses are of a private nature Lunney v FC of T; Hayley v FC of T (1958) 100 CLR 478, 7 AITR 166 (Lunney and Hayley).

Lunney and Hayley considered the issue of whether fares paid by taxpayers to enable them to go day by day to their regular place of work and back to their home are deductible. The Full High Court held that the costs of travel to and from a taxpayer's home and work or business are not deductible. The expenses are incurred in order to enable them to earn income but are not expenses incurred in the course of earning that income.

The principle in Lunney and Hayley (that the cost of travel between home and work is generally incurred to put you in a position to perform your duties, rather than in the performance of those duties) has been considered in numerous more recent decisions. These decisions confirm that the general principle is not altered by the availability of transport, the lack of suitable public transport, the erratic hours and times of the travel, or the 'on-call' nature of the work.

However, there are certain circumstances where it has been accepted that the cost of travelling between home and a regular place of work is deductible, such as:

•                     where the taxpayer is required to carry bulky equipment

•                     where the home can be regarded as a base of operations, or

•                     where the taxpayer's work is itinerant.

Transporting bulky equipment

Where the nature of a taxpayer's work creates a practical necessity, explained by work duties, to transport bulky equipment to and from a regular place of work (including to and from home to a regular place of work), the expenses of transporting that bulky equipment to and from that regular place of work may be deductible. It is construed by the Commissioner as a narrow exception to the ordinary principle that travel from home to a regular place of work is private and therefore not deductible.

To come within this exception it is necessary that, amongst other things, that the equipment is bulky such that transportation by car or other private vehicle is the only realistic option. 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), 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 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), 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, 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.

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 items transported were not of sufficient size or weight to impede transport.

The question of whether illegality of using public transport is a relevant consideration in determining the deductibility of transport expenses was considered in Case L49 79 ATC 339; (1979) 23 CTBR (NS) 467. In that case the taxpayer had argued that given what he was transporting, it would have been illegal for him to use public transport. In disallowing his deduction claim for travel expenses, Board of Review Member Dr P Gerber stated: 'it is quite irrelevant that the use of public transport is illegal'. Therefore, the legal requirement to keep the substance in your control, consequently requiring transportation in a private motor vehicle, is not a relevant consideration in determining the deductibility of your travel expenses.

In your case, the items that you transport are not considered to be sufficiently cumbersome or heavy to be considered bulky, such that your circumstances can be distinguished from the taxpayers in Vogt and Crestani. Your circumstances are comparable to the taxpayer in Case 43/94, in that the items you transport are not of a size or weight that would impede transport.

Home as a base of operations

A taxpayer's home may constitute a base of operations if their work commences at or before the time of leaving home to travel to work and the responsibility for completing it is not discharged until the taxpayer attends at their regular place of work. Whether a taxpayer's home constitutes a base of operations depends on the nature and extent of the activities undertaken at home.

In your case, while you sometimes do some work from home, your work does not commence until you arrive at the location, and it is not considered that your home is a base of operations.

Itinerant work

The legislation does not provide a definition of the word 'itinerant'. In the absence of a statutory definition, we must look to the ordinary usage of the word. The Macquarie Dictionary defines 'itinerant' as 'travelling from place to place' or 'one who travels from place to place especially for duty or business'.

In FC of T v. Genys (1987) 17 FCR 495; 87 ATC 4875; (1987) 19 ATR 356 (Genys case), the Federal Court held that the taxpayer's employment was not itinerant. The taxpayer was a registered nurse who used an employment agency to seek relief work with various hospitals. She was not continuously employed by any one hospital. When a hospital was in need of additional staff they contacted the agency which would then contact the taxpayer. It was integral to the decision in this case that the taxpayer did not travel after the commencement of her duties. She merely travelled to work and home again. Northrop J (FCR at 498; ATC at 4879; ATR at 359) described itinerant as 'shifting places of work':

... where the taxpayer travels between home and shifting places of work, that is, an itinerant occupation.

The question of whether a taxpayer's work is itinerant is one of fact, to be determined according to individual circumstances. It is the nature of each individual's duties and not their occupation or industry that determines if they are engaged in itinerant work.

Indicators of itinerancy include:

•                     travel is a fundamental part of the work, and

•                     the existence of a 'web' of work places exists such that the taxpayer continually travels from one work site to another, regularly working at more than one work site before returning to his or her usual place of residence.

Taxation Ruling TR 95/34 Income tax: employees carrying out itinerant work - deductions, allowances and reimbursements for transport expenses provides guidelines for establishing whether an employee is carrying out itinerant work. While the ruling is aimed at employees, the same principles apply to an individual carrying on a business as a sole trader.

Example 2 in TR 95/34 provides an example of an employee with two distinct duties with different elements of itinerancy.

Example 2

93.          Brian is a bank employee who works at the same branch each day. In addition to his normal duties, Brian is rostered on stand-by duty after hours to attend automatic telling machines (ATMs) within a given area when break-downs occur. If Brian is called to attend an ATM his employer pays him an allowance from the time he leaves home until his return.

94.          Brian has two distinct parts of his employment. The first requiring daily travel between his home and his usual branch, and the second requiring travel between his home and the ATMs within his area. Brian's usual pattern of travel involves attendance at several ATMs before returning home.

95.          A deduction is not allowable for the cost of transport between his home and his usual branch. It is a private expense and falls within the general rule of Lunney's case (see paragraph 77 to 82 above). A deduction is allowable for the cost of transport between Brian's home and the ATMs because this part of his employment is inherently itinerant for the following reasons:

(a)           travel is a fundamental part of Brian's stand-by duties;

(b)           the various ATMs within Brian's given area are a web of work places;

(c)           there is usually continual travel from one ATM to another;

(d)           Brian's stand-by duties have a degree of uncertainty; and

(e)           an allowance is paid by his employer in recognition of the need to travel.

In your case, on the days you travel to various clients, your duties are inherently itinerant as travel is a fundamental part of your duties, the clients you attend are a web of workplaces and there is usually continual travel from one patient to another. Consequently, on these days, your home to work travel is a work-related expense and is deductible under section 8-1 of the ITAA 1997.

On the days you work primarily from the office you are not required to travel continually for work purposes and do not have a web of workplaces. Therefore, you are not engaged in itinerant work and your travel is normal travel to and from a regular place of work. Consequently, the cost of your home to work travel on these days is private in nature and not deductible under section 8-1 of the ITAA 1997.

Question 3

Taxation Ruling IT 2199 states a deduction is allowable for the cost of travelling directly between two places of employment, two places of business or a place of employment and a place of business. This is provided that the travel is undertaken for the purpose of engaging in income-producing activities.

In your case, as part of your duties, you travel between two related places of work. As such, the expenses you incur for this travel are deductible under section 8-1 of the ITAA 1997.

Issue 2

Question 1

Taxation Ruling TR 95/25 Income tax: deductions for interest under section 8-1 of the Income Tax Assessment Act 1997 following FC of T v. Roberts; FC of T v. Smith (TR 95/25) provides the Commissioner's view regarding the deductibility of interest expenses. As outlined in paragraph 3 of TR 95/25, there must be a sufficient connection between the interest expense and the activities which produce assessable income. Further, to determine whether the associated interest expenses are deductible, it is necessary to examine the purpose of the borrowing and the use to which the borrowed funds are put.

The 'use' test, established in the High Court case Federal Commissioner of Taxation v. Munro (1926) 38 CLR 153, (1926) 32 ALR 339 is the basic test for the deductibility of interest, and looks at the application of the borrowed funds as the main criterion.

Accordingly, it follows that if a loan is used for investment purposes from which income is to be derived, the interest incurred on the loan will be deductible. However, where a loan relates to private purposes, no deduction is allowed.

Taxation Ruling TR 2000/2 Income tax: deductibility of interest on moneys drawn down under line of credit facilities and redraw facilities considers the deductibility of interest incurred by borrowers on money drawn down under line of credit facilities and loans offering redraw facilities.

The ruling establishes drawing any excess or available funds from a loan account is treated as a new loan. As such the purpose or use of the drawing is relevant. That is, the deductible portion of interest when further borrowings are made depends on the use to which the redrawn funds are put. This is independent of the purpose of the original borrowing. The redraw facilities referred to in TR 2000/2 is where a borrower redraws previous repayments of the loan principal in a loan account.

Paragraph 11 of TR 2000/2 provides a taxpayer may use the redrawn funds for different purposes, then the loan account becomes a mixed purpose account. In a mixed purpose loan, the interest must be apportioned between the income producing and non-income producing purposes. The part of the accrued interest attributable to the funds used for private purposes is not deductible.

In your case, you will redraw funds from your home loan to pay for business related expenses. Therefore, the interest you incur on the redrawn amount will be an allowable deduction.