ATO ID 2002/1005: Travel expenses incurred in respect of work-related items
Date of decision: 8 September 2002
Year of income: Year ending 30 June 2003
Business line: Individual Taxpayers

Issue
Is the taxpayer entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for travel expenses incurred in order to purchase and maintain work related items?

Decision
No. The taxpayer is not entitled to a deduction under section 8-1 of the ITAA 1997 for travel expenses incurred in order to purchase and maintain work related items.

Facts
The taxpayer is an employee in an industry which requires them to wear protective clothing and use various tools. The taxpayer incurs travel expenses in order to purchase and wash their protective clothing and to purchase various tools used in their employment. The travel is undertaken in the taxpayer's own time.

Reasons for decision
Summary: 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. Travel expenses incurred by a taxpayer which are incidental and relevant to the derivation of their assessable income are deductible under section 8-1 of the ITAA 1997. A number of significant court decisions have determined that, for an expense to satisfy the tests in section 8-1 of the ITAA 1997: The requisite connection is not shown by demonstrating only that there is some causal connection between the expenditure and derivation of the income, nor by demonstrating that the expenditure was incurred 'in connection with' the derivation of assessable income or 'for the purpose of' deriving assessable income. What must be shown is closer and more immediate connection. The expenditure must be incurred 'in the course of' gaining or producing the assessable income. In Cooper's Case , Lockhart J stated: 'The question whether additional expenditure of the taxpayer is deductible under s51(1) cannot be answered simply by a process of reasoning that, because expenditure of this type is a prerequisite to the earning of the taxpayer's assessable income (in the sense that it is necessary if assessable income is to be derived), it must be incidental and relevant to the derivation of income. It does not follow that such expenditure is incurred in or in the course of gaining or producing the assessable income.' The cost of purchasing a work related item, used by the taxpayer in the course of their duties, may be deductible under section 8-1 of the ITAA 1997, or Division 40 of the ITAA 1997 if the item is a depreciating asset. The cost of maintaining a work related item used by the taxpayer in the course of their duties, for example laundering protective clothing (Taxation Ruling TR 98/5) may also be deductible under section 8-1 of the ITAA 1997. These expenses are considered to have a sufficient nexus with gaining or producing of assessable income. However, the travel undertaken by the taxpayer was not travel in the course of their duties. It was travel undertaken in order to prepare themselves for later carrying out their duties. It may have been a prerequisite (using the terminology in Cooper's Case ) to the earning of the taxpayer's assessable income but it was not expenditure incurred in, or in the course of, gaining or producing assessable income. It is expenditure incurred in order to put the taxpayer in the position to earn assessable income. As such the requisite connection between the expense and the earning of income does not exist. Consequently, the taxpayer is not entitled to a deduction under section 8-1 of the ITAA 1997 for travel expenses incurred in respect of the purchase and maintenance of the work related items.

Legislative references: Income Tax Assessment Act 1997 section 8-1 Division 40
Case references: Lunney & Hayley v. Federal Commissioner of Taxation (1958) 100 CLR 478 [1958] HCA 5 (1958) 7 AITR 166 (1958) 11 ATD 404
Related public rulings and determinations: Taxation Ruling TR 98/5
Subject references: Laundry & dry cleaning expenses Protective clothing expenses Tools of trade expenses Travel expenses Protective clothing