Private ruling: Deduction for travel expenses
Published: September 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you entitled to a deduction for travel expenses? | A1: No

Relevant facts and circumstances: You reside with your family a foreign country. You work from a home office where your work is based around servicing your clients via phone and email. You spend one week in three in Australia for your work. In Australia you liaise directly with your work colleagues and visit clients to attend meetings and workshops. You incur the cost of travelling between your home and Australia.

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 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. 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 expenditure 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 essential character of a persons travel to and from work is that of a private and domestic nature, it is related to their personal and living expenses that are part of their choice of where they live, and is a consequence of them living in one place and working in another. In your case, you incur expenses for travel to enable you to commute between your home in one place and your workplace in another location. Whilst the expenses would not be incurred but for the distance of your work place from your family home 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 travel expenses under section 8-1 of the ITAA 1997.