Private ruling: Travel expenses
Published: March 2012
Ruling period: Year ended 30 June 2012 | Year ended 30 June 2013
Date scheme commenced: 1 July 2011

Ruling: Q1: Are you entitled to a deduction for the expenses incurred travelling between your home and City A? | A1: No.

Relevant facts and circumstances: You are employed interstate in a remote area. Your accommodation costs are paid by the employer whilst on site. The closest city to the worksite is City B. Your employer pays for the cost of travel between City B and the state capital City A. You are responsible for the cost of travel between City A and your home in City C.

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

Reasons for decision: Summary: The travel expenditure you incur is not considered to be expenditure incurred in the production of your assessable income. They are private expenses and therefore you are not entitled to claim a deduction for them. | Detailed Reasoning - Detailed reasoning: Section 8-1 of the Income Tax Assessment Act 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. Lunney v. Commissioner of Taxation [1958] ALR 225; 1958 0311H HCA; 100 CLR 478; (1958) 11 ATD 404; (1958) 32 ALJR 139 ( Lunney's case) introduced what is now regarded as the essential character test. This test requires that for an expense to be deductible, it must have the essential character of a business or income producing expense. The taxpayer in this case sought to deduct the cost of travelling from his home to his work. The expenses were disallowed as being private and domestic, establishing the broad principle that costs incurred because of living in one place while working in another cannot be regarded as deductible. The reasons given by the High Court were twofold. The fact that certain expenditure, such as travelling to work, must be incurred in order to be able to derive assessable income, does not necessarily mean that the expenditure is incidental and relevant to the derivation of assessable income or that it is incurred in the course of gaining or producing assessable income. It is a prerequisite to the earning of assessable income rather than being incurred in the course of gaining that income. The essential character of the travel to and from work is that of a private and domestic nature, related to personal and living expenses as part of the taxpayer's choice of where to live, in choosing to live away from and what distance from work. There are exceptions where travel between home and work are deductible, for example where you transport bulky tools and equipment, your home is a base of employment and you commence your duties prior to leaving home, or you regularly work at more than one site each day before returning home. The general principles established in Lunney's case have been followed in many subsequent cases and would hold equally for the travel expenses in your case. That is, the travel expenses are a prerequisite to the earning of your income and are not incurred in the course of gaining or producing income. Your circumstances do not meet any of the exceptions which would allow your travel expenses to be deductible. The travel expenses you have incurred are not considered to be as a result of your income earning activities. The expenses are incurred by you in putting yourself in a position where you can perform your duties, rather than in the performance of your duties. Therefore you are not entitled to a deduction for the travel expenses you incur.

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