Private ruling: Deductibility of work related travel expenses.
Date of advice: 20 August 2018
Published: October 2018
Ruling period: Year end 30 June 20XX | Year end 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Are the expenses incurred in travelling from an airport in Country A to Country B deductible? | A1: No | Q2: Are the expenses incurred in travelling from Country B to an airport in Country A deductible? | A2: No | Q3: Are the expenses incurred in travel between your place of residence and a Country A airport deductible? | A3: No

Relevant facts and circumstances: You are an international pilot employed by Company X, a labour hire company based in Country C. Your services are currently leased to Company Y as a First Officer on a 767 aircraft. Company Y is based in Country B. You entered into an employment agreement with Company X in the relevant income year Your employment agreement with Company X will terminate five years after commencement, unless otherwise terminated pursuant to the terms and conditions of your employment agreement. Clause 2 of your employment agreement states you perform your services to Company Y solely as an employee of Company X, and not as an employee of Company Y. Your place of residence is located in Country A. You are an Australian resident for tax purposes. The Statement of Conditions provided with your employment agreement state your employment with Company X is on a commuting basis and your employment agreement is intended for commuters. Clause 5 of your employment agreement states your base of operations and commuting destination is the Company Y substation in Country B. Clause 5 of your employment agreement provides your operating base and commuting destination may be changed to another Company Y base. This change is required to be made by mutual agreement of Company X and Company Y. You travel from your residence to Country B to undertake your duties as a First Officer. You fly internationally to Country B from either Airport 1, Airport 2 or Airport 3. On completion of your duties, you return from Country B to your place of residence. For most flights departing from and landing at Airport 2, you travel between the Airport and your place of residence by shuttle bus transfers. Where your departing flight is in the early hours of the morning, your spouse drives you to the Airport. Where your flight departs from or returns to the Airport 1, your spouse drives you between the Airport and your place of residence. You are employed and paid on a salary basis. Your salary is paid in accordance with the table in exhibit B, clause 1 of your employment agreement. Clause 6 of your employment agreement states Company X provides compensation and benefits as your employer. In clause 7 of your employment agreement, you have agreed to be responsible for and pay for costs specified as the employee’s responsibility in exhibit B of your employment agreement. Exhibit B, clause 1, footnote 3 of your employment agreement provides commuting to and from the operating base and commuting destination is considered to be taken at your own expense. Commuting between your home of record and the commuting destination is also not considered deadheading. Travel between your place of residence and Country B is conducted at your own expense. Your work roster requires you to travel to Country B to begin work every four weeks. A return flight between Country A and Country B costs you approximately $XX. You have provided 4 receipts of monthly flight expenses with your application. Exhibit C, clause 5, section b of your employment agreement states Company Y provides transport during duty trips between layover airports and hotels while you are in performance of your flight operation duties. Exhibit B, clause 3 of your employment agreement states your employer provides a choice between ‘C’ class confirmed tickets from your home of record to Country B and return, or a commuting support allowance of USD $XXX per month. You have chosen to receive the commuting support allowance of USD $XXX each month. This commuting support payment is not paid in accordance with the time and distance required to travel to Country B. Company Y rosters you on for 10 day flight duty periods. Company X provided a letter separate to your employment contract stating they allow one day for commute per duty period. You choose your flight to Country B yourself. Your employer does not arrange your travel for you. You travel to Country B using reduced fare staff travel. You choose your flight based on its arrival time in Country B. You must arrive in Country B 10 hours before your first flight in accordance with Civil Aviation Amendment Order (No. R48) . Clause 4 of your employment agreement states you are required to comply with the Company Y Work Rules, Company Y Duty Procedures, Company Y Policies and Procedures Manual and all other Company Y work rules and operation manuals, regulations and procedures at all times during your employment. You are also required to comply with the policies set by Company X at all times during your employment. Clause 9 of your employment agreement states Company X may terminate your employment if you fail to observe, obey and comply with any and all rules, regulations, laws, ordinances, statutes or orders applicable under your employment agreement or your assignment to Company Y. You are provided with a worldwide telephone by your employer. Clause 6 of your employment agreement provides you are responsible for all international, state, or national taxes including benefits tax.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1

Reasons for decision: Summary: You are not entitled to claim deductions for travel expenses incurred in travelling between your place of residence and Country B. | Detailed Reasoning - Detailed reasoning: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent 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. You rely on John Holland Group Pty Ltd & Anor v. Commissioner of Taxation (2015) ATC 20-510; 321 ALR 530; (2015) 232 FCR 59 ( John Holland case ) to support your claim for deductibility of travel expenses incurred between your place of residence and Country B. The ATO issued a Decision Impact Statement in response to the John Holland case , recognising different facts may result in different conclusions as to deductibility: Decision impact statement on John Holland Group Pty Ltd & Anor v. Commissioner of Taxation 2015 ATC 20-510. In the Decision Impact Statement, the ATO maintained the current approach to travel deductions. Decisions as to deductibility will be made by “weighing all the relevant facts and circumstances and applying the relevant tax law and authorities to those facts”. The facts in your case differ from the John Holland case . Therefore, the John Holland case is not directly analogous and deductibility will be considered by weighing all relevant facts and circumstances. Whether an employee is travelling in performance of their work duties is a question of fact and is determined in accordance tests set out in Draft Taxation Ruling TR 2017/D6 Income tax and fringe benefits tax: when are deductions allowed for employees’ travel expenses? paragraph 22 which are: (a) whether the work activities require the employee to undertake the travel; (b) whether the employee is paid, directly or indirectly, to undertake the travel; and (c) whether the employee is subject to the direction and control of their employer during the period of travel. | Detailed Reasoning - (a) Requirement to undertake travel: You must be required to undertake the travel in performance of your employment duties for travel expenses to be deductible: TR 2017/D6 paragraph 23. Travel expenses must have been incurred ‘in’ gaining or producing assessable income: Lunney v. Commissioner of Taxation (Cth); Hayley v Commissioner of Taxation [1958] ALR 225; [1958] HCA 5; (1958) 100 CLR 478 cited in Commissioner of Taxation (Cth) v. Payne 2001 ATC 4027; (2001) 202 CLR 93; 177 ALR 270; [2001] HCA 3. Travel to commence work is not in the performance of work duties, but is preliminary to work. It is not enough for travel expenses to be incurred in connection with the derivation of income, incurred for the purpose of deriving income, or incurred as a pre-requisite to the derivation of income: John Holland case . Travel undertaken as a result of a personal choice, such as where to live or work, is not incurred in gaining or producing an employee’s assessable income; the travel is of a private and domestic nature: TR 2017/D6 paragraph 25. The decision to work out of Country B on a commuting basis is a personal choice. The requirement to travel between your home in Country A and Country B to commence your duties is a result of the choice to work internationally. Company Y considers your work to begin when you report for duty at the Country B substation. This travel is preliminary to your income earning activity and places you in a position to perform your duties as a First Officer; it is not a requirement of your employment duties you undertake the travel. | Detailed Reasoning - (b) Paid directly, or indirectly, to undertake the travel: TR 2017/D6 paragraph 26 sets out that your travel expenses are not deductible unless the travel can be characterised as an income-producing activity for which the employee is paid and an employee is not paid for their travel or entitled to deduct travel expenses simply because they receive a travel allowance. As you are paid on a salary basis, whether you are paid for travel in performance of employment duties must be directly or indirectly evident in your employment agreement. | Detailed Reasoning - Employment agreement with Company X: The commuting support allowance provided by Company X is designed to assist with the cost of commuting, in recognition of the commuting nature of your employment. The allowance is not provided as remuneration for the time undertaken to travel and paid irrespective of the distance and time between your home of record and the commuting destination. The allowance does not place any restrictions on where you travel from and how you travel. The use of the term ‘home of record’ recognises the private nature of the travel, implying Company X does not consider the travel in performance of your employment duties and on employer time. Country B is your point of hire and the point at which your employment duties and remuneration for actual performance of those duties commences and ceases. Your employment contract does not recognise a starting destination within Country A. This can be distinguished in the John Holland case , where the Perth Airport was identified as the employee’s point of hire and travel costs incurred after the Perth airport would have been deductible had the employees incurred these costs. Applying the principal of the John Holland case to your circumstances, costs incurred after you arrive in Country B would be deductible. However, costs incurred travelling between your place of residence and Country B are considered expenses of a private nature and not deductible. In your employment agreement, you have agreed to be responsible for and pay the costs of expenses identified as the employee’s responsibility. Your employer explicitly states travel to and from the commuting destination and operating base is undertaken at the expense of the Company X member and is not considered deadheading in exhibit B, clause 3, footnote 1 of your employment agreement. This clause also establishes the difference between preliminary travel to the operating base to commence duties, and deadheading travel between two operating bases in the course of employment. In comparison to the John Holland case , deadheading from the commuting destination to another operating base would be analogous to the deductible travel of John Holland employees from the Perth Airport to their base in Geraldton. Your employer does not consider travel between your home of record and Country B as paid travel undertaken in the performance of your employment duties. This travel is recognised by your employer as travel of a private nature undertaken at the expense of the commuting employee. | Detailed Reasoning - Letter from Company X: The letter provided by Company X indicates travel between your home of record and Country B is undertaken during an off duty period where you are not carrying out your duties as a First Officer. This letter recognises the travel places you in the position to carry out your duties and is preliminary to your work. Although you travel on rostered ‘blank commute days’, your employer recognises you are not in performance of employment duties during this travel. Therefore, this travel is not characterised as part of your income-earning activities as a First Officer. Employment documents provided by your employer do not, directly or indirectly, demonstrate you are paid to undertake the travel as part of your duties as a First Officer. The expenses you incur travelling between your place of residence and Country B are incurred in order to put you in a position to perform your employment duties; they are not incurred in the actual performance of your duties. | Detailed Reasoning - (c) Direction and control: TR 2017/D6 paragraph 30 sets out that travel expenses are not deductible unless you are subject to the direction and control of your employer during your period of travel. An employee is under the direction and control of an employer where they are subject to employer orders or directions, whether or not they are actually exercised: TR 2017/D6 paragraph 31. In the John Holland case , employment contracts contained a clause stating employees were bound to comply with all John Holland Rail directives and policies during travel on the employer’s time. This clause provided disciplinary action, including dismissal, could result if an employee breached any such requirement during this travel. Further, employee travel was controlled, organised and paid by the company. John Holland employees could not exercise any control or discretion in relation to their travel arrangements. Employees travelled on flights organised and chartered by their employer and the actual costs of these flights were paid by the company. John Holland employees were directed to present themselves at their point of hire at a certain time in order to commence their employment duties. Clause 4 and 9 of your employment agreement are broad and general clauses relating to all times during your employment. Your employment agreement does not contain a clause relating to travel between your home of record or a starting destination and the commuting destination. These clauses do not provide you are under the explicit direction and control of your employer during your period of travel. The level of direction and control during your period of travel is no different to periods you are rostered off. You organise your travel between your place of residence and Country B yourself. When arranging your travel, you are able to exercise your discretion and select a flight most convenient to your personal preferences. You have not been directed by your employer to travel to Country B to perform your duties as a First Officer. It is implicit in your employment contract you will travel to your place of employment in order to commence your employment duties. The requirement to travel internationally is a result of your personal choice to undertake employment in a foreign country. The John Holland case considers direction and control set by an employer to their employees. You do not travel on flights chartered by your employer; instead travel on ANA group flights on a reduced fare staff ticket. The conditions set on reduced fare staff travel tickets do not demonstrate direction and control of your employer. These conduct rules are not obligations set by your employer in relation to performance of your duties as a First Officer. While these rules refer to a period of travel, the terms and conditions of staff travel tickets are similar to terms and conditions set by airlines on regular fares and airline tickets and are not an added control placed on the employee. Being provided with a world wide mobile telephone with the obligation to answer calls does not amount to direction and control for the purposes of deductibility. A mobile phone allows you to be generally contactable for the purposes of your employment and does not amount to employer control. You are able to exercise discretion over your travel arrangements and there are no explicit provisions for employer control during your period of travel within your employment agreement. Therefore, you are not subject to the direction and control of your employer during your period of travel and travel expenses incurred in travelling between your residence in Country A and your employment base in Country B are not deductible.