Private ruling: Travel deductions – overseas – connection to current income earning
Date of advice: 18 December 2018
Published: March 2019
Ruling period: 1 July 2017 to 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Are your travel expenses allowable as a deduction under section 8-1 of the Income Assessment Act 1997 (ITAA 1997)? | A1: No

Relevant facts and circumstances: You are a graduate in the Architectural field and work in this capacity for an international design studio in the interior design sector. Your employers expect all staff to attend industry functions and pursue self-development in their area of expertise to expand knowledge and remain relevant. This will support continued employment and promotions. Your current work duties include working on commercial and hospitality projects. You are part of the design team who is responsible for the layout, materials, costings, ordering, working with the broader team to coordinate the fit out for the structural build. You are required to stay on trend and as such your role involves environmental awareness, appreciation of design techniques, traditional and emerging materiality. You travelled overseas to improve your interior design skills and grow knowledge relevant to maintaining your current position. Your employer supported your leave but this was a self-funded trip. While overseas you visited museums, galleries, heritage buildings, shrines and heritage architecture. The key to your trip was to examine historical design through to current with a focus on use of interior space across all sectors (residential, commercial, cultural and hospitality). You wanted to improve your claims for a promotion and this you obtained after returning from your trip.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 section 900-30 | Income Tax Assessment Act 1997 section 900-55

Reasons for decision: Summary: A deduction is allowable for all losses and outgoings to the extent to which they are incurred in gaining or producing your assessable income, except where the outgoings are of a capital, private or domestic nature. A deduction is only allowable if an expense: ● is actually incurred ● meets the deductibility tests (that is, the expense is not capital, private or domestic in nature), and - satisfies the substantiation rules. Travel expenses may be deductible when they form part of the taxpayer’s work related expenses. Taxation Ruling TR 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business states self-education expenses are allowable as a deduction if a taxpayer's current income-earning activities are based on the exercise of a skill or some specific knowledge and the subject of the self-education enables the taxpayer to maintain or improve that skill or knowledge. TR 98/9 explains that airfares, accommodation and meal expenses incurred on overseas study tours are deductible if the necessary connection with a person's income producing activity exists. It also explains that if the subject of the self-education is too general in terms of the taxpayer's income-earning activities, the necessary connection between the expense and the income-earning activity does not exist. In Case U109 87 ATC 657, the taxpayer was a science teacher who specialised in geology and was the head of the school science department. He undertook a 17 day trip to Indonesia organised by a natural museum history society of which he was a member. During the course of the trip he visited several volcanoes and other geological sites, and attended a geological congress. He also visited some tourist attractions. The taxpayer took many slides of the geological sites and prepared a taped commentary which he used in his teaching on his return. The Administrative Appeals Tribunal (AAT) examined previous court decisions dealing with teachers who had claimed for the cost of overseas travel. It concluded that the general principle in these cases was that the fact that the taxpayer may have been a better teacher after the travel was not enough to demonstrate a sufficient connection between the travel and their income earning activities. The AAT stated that some taxpayers are fortunate in finding personal and recreational satisfaction in their field of endeavour and that in this case the trip was recreational in character and not deductible. The circumstances of your case can be compared to the above decision. These claims are too general in nature for them to be incurred in the course of gaining your assessable income as an interior designer. You travelled overseas visiting many sites which you consider is relevant to you work as an interior designer. Although the trip may have broadened your knowledge and benefited you as an interior designer, the courts have held that this reason alone is not enough to demonstrate a sufficient connection between the travel and the income producing activities. Therefore, the overseas travel expenses are not directly related to earning your assessable income in your current position. It has not been demonstrated that there was a direct link between the overseas trip and the promotion you received from your current income-earning activities. Accordingly, the expenses you incurred in respect of your overseas trip are not allowable as a work related expense. Note: You referred in your request to claiming a reasonable rate per day from a Taxation Ruling. The substantiation exception is only available where the deduction is allowable and you have received a bona fide travel allowance from your employer (see Taxation Ruling TR 2004/6). Paragraph 212 of TR 95/9 in regards to travel expenses explains that ‘special substantiation rules apply to travel expenses’ where an employee receives a travel allowance.