Private ruling: WRE - accommodation and travel expenses
Published: January 2015
Ruling period: Year ended 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Are you entitled to a deduction for accommodation, airport parking and taxi fares while working in City B? | A1: No.

Relevant facts and circumstances: Your family home is in City A. You were contracted to work in City B. At first you worked from City A, but spent on average four days a week away from home. Your employer covered your accommodation, flights and transfer costs. Your contract was renegotiated, however you were now required to cover your accommodation and transfer costs and your employer would pay for the flights. You rented accommodation in City B and travelled back and forth each weekend to be with your family and live in your family home in City A. You have incurred expenditure in renting an apartment in City B, as well as airport parking and taxi fares in travelling between City A and City B.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1.

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. 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 ), • 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). Expenditure on the daily necessities of life (for example, accommodation, food and drink) 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. Exceptions to this are where you are undertaking work related travel and are required to stay away overnight. However, no deduction is allowable if a taxpayer is merely maintaining accommodation close to their usual work location for convenience. The fact that income cannot be earned unless certain expenses are necessarily incurred is not determinative of deductibility. 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. This does not mean that the expenditure is incurred in the course of gaining or producing assessable income ( Case V111 88 ATC 712). In FC of T v. Toms 89 ATC 4373; (1989) 20 ATR 466 ( Toms case ) the Federal Court disallowed a forest worker's deduction for the cost of maintaining a caravan and other living expenses. The taxpayer incurred the expenses in providing temporary accommodation at the base camp because the taxpayer had chosen to reside at a place far from the worksite. These expenses were dictated not by work but by private considerations. Where it has been established that a property used to accommodate a taxpayer amounts to a second residence, the Courts and the Administrative Appeals Tribunal have consistently held that the essential character of the expenses incurred is of a private or domestic nature unconnected with income-producing activities and, therefore, the expenses are not deductible. See Case X4 90 ATC 116; AAT Case 5,545 (1989) 21 ATR 3120 ( Case X4 ). To determine if your accommodation expenses are an allowable deduction, it is necessary to consider whether you have established a new home in Melbourne. The question of whether a new home has been established depends on all the facts. There is no one test to satisfy all circumstances. Paragraph 93 of Taxation Ruling TR 98/9 states that the key factors to be taken into account in determining whether a new home has been established include: • the total duration of the travel; • whether the taxpayer stays in one place or moves frequently from place to place, • the nature of the accommodation, for example, hotel, motel, long term accommodation, • whether the taxpayer is accompanied by family, • whether the taxpayer is maintaining a home at the previous location while away, and • the frequency and duration of return trips to the previous location. In your case you have incurred expenditure on rental accommodation in City B due to your employment contract. Although you return to your City A home at the end of each week and on some other occasions and your family remains in City A, it is considered that the essential character of your City B accommodation is that of a second residence and private in nature. Additionally a deduction is not allowed for airport parking and taxi fares travelling between City B and City A as they are also of a private nature.