Private ruling: Deductibility of travel and exam costs
Date of advice: 13 July 2016
Published: August 2016
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Are you entitled to a deduction for the cost of the exam and the travel expenses to travel to the overseas country to sit the exam? | A1: No | Q2: Are you entitled to a deduction for the travel expenses you will incur to travel to the overseas country to start your employment? | A2: No

Relevant facts and circumstances: You are employed in Australia. You applied for employment in an overseas country and were instructed verbally there would be a position for you. You were required to travel to the overseas country to sit an exam. Successful completion of the exam is a requirement in order to work in the overseas country in the profession. On successful completion of the exam you were informed by email that you have been allocated a locum position in the overseas country. You are required to fly to the overseas country to start your employment. You will cease employment with your Australian employer on taking up the position in the overseas country.

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. Expenses which are incurred by an employee in obtaining employment or in changing jobs are not deductible because they come at a point too soon to be regarded as being incurred in gaining assessable income. These expenses are initial expenses and are of a capital nature. Section 8-1 specifically excludes deductions for expenses of a capital nature. In Case Z1 92 ATC 101; AAT Case 7541 (1992) 22 ATR 3549, the applicant claimed deductions for expenses that led to her admission as a solicitor. The admission expenses included advertising and travelling costs and the practising certificate fee. The Tribunal held that the admission expenses were of a capital nature and were therefore not an allowable deduction under subsection 51(1) of the Income Tax Assessment Act 1936 (which has been replaced by section 8-1 of the ITAA 1997). The admission expenses secured the applicant a 'lasting advantage'. The expenses were incurred in getting, not in doing, work as an employee. They came at a point too soon to be regarded as expenses incurred in gaining assessable income. You were required to sit an exam to enable you to work in the overseas country prior to beginning your employment. Although it is acknowledged you were advised verbally that there would be a position for you prior to sitting the exam and incurring the expenses, you could not start work in the occupation in the overseas country and earn assessable income until after you had successfully completed the exam. Accordingly the cost to sit the exam and the associated travel expenses were incurred at a point too soon, and are not deductible under section 8-1 of the ITAA 1997. Section 8-1 of the 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. Taxation Ruling IT 2614 examines the deductibility of relocation expenses. The ruling states that expenses incurred in relocating to take up an appointment with a new or existing employer are not allowable deductions as they are private or domestic in nature. This is so, regardless of whether an allowance has been paid, or if the relocation was involuntary. Taxation Ruling IT 2481 also discusses this expense. At paragraph 9 the ruling states the expenditure is not incurred in gaining or producing income and is not deductible as the taxpayer is not travelling on work, but to work. This is consistent with the view in the Federal Court case Fullerton v. FC of T 91 ATC 4983; 22 ATR 757 ( Fullerton's case ). In Fullerton's case , it was held that the shortfall between the costs of relocation and the employer's partial reimbursement was not a loss or outgoing incurred in the gaining or producing of income, notwithstanding that the relocation was in response to the changing necessities of work. In your case, you have incurred relocation expenses to take up your new position. However the relocation expenses are not incurred in gaining or producing your assessable income. Rather, they are a prerequisite to earning that income. Also, the expenses are of a private nature. Therefore, you are not entitled to a deduction for the relocation expenses.