Private ruling: assessability of allowance and deduction for travel expense
Published: November 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: I s the allowance that you received for travelling to your new workplace assessable? | A1: Yes | Q2: Are you entitled to a deduction for travel expenses incurred for travel between your home and your work place? | A2: No

Relevant facts and circumstances: You work for an employer and due to a restructuring of the business arrangements in 2011 your work place was changed to a location that was further away from where you lived. As part of the restructuring process your employer paid you for your travelling expenses for the additional distance that would had to travel to and from work each day and this payment was intended to compensate you for the additional distance and time travelled from your former work location to a new work location. You did not commence work before leaving home, you travelled between home and your regular place of work, and you did not transportation of bulky equipment to and from work. This was paid to you at a set rate per kilometre. The amount that you were paid was not taxed by your employer and the total paid is recorded as a 'mileage allowance' on your PAYG payment summary.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 section 6-5 | Income Tax Assessment Act 1997 section 15-70

Reasons for decision: Detailed Reasoning - Income Question: Subsection 6-5(2) of the Income Tax Assessment Act 1997 (ITAA 1997) provides that the assessable income of a resident taxpayer includes ordinary income derived directly or indirectly from all sources during the income year. Allowances are ordinary income for the purposes of subsection 6-5(2) of the ITAA 1997. 'Ordinary income' is generally considered to include: · amounts received in return for personal services, whether received in the capacity of an employee or otherwise; · amounts received periodically or regularly and which the recipient relies on for the maintenance of themselves and/or their dependants ( Federal Commissioner of Taxation v. Dixon (1952) 86 CLR 540). Amounts which are paid by an employer to an employee as a reimbursement for car expenses calculated on a per km basis is income in the hands of the employee and assessable to the employee under section 15-70 of ITAA 1997. In your case, your employer paid you an amount to cover the costs for you using your car for the additional distance you travelled to your new workplace. The payment was calculated on a set rate per kilometre travelled. Therefore this payment falls within the definition of assessable income of an individual. You have received a travel allowance from your employer and this amount has to be included in your 2011-12 income tax return as part of your assessable income. | Detailed Reasoning - Deduction Question: 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, or relate to the earning of exempt income. 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. This does not mean that the expenditure is incurred in the course of gaining or producing assessable income. Rather, the expenses are incurred to enable the taxpayer to commence income earning activities ( Lunney & Hayley v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 11 ATD 404; (1958) 7 AITR 166 (Lunney's Case)). A deduction is, generally, not allowable for the cost of travel by an employee between home and their normal workplace as it is considered to be a private expense. The cost of travel between home and work is generally incurred to put the employee in a position to perform duties, rather than in performance of those duties (see paragraph 77 of Taxation Ruling TR 95/34). However, there are situations where it has been accepted that travel by employees from home to work is deductible. These situations include: · where the employment can be construed as having commenced at the time of leaving home, for example a doctor on call, · where you travel between home and shifting places of work, that is, an itinerant occupation, and · the transportation of bulky equipment in some circumstances. In your situation, your work has not commenced before leaving home, you are not considered itinerant and you do not carry bulky goods. In your case, your travel expenses are of a private nature and are incurred as a necessary consequence of living in one place and working in another ( Lunney's Case ), therefore, they are not deductible.

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