Edited version of private advice

Authorisation Number: 1052393932859

Date of advice: 14 May 2025

Ruling

Subject: Business - deductions - travel between states

Question 1

Is the trust entitled to claim a deduction for expenses incurred for person A to travel between property A and property B under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

Question 2

Is the trust entitled to claim a deduction for expenses incurred for person A to travel between property B and clients under section 8-1 of the ITAA 1997?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2024

The scheme commenced on:

1 July 2023

Relevant facts and circumstances

The Trust is a trading trust.

The Company is the trustee company.

Person A is the sole director of the trustee company.

The Trust is based in NSW and person A resides with their family in NSW.

The Company has two listed office addresses: property A and property B.

Property A is owned by person A and they resides at this location.

Person A uses an office set up at property A once a week. The office is set up with an internet connection, laptop and printer. Person A generally attends virtual meetings and conducts typical daily work activities.

Property A is not open to the public.

The majority of the Trust's clients are based in Victoria, however there are also clients located in New South Wales.

Person A spends an average of X days per week in the Victoria office location.

Management of the office and meetings with customers is the main purpose.

The main activities carried out by the director are:

   • management of office and warehouse

   • meetings with customers and supporting sales staff on a national level

   • setting up the national service agreements for customers located around Australia.

The Trust entered into a sales agency agreement with company A in April 2022.

In the 2024 income year person A did not receive any wages from the Trust.

Person A has received distributions from the net profit of the Trust.

The travel expenses incurred by the trust include airfares, car hire, airport parking and accommodation.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Question 1

Section 8-1 of the ITAA 1997 provides that 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. The latter applies to you as your income is solely generated from the carrying on of a business. It also advised that you cannot deduct a loss or outgoing to the extent that it is a loss or outgoing of capital, or of a capital nature; or it is a loss or outgoing of a private or domestic nature.

Taxation Ruling TR 2021/1 Income tax: when are deductions allowed for employees' transport expenses? deals with the deductibility of transport expenses under section 8-1 of the ITAA 1997. It includes the cost of travel by airline, train, taxi, car, bus, boat, or other vehicle. Though TR 2020/1 mentions employees, the principles relate to those conducting a business. Paragraph 2 of TR 2021/1 advises that transport expenses incurred for 'ordinary travel between home and a regular place of work are not deductible' as it is considered private in nature.

Paragraphs 24 to 28 of TR 2021/1 discuss regular place of work and it is defined in paragraph 25 as being a usual or normal place where the employee starts and finishes their work duties with a particular employer. Where you are in business, this would be the usual location where you carry out your assessable income earning activities.

Where travel is between two related places of work or 'in the course of gaining or producing' assessable income, the travel is 'on work' and is deductible under section 8-1 of the ITAA 1997 (paragraph 12 of TR 2021/1). Paragraph 12 of TR 2021/1 states:

It has long been established that the term 'incurred in gaining or producing assessable income' is understood as meaning incurred 'in the course of gaining or producing' assessable income. Other ways that this has been expressed in the context of transport expenses is that the employee is travelling 'on work', the travel is part of the employment or the travel is an incident of the employment.

Paragraph 28 of TR 2021/1 mentions how the general position of cost of travel between home and the regular place of work is not deductible, even when certain scenarios exist. This includes not being allowable when your home is very distant from work, where public transport is not available, and not allowed when you stop en route 'to fulfil an incidental work task'. Where home is very distant from work the travel is not explained by the duties of employment, rather by personal choice.

Consideration is also to be given to where one's regular place of work is.

Example 5 of TR 2021/1 - travelling between home and a distant regular work location - transport expenses not deductible:

Isabelle is a specialist technician who lives in Brisbane. She works as an employee for a company based in Sydney on a part-time basis. On the days she is required to work (Wednesdays and Thursdays), she drives from her home in Brisbane to the airport, catches a flight to Sydney and then a taxi to her company's office. She stays overnight in Sydney on Wednesday night and returns home on Thursday evening. Isabelle's transport expenses (travel between her home and Brisbane airport, return flights from Brisbane to Sydney and taxis between Sydney airport and her office) are not deductible. Isabelle's travel is undertaken to put her in the position to commence her duties and the expenses are not incurred in gaining or producing her assessable income. The expenses are incurred as a necessary consequence of Isabelle choosing to live in Brisbane and work in Sydney and are a prerequisite to gaining or producing her assessable income. Isabelle's travel between her home and her regular workplace is also private in nature.

Home as a base of operations

A taxpayer's home may constitute a base of operations where an area of their home is set aside as their 'sole base of operations' due to them not having any other location from which to work. That area of their home would become their regular place of work (paragraph 78 of TR 2021/1). Taxation Ruling TR 93/30 Income tax: deductions for home office expenses discusses whether part of a business owner's home has the character of a place of business. Paragraph 5 of TR 93/30 provides the following factors which indicate whether an area set aside has the character of a 'place of business':

   • the area is clearly identifiable as a place of business;

   • the area is not readily suitable or adaptable for use for private or domestic purposes in association with the home generally;

   • the area is used exclusively or almost exclusively for carrying on a business; or

   • the area is used regularly for visits of clients or customers.

Paragraph 14 of TR 93/30 says that:

the circumstances where part of a home is considered to have the character of a place of business can be contrasted with the more common case where a taxpayer maintains an office or study at home as a matter of convenience (i.e., so that he or she can carry out work at home which would otherwise be done at his or her regular place of business or employment). Examples of this include:

   • a barrister who reads client briefs at home;

   • a teacher who prepares lessons or marks assignments at home; and

   • an insurance agent who maintains client files and occasionally interviews a client in his or her home office.

In these circumstances the area of the home and the expenses incurred retain their private or domestic character (Handley v FC of T (1981) 11 ATR 644; 81 ATC 4165 (Handley's Case) and Forsyth v FC of T (1981) 11 ATR 657; 81 ATC 4157). Handley's Case was one about a barrister with city chambers who claimed home study expenses used for professional purposes for 20 hours per week, 45 weeks of the year. His claim was not allowed.

Accommodation expense

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 sets out general principles for determining whether an employee can deduct 'living expenses' under section 8-1 of the ITAA 1997. It includes accommodation, and food and drink expenses which are ordinarily private or domestic in nature (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 to 15 of TR 2021/4). However, if a taxpayer is found to be travelling 'on work' in the course of performing their income earning activities, these expenses will generally be deductible under section 8-1 of the ITAA 1997 as they would have a business-related character (paragraphs 10 and 12 of TR 2021/4; see also The Roads and Traffic Authority of New South Wales v Commissioner of Taxation [1993] FCA 445).

In determining whether a taxpayer is travelling 'on work', consideration must be had to the personal circumstances, whether the taxpayer is living at a location or whether the expense is incurred as a result of relocating from their usual residence (paragraph 24 of 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 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 their new workplace (paragraph 41 of TR 2021/4).

The issue of expenses incurred for accommodation near the workplace while maintaining a family residence in another location was considered in FC of T v Toms 89 ATC 4373; (1989) 20 ATR 466 (Toms' Case). In that case, a forest worker lived in a caravan in a bush camp near his workplace during the week and returned home on weekends. He claimed it was too far to travel each day to his work in the forest, so that it was necessary to establish a caravan at the camp. The Federal Court held that the expenses incurred in relation to the temporary accommodation near the workplace while maintaining a family residence in another location were dictated not by his work but by private considerations and were therefore not deductible.

Paragraph 48 of TR 2021/1 denies a deduction for transport expenses when travelling away from home for work where an employee lives at a significant distance from their regular place of work. The example provided being that their transport expenses are not deductible if they are required to fly to attend work. The premise behind the deduction not being allowed is that the transport expenses are incurred because the distance the employee is located from their regular place of work, as opposed to the employment itself being the occasion for the expenses. The expenses are not incurred in gaining or producing the employee's assessable income and are private in nature.

Example 5 at paragraph 49 also denies a deduction for travel between home and a distant regular work location for a specialist technician living in Brisbane, that is an employee of a company in Sydney on a part-time basis (Wednesday and Thursday). She drives from her home in Brisbane to the airport, catches a flight to Sydney and then takes a taxi to her company's office. She stays overnight in Sydney on Wednesday night and returns to Brisbane on Thursday evening. A deduction is not allowed for the transport expenses, between her home in Brisbane and the Brisbane airport, return flights from Brisbane to Sydney, accommodation, and taxis taken between Sydney airport and her office. The travel taken puts hers in a position to commence her duties and have not been incurred in gaining or producing her assessable income. Her requirement to travel has been necessitated by the location in which she lives from her place of employment. The travel is merely a prerequisite to gaining or producing her assessable income.

Application to your circumstance

In this case, we do not consider that the expenses incurred by the Trust for person A to travel and stay in Victoria are necessarily incurred in carrying on a business for the purpose of gaining or producing the Trust's assessable income.

The Trust's base of operations is property B. It appears that the Trust's substantive work and means of deriving assessable income commences when person A attends property B and proceeds to visit clients. We consider that person A chooses to work from property A, which is also their main residence, and not a base of operations.

The expenses incurred by the Trust for person A to travel (and stay close) to property B are to put them in a position to complete work for the Trust and gain or produce the Trust's assessable income.

Therefore, the Trust is not entitled to a deduction for the expenses incurred to put person A in a position to work from property B.

Question 2

In contrast to transport expenses between home and a regular place of work, expenses of travelling between related places of work, neither of which is the taxpayer's home, are ordinarily deductible provided that it is the work that is the occasion for the expenses. This includes different workplaces of the same business and other locations where the business is carried on.

A taxpayer is not entitled to claim a deduction for travel between two unrelated places of work under section 8-1 of the ITAA 1997. As explained by the High Court in FC of T v Payne 2001 ATC 4027 (Payne), the deduction is denied because the travel does not occur when the taxpayer is engaged in either activity and therefore it could not be said that the expenses are incurred 'in the course of' deriving income from either activity. Payne involved a taxpayer who was a pilot employed in Sydney while living on his family property near Tamworth in NSW where he carried on a deer farming business. He claimed deductions for travel between the place of business (being the deer farm) and the place of work where he was an employee pilot. The High Court denied the deduction for the reasons outlined above.

Application to your circumstance

In this case, the director travelling directly between property B and clients is travelling between two related places of work. We accept these expenses are necessarily incurred by the Trust and not private or domestic. Therefore, the trust is entitled to claim a deduction for expenses incurred to travel between property B and their clients.