Private ruling: work related expenses
Published: January 2014
Ruling period: Year ended 30 June 2011 | Year ended 30 June 2012
Date scheme commenced: 1 July 2010

Ruling: Q1: Are you entitled to a deduction for your relocation costs? | A1: No. | Q2: Are you entitled to a deduction for any accommodation or utility costs while interstate? | A2: No.

Relevant facts and circumstances: You have been a full-time employee of your current employer for over 10 years. Six years ago you accepted a promotion to another location. The costs of transferring from your original home to the location were paid by your employer. After two years in the new position due to your employer upgrading their equipment, you needed to undertake further long term training to hold an equivalent qualification. As the training you required was only offered (at that time) on a full-time basis in several locations you and your family relocated interstate at your own expense to enable you to undertake the long term training course. On arrival interstate you arranged short term accommodation for a short period of time, and then arranged long term rental accommodation for the duration of the long term training. You used paid leave from your employer to enable you to live in the new location whilst you attended the training. You funded the training yourself as there was a freeze on funding for long term training with your employer at that time. Your employer approved your use of annual leave to attend the training. Since you have completed the course, your employer has lifted the restriction on long term training, and is now providing financial support to others undertaking this training qualification. You received no financial assistance from your employer for either the training or accommodation while you lived interstate. Since completion of the course you and your family have relocated back to the locality you lived in when you were first employed by this employer.

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 or are necessarily incurred in carrying on a business for the purpose of 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, or a provision of the ITAA 1997 prevents it. 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 ( Lunney's 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 - Relocation expenses: Generally relocation and moving expenses are not incurred in earning the assessable income but are a prerequisite to the earning of that assessable income in the same manner as travel expenses to and from work. Where a person incurs relocation costs because they move locations to enable them to undertake study the general rule will apply. Taxation Ruling IT 2481 outlines the deductibility of travelling expenses of an employee moving to a new locality of employment and states that a deduction is not allowable. Where a taxpayer transfers from one locality to another, and incurs expenditure in moving from one place of residence to a new place of residence to take up the duties of the new position, that expenditure is not incurred in gaining or producing assessable income and is not deductible. The taxpayer is not travelling on his/her work, but is travelling to his/her work. Nor is the taxpayer travelling between two places of employment. Taxation Ruling IT 2566 states that an employee who is travelling to commence employment duties at a new work location is not travelling on duty. The employment duties do not commence until the employee reports to work at the new location. Taxation Ruling IT 2614 states that removal and relocation expenses to take up an appointment with a new or existing employer are not allowable deductions, even if an allowance or reimbursement is received. This is so whether the transfer is voluntary or at the employer's request. In your situation you incurred relocation costs in a voluntary interstate to undertake study. Whilst you were employed by the same employer during this period and you could only undertake the necessary training at one of three locations these factors do not alter the position that the costs you incurred for relocation are private in nature and therefore not deductible. This view is supported by the courts. In Fullerton v FC of T , 91 ATC 4983; (1991) 22 ATR 757, as a result of a reorganisation the taxpayer's position ceased to exist. In order to avoid retrenchment, he had no choice but to accept a transfer to a different location. The employer reimbursed a portion of the relocation expenses and the taxpayer claimed the remainder as a tax deduction. It was held that the expenditure on the taxpayer's domestic or family arrangements is not deductible, even though the expenditure had a causal connection with the earning of income. In Case U91 , 87 ATC 525, the taxpayer, a Commonwealth public servant, was transferred at the request of his employer from a State office to the central office of the department in Canberra. He was denied a deduction for expenses incurred in attempting to auction his house. It was held that the expenses were too remote from the income producing process to be incurred in gaining or producing assessable income. Similarly in Case V31 , 88 ATC 282, it was found that the relocation expenses were of a private and domestic nature and were therefore not deductible. | Detailed Reasoning - Accommodation and utility expenses: Taxation Ruling TR 98/9 considers occasions where accommodation expenses and other travel expenses may have the essential character of an income-producing expense where the expenditure is incurred while away from home overnight in connection with a self-education activity. Such expenses incurred may be deductible under section 8-1 of the ITAA 1997. However, where a taxpayer is away for an extended period of time and has established a new home, the associated costs including accommodation, meals and utility costs such as gas and electricity remain private in nature and are not deductible under section 8-1 of the ITAA 1997. TR 98/9 lists the key factors to be taken into account in determining whether a new home has been established. They include: · the total duration of the travel · whether the taxpayer stays in one place or moves frequently from place to place · the nature of the accommodation (hotel, motel, long term accommodation) · whether the taxpayer is accompanied by his or her family · whether the taxpayer is maintaining a home at the previous location while away, and · the frequency and duration of return trips to the previous location. TR 98/9 provides examples designed to illustrate factors and circumstances that are relevant in determining whether a taxpayer has established a new home in the new location. Example 1: Elizabeth ordinarily lives with her parents in a country town outside Brisbane. She takes 4 months leave from her job to undertake a course of education at a training college in Brisbane. She shares a rented unit in Brisbane with two other students and returns to her parental home every weekend and during holiday periods. The relatively short period of her stay in Brisbane and the frequency of her return visits to her parental home indicate that Elizabeth has not established a new home in Brisbane. Example 2: John, who is single, decides to undertake a 2-year course of study at a university in a city 250 kilometres from the town where he lives with his parents. He shares a rented house with some other students during this period and takes a casual job. He occasionally returns to the parental home on weekends. The length of time that John resides in the city, the long term nature of his accommodation and the fact that he has employment in the city indicate he has established a new home. Example 3: Katherine travelled overseas for 6 months to study at a university in Germany. She was accompanied by her husband and three children. An apartment suitable to accommodate the family was rented for the period of her stay and the family home in Australia was rented out. The relevant factors are the period of time away, the renting of the family home and staying in one place with her family. These factors indicate that a new home was established in Germany. In your case, you and your family relocated interstate to allow you to undertake long term study. You used some short term accommodation and then secured long term accommodation for the remaining period of your stay interstate. Since completion of the course you and your family have returned to the locality where you lived when you were first employed by your employer. It is considered that you had established a new home interstate where you undertook the training and therefore, you are not entitled to a deduction for the accommodation expenses or utility expenses you incurred during your stay there as these expenses are of a private or domestic nature and not allowable under section 8-1 of the ITAA 1997.