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

Ruling: Q1: Are you entitled to a deduction for expenses in travelling to and from place A when working in place B or C? | A1: No. | Q2: Are you entitled to a deduction for your accommodation or meal expenses when working interstate? | A2: No.


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. A number of significant court decisions have determined that for an expense to be an allowable deduction: · it must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income-producing expense ( Lunney v. FC of T ; (1958) 100 CLR 478 ( Lunneys case )), · there must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income ( Ronpibon Tin NL v. FC of T , (1949) 78 CLR 47), and · it is necessary to determine the connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces his or her assessable income ( Charles Moore Co (WA) Pty Ltd v. FC of T , (1956) 95 CLR 344; FC of T v. Hatchett , 71 ATC 4184). | Detailed Reasoning - Travel expenses: Generally a deduction is not allowable for the cost of travel between home and work as it is considered a private expense. Expenditure incurred in travelling to work is a prerequisite to the earning of assessable income rather than being incurred in the course of producing that income. Such expenses are incurred as a consequence of living in one place and working in another. That is, the essential character of the expenditure is of a private or domestic nature, relating to personal and living expenses and therefore not an allowable deduction ( Lunney's case and Federal Commissioner of Taxation v Cooper (1991) 29 FCR 177; 91 ATC 4396; 21 ATR 1616). The essentially private character of travel between home and work is not affected by factors such as the mode of transport, the availability of transport, the lack of suitable public transport, the erratic times of employment, the time of travel, the distance of travel and the necessity of travel (Taxation Ruling IT 2543). Certain expenditure is incurred in order to be in a position to be able to derive assessable income, for example, unless a person arrives at work it is not possible to derive income. The income earning duties do not generally commence until the arrival at a place of work and will cease upon departure from work. This does not mean that the expenditure is incurred in the course of gaining or producing assessable income. The expenditure is a prerequisite to the earning of assessable income rather than being incurred in the course of gaining that income ( Case V111 88 ATC 712). A person who is travelling to commence duties at a new work location is not travelling on duty. The duties do not commence until the person reports to work at the new location. Expenses to take up an appointment with a new or existing employer are not allowable deductions, even if an allowance or reimbursement is received and whether the transfer is voluntary or at the employer's request. In your case, you work at the various sites for one week or more. Each site is your normal place of work for that period. The Commissioner accepts that expenses incurred in travelling between home and work may be deductible in limited circumstances, for example: · the taxpayer's employment is inherently of an itinerant nature and they regularly work at more than one site each day before returning home, · the taxpayer has to transport by vehicle bulky equipment necessary for employment, or · travel is between two places of employment or business. The above exceptions do not apply in your case. Although your home may be a place of business, section 25-100 of the ITAA 1997 specifically states that travel between two places is not travel between workplaces if one of the places you are travelling between is a place at which you reside. Section 25-100 denies a deduction for your travel expenses between place A and your work place. Your travel to and from place B or C is not travelling on work, but rather travelling to and from work. Place B and C are your normal places of work for you for the relevant periods. While it is acknowledged that your usual home is in place A, it is not considered that your travel to and from place A is work related travel. Rather it is private travel carried out to enable you to be closer to the work site and commence your duties. The distance of the travel does not alter the private nature of the travel. The travel expenses are a prerequisite to the earning of assessable income and are not incurred in the actual performance of your work. That is, the travel expenses are incurred to enable you to commence your duties and not in the performance of your duties. Therefore, the associated travel expenses such as air fares are not an allowable deduction under section 8-1 of the ITAA 1997. | Detailed Reasoning - Accommodation and meals: Expenditure on the daily necessities of life (for example, accommodation, food and drink) is generally not deductible as it is not incurred in gaining or producing assessable income and is also considered to be private or domestic in nature. Exceptions to this are where you are undertaking work related travel and are required to stay away overnight or you work overtime and receive an overtime meal allowance. In your case you do not receive an overtime meal allowance. Also, as highlighted above, your travel is not regarded as work related travel. This is supported by the decision in Federal Commissioner of Taxation v. Toms 89 ATC 4373; (1989) 20 ATR 466, where the Federal Court held that expenses incurred in relation to accommodation near the work place while maintaining a family residence in another location were not an allowable deduction as they were considered to be private expenses. The Federal Court disallowed the forest workers deduction for the cost of maintaining a caravan and other living expenses. The taxpayer's family home in Grafton was some 108 kilometres from the base camp so he lived in the caravan during the week and returned to the family home on weekends. The caravan was rendered necessary as much by the taxpayer's choice of the place of his residence in Grafton as by his employment in the State forest, and its purpose was to enable him to retain his residence in Grafton although he was employed in the State forest. Had he lived at a town closer to the forest, there is no question the caravan would have been unnecessary. The principles in the above case are relevant in your circumstances. As stated above, it is considered that place B and/or place C are your normal places of work. While it is acknowledged that your home is in place A, it is not considered that your travel to and from place B or C is work related travel. Your accommodation and meal expenses are not associated with any work related travel, therefore they are not incurred in gaining or producing your assessable income. Expenditure on your accommodation and meals is not deductible, even though the expenditure had a causal connection with the earning of income. The expenditure is inherently of a private or domestic nature and therefore no deduction is allowable under section 8-1 of the ITAA 1997.

Relevant facts: You performed consultancy work for an entity. | Your services were provided through a principal contractor to the customer. | You have incurred travel costs to travel between your home and various sites interstate. | You maintain your principal residence in place A throughout the year. You stay in short term accommodation such as hotels/motels when working at various sites. | You are not considered to be an employee of the entity. | You invoice the entity an amount to cover your travelling expenses as well as your wages and superannuation costs. | You travelled to various sites during the year. Most times you stay in the one place for one week or more. | You have a place of business at your home in place A, however you did not work in place A for other contractors in between the above work. Your arrangement with the entity does not preclude you working for other organisations. | You also had a short-term contract with another agency in 20XX. | Your work did not require you to transport bulky equipment.