Private ruling: Deductions
Date of advice: 11 October 2017
Published: March 2018
Ruling period: Year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Question and answer | Are you entitled to a work related deduction for the cost of renting a property closer to your workplace interstate? | No.

Relevant facts and circumstances: You are an employee. You reside in City A. You were required to go to City B for work for X months. You rented accommodation in City B for the X month period you were working in City B. You have a dependant who remained in your home in City A for the duration of your X month employment in City B. You were responsible for all of the costs associated with your accommodation in City B

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

Reasons for decision: Summary: According to section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997), you can deduct a loss or outgoing if it is incurred in producing your assessable income except where the outgoing is of a capital, private or domestic nature. Generally, accommodation expenses are private in nature and are not deductible. In Lunney v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 11 ATD 404; (1958) 7 ATR 166 the Full High Court laid down the principle that for a deduction to be allowable it is not enough for the expenditure to be an essential prerequisite to the derivation of assessable income. In that case it was held that the costs incurred by a taxpayer in travelling to the place where they work are expenses incurred in order to enable them to earn income but are not expenses incurred in the course of earning that income. The issue of expenses incurred in relation to accommodation near the work place 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 Toms' Case , the taxpayer was a forest worker who during the working week lived in a caravan in a bush camp 108 kilometers from his family home in Grafton. 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. He would return home on weekends. He claimed the costs of maintaining his caravan and other living expenses such as the cost of heating and lighting. The Federal Court considered that the caravan was rendered necessary as much by the taxpayer's choice of the place of his residence in Grafton as by his choice of employment in the forest, and its purpose was to enable him to retain his residence at Grafton although employed in the forest. It was 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 therefore were not deductible. You incur expenses for renting accommodation to enable you to work in a different city to where your principal residence is. However, as in Toms' Case , the expenses are a prerequisite to the earning of assessable income. They are incurred in order to enable you to earn income but are not incurred in the course of gaining or producing that income. A deduction is therefore not allowable for your rental accommodation expenses under section 8-1 of the ITAA 1997.