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

Ruling: Q1: Are you entitled to a deduction for expenses in travelling between your home and work where you call into another place on the way? | A1: No. | Q2: Are you entitled to a deduction for expenses in travelling to and from suppliers and customers? | A2: Yes. | Q3: Are you entitled to a deduction when carrying work equipment? | A3: No. | Q4: Are you entitled to a deduction for expenses in travelling to and from place A? | A4: No.

Relevant facts and circumstances: This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling. You are an employee and receive a car allowance. You are also a director of a company and receive a director's fee. For your employment you complete a large portion of your work at the workplace. However you also work at home. Most weeks you work at the office for approximately 40 hours and also do about 20 hours at home. You use your own vehicle to visit suppliers and off-site customers. Your vehicle is a luxury car. Occasionally you need to carry work equipment both for your employment and director's position. The equipment is not bulky or cumbersome. Most days you drive from home to the company office you are a director of and then on to your usual place of work, then return home. As a director you find papers and spend approximately 30 minutes at the director's office before going to your employment. About one or two days a month, you travel between home and place A to carry out your duties as a director. The round trip is more than 100km. You generally spend several hours there.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 Section 25-100 | Income Tax Assessment Act 1997 Division 28

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, or a provision prevents you from deducting 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 ( 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 - Car expenses: Division 28 of the ITAA 1997 allows a deduction for car expenses when your car is used in the course of producing your assessable income. 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). Furthermore, as stated in Taxation Determination TD 93/174, the receipt of an allowance does not automatically entitle you to a deduction for travel expenses. 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 ( Case V111 88 ATC 712). Section 25-100 of the ITAA 1997 allows a deduction for the cost of travelling directly between two workplaces. However, subsection 25-100(3) of the ITAA 1997 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. Therefore, although you may do some work at home, the travel between home and work is not an allowable deduction. However, the Commissioner accepts that expenses incurred in travelling between home and work may be deductible in some limited circumstances, for example: § the taxpayer's employment is inherently of an itinerant nature, § the taxpayer has to transport by vehicle bulky equipment necessary for employment, or § the taxpayer's home constitutes a place of business and travel is between two places of employment or business. Your circumstances are not regarded as itinerant, therefore this aspect will not be discussed. | Detailed Reasoning - Bulky equipment: A deduction may be allowable for home to work travel if the transport costs can be attributed to the transportation of heavy, bulky or cumbersome equipment necessary for your work, rather than to private travel between home and work. A deduction is not allowable if the equipment is transported to and from work as a matter of convenience or if the equipment is of a private or personal nature. Also a deduction is not allowable if a secure area for the storage of equipment is provided at the work place. Broadly, a deduction will be allowed for the travel expenses between home and work when carrying equipment where: § there is no secure storage area provided by the employer, § the equipment is necessary for the completion of your employment duties, and § the equipment is considered bulky. The question of what constitutes bulky equipment must be considered according to the individual circumstances in each case. In Crestani v. Federal Commissioner of Taxation 98 ATC 2219; (1998) 40 ATR 1037, a toolbox which measured 57 centimetres by 28 centimetres by 25 centimetres and weighed 27 kilograms was considered as 'bulky', in the sense of 'cumbersome', and the transport cost was 'attributable' to the transportation of such bulky equipment rather than private travel between home and work. Senior Member J Block was of the opinion that the term 'bulky' should not be construed to refer only to an article of large size, but more aptly construed as similar to 'cumbersome' in the sense that it is not portable. In Case 43/94 (1994) 29 ATR 1031; 94 ATC 387, a flight sergeant with the Royal Australian Air Force was denied a deduction for the cost of transporting his flying suit and other items used for work purposes. These items were carried in: § a duffle bag measuring 75cm long x 55cm wide x 50cm deep and weighing 20 kilograms when packed, § a suit bag which weighed 10 kilograms when packed, and § a briefcase sized navigational bag which contained charts, work manuals and study materials. It was held that the mode of transporting the items was simply a consequence of the means adopted by the taxpayer to convey him to work. It was considered that the duffle bag was not of sufficient size or weight to impede facile transport. Where work equipment is not considered to be bulky, then transporting such equipment to work is not enough to change the character of travel to work from a private expense to a business or employment related expense even if it is compulsory to transport such equipment. Your work equipment is not considered to be of such bulk that it would change the primary purpose of your journey. The expenses incurred are in a practical sense attributable to your travel to your place of work rather than merely to the transporting of your equipment. Therefore, you are not entitled to a deduction under section 8-1 of the ITAA 1997 for the cost of travelling to and from work on the basis that you have to transport bulky equipment. | Detailed Reasoning - Home constitutes a place of business: Taxation Ruling TR 93/30 addresses the question of whether a home has the character of a place of business. Essentially, this is a question of fact, determined by examining all the relevant factors. However, TR 93/30 sets out the following factors to be considered: § the area is clearly identifiable as a place of business, § the area is not readily suitable or adaptable for use for private or domestic purposes in association with the home generally, § the area is used exclusively or almost exclusively for carrying on a business, and § the area is used regularly for visits from clients or customers. It is not sufficient that a room in the home is used in association with an employment or a business conducted elsewhere. It is acknowledged that you do work at home, however your home is not regarded as a place of business. | Detailed Reasoning - Incidental tasks on your way to work: Miscellaneous Taxation Ruling MT 2027, paragraph 34, addresses travel to work and states that travel to an employee's place of employment would not be accepted as business travel where the employee merely performs incidental tasks en route such as collecting newspapers or mail. Similarly, for example, the fact that a dentist may call in at a dental laboratory to collect dentures, en route to the surgery at which he or she is employed would not result in the trip being accepted as constituting business travel. Where the taxpayer is required to break his or her normal journey to perform substantial employment duties (other than incidental duties) on the way from home to the usual place of employment, or from the place of employment to home, then travel deductions may be allowable. Finding papers at your company that you are a director of before you travel on to your employment is regarded as an incidental task. You spend limited time at this office and the work is not considered to be substantial. Although the work may be necessary, they do not transform private travel into work-related travel. Furthermore, the fact that this company is separate from your employment does not change the nature of your travel. It is a prerequisite to the earning of assessable income rather than being incurred in the course of gaining that income. The cost of this travel is not allowable. | Detailed Reasoning - Travelling to suppliers and customers: Travel to an alternative place of work may be an allowable deduction if substantial employment duties are performed and the alternative place of work is not a regular place of employment. A deduction is allowable for the cost of travel from a person's normal workplace or home to an alternative workplace. The cost of travel from the alternative workplace back to the normal workplace or home is also an allowable deduction (MT 2027). This travel is undertaken in the performance of a person's normal duties. It is incurred in the course of gaining assessable income. In your case, you travel to suppliers and customers. This travel is considered to be sufficiently connected to your income earning activities. Therefore the associated car expenses are an allowable deduction. | Detailed Reasoning - Travel to the place A: As part of your director's duties, you travel to place A. Although this travel is not done each week, place A is regarded as a normal place of work for you. Travel between home and place A is not regarded as work related travel. The distance of the travel does not change the nature of the travel. Although you travel to different sites to earn your assessable income, this does not mean that such expenditure is incidental and relevant to the derivation of your income. The expenses are incurred before or after the activity of earning assessable income and not part of your income earning activity itself. Therefore a deduction is not allowable for the cost of this travel. | Detailed Reasoning - Methods for claiming car expenses: Division 28 of the ITAA 1997 sets out the rules for working out a deduction for car expenses. Your work related car expenses deduction is allowable using one of the four methods contained in Division 28 of the ITAA 1997. The four statutory methods are: · cents per kilometre · 12% of original value · one-third of actual expenses, and · log book. If you elected to use the cents per kilometre method you calculate your deduction by multiplying the total number of business kilometres your car travelled in the income year by the number of cents based on your cars engine capacity. The number of business kilometres is limited to the first 5,000. Any business kilometres travelled in excess of 5,000 is disregarded. The following is a summary of the other three methods available under Division 28 of the ITAA 1997. You are entitled to choose the method that provides you with the largest deduction provided you have the necessary evidence. · 12% of original value method: this method is based on 12% of the original value of your car. You can use this method if you used your car to travel more than 5,000 business kilometres during the tax year. No written documentation is required if you use this method. However, you must be able to show how you worked out your business kilometres. Please note that the limit for the value of a luxury car value applies if using this method. As outlined in Tax Determination TD 2012/16, the limit for the 2012-13 income year is $57,466. · One-third of actual expenses: this method allows you to claim one-third of each car expense. It does not include capital costs such as the initial cost of your car or improvements to your car. You can use this method if you used your car to travel more than 5,000 business kilometres during the tax year. You must keep all written documentation for all of your car expenses except for fuel and oil costs which can be calculated by receipts, odometer records or a reasonable estimate. · Logbook: this method allows you to claim based on the business use percentage of each car expense. You need to keep a log book, so you can work out that percentage and keep odometer readings for the start and end of the period you owned the car. You must keep written evidence for all the other expenses for your car. You can claim fuel and oil costs based on odometer records. A log book is a document in which an entry is recorded in respect of each business journey made during the applicable log book period, and section 28-125 of the ITAA 1997 requires that each entry must state: · the date the journey began and ended · the odometer readings at the start and end of the journey · the number of kilometres travelled, and · the purpose of the journey. The log book method can only be used if you have a log book showing the above details. The log book method also requires odometer records to be kept in each year in which the method is used. The required substantiation of car expenses is also necessary.