Private ruling: Accommodation and Travel Expenses- Deductibility
Date of advice: 26 July 2018
Published: September 2018
Ruling period: Year ended 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Are you entitled to a deduction for travel expenses that you incur in return travel from Town A to Town B under section 8-1of the Income Tax Assessment Act 1997 (ITAA1997)? | A1: No. | Q2: Are you entitled to a deduction for accommodation expenses that you incur whilst undertaking income earning activities in Town B under section 8-1 of the ITAA1997? | A2: No.

Relevant facts and circumstances: You live in Town A You have a sole trader business working as a nominated medical practitioner in Town B You generally work x days per week with your business based in Town B Your main residence is located in Town A and your family live in Town A You travel to Town B for the days that you are working in Town B and you live in a rental property whilst working in Town B. You leased a rental property to stay in whilst you are in Town B for work purposes. On the days that you are not working you return to Town A to your family You plan to move your family to Town B. You wish to deduct the expenses that you incur relating to travel and rental costs against the income that you earn in Town B.

Relevant legislative provisions: Income Tax Assessment Act 1997 s8-1.

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 1997 (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, or a provision prevents you from deducting it. 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 ( Lunneys 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). Although you are required to work in Town B as part of your business contract, this does not automatically mean you are entitled to a deduction for the associated expenses. The expenses must meet the criteria for deductibility under section 8-1 of the ITAA 1997. It is acknowledged that you do not receive travel reimbursement as part of your contract fee. However the receipt of a fee/reimbursement or the fact that you do not receive a fee/reimbursement does not determine the deductibility of expenses. They must still meet the requirements of section 8-1 of the ITAA 1997. Expenditure on the daily necessities of life (for example, accommodation and meals) is generally not deductible as it is not incurred in gaining or producing assessable income and is also considered to be private or domestic in nature. An exception to this is where you are undertaking work related travel and are required to stay away overnight. We therefore need to consider if your travel is regarded as work related travel. Travel expenses Generally a deduction is not allowable for the cost of travel between home and work as it is considered a private expense. Expenditure incurred in travelling to work is a prerequisite to the earning of assessable income rather than being incurred in the course of producing that income. Such expenses are incurred as a consequence of living in one place and working in another. That is, the essential character of the expenditure is of a private or domestic nature, relating to personal and living expenses and therefore not an allowable deduction. ( Lunney’s case and Federal Commissioner of Taxation v Cooper (1991) 29 FCR 177; 91 ATC 4396; 21 ATR 1616). The essentially private character of travel between home and work is not affected by factors such as the mode of transport, the availability of transport, the lack of suitable public transport, the erratic times of employment, the time of travel, the distance of travel and the necessity of travel (Taxation Ruling IT 2543 Income tax: transport allowances: deductibility of expenses incurred in travelling between home and work ). The Commissioner accepts that expenses incurred in travelling between home and work may be deductible in limited circumstances, for example: ● the taxpayer's employment is inherently of an itinerant nature and they regularly work at more than one site each day before returning home, ● the taxpayer has to transport by vehicle bulky equipment necessary for employment, or ● travel is between two places of employment or business. The above exceptions do not apply in your case. Certain expenditure is incurred in order to be in a position to be able to derive assessable income, for example, unless a person arrives at work it is not possible to derive income. The income earning duties do not generally commence until the arrival at a place of work and will cease upon departure from work. This does not mean that the expenditure in getting to work is incurred in the course of gaining or producing assessable income ( Case V111 88 ATC 712). You do not commence your employment duties as a xxxx before or at the time of leaving Town A and arriving in Town B and vice versa. Your travel expenses are not incurred in producing your assessable income. While it is acknowledged that your home is in Town A, it is not considered that your travel to and from Town B is work related travel. Rather it is private travel carried out to enable you to be closer to the work site and commencement of your duties. The distance of the travel does not alter the private nature of the travel. Accommodation No deduction is allowable if a taxpayer is merely incurring accommodation costs close to their usual work location. These expenses are incurred to enable a taxpayer to commence their income earning activities and are therefore considered private in nature. The distance from home does not alter the essential character of any accommodation expenses incurred as they remain private in nature. The cost of accommodation close to work is generally incurred to put a person in a position to perform duties, rather than in the performance of those duties (IT 2543 and IT 112 Deductibility of travelling expenses between residence and place of employment or business ). As highlighted above, your travel is not regarded as work related travel. This is supported by the decision in Federal Commissioner of Taxation v. Toms 89 ATC 4373; (1989) 20 ATR 466 ( Toms case) , where the Federal Court held that expenses incurred in relation to accommodation near the work place while maintaining a family residence in another location were not an allowable deduction as they were considered to be private expenses. The Federal Court disallowed the forest worker’s deduction for the cost of maintaining a caravan and other living expenses. The taxpayer’s family home in Grafton was some 108 kilometres from the base camp so he lived in the caravan during the week and returned to the family home on weekends. The caravan was rendered necessary as much by the taxpayer’s choice of the place of his residence in Grafton as by his employment in the State forest, and its purpose was to enable him to retain his residence in Grafton although he was employed in the State forest. Had he lived at a town closer to the forest, there is no question the caravan would have been unnecessary. Where a person obtains work in a new location, the new place is regarded as their normal place of work. The associated accommodation expenses incurred are not related to the actual performance of their duties. They are more a convenience and a prerequisite to the earning of assessable income and are not expenses incurred in the course of gaining or producing that income. Furthermore, the essential character of the expense is of a private or domestic nature. It is considered that Town A is your normal place of work. Expenditure on your accommodation is not deductible, even though the expenditure had a causal connection with the earning of income. The expenditure is inherently of a private or domestic nature and not incurred in gaining or producing your assessable income. Therefore no deduction is allowable under section 8-1 of the ITAA 1997 for your accommodation expenses.