Private ruling: Travel expenses
Date of advice: 11 December 2017
Published: May 2018
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Are you entitled to a deduction for the cost of your airfares and taxi fares to travel interstate? | A1: No.


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

Reasons for decision: Summary: Airfares and taxi expenses 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 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 ( Ronpibon’s case) ), 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). The general rule is that 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. Taxation Ruling IT 2481 Income tax: travelling expenses of an employee moving to a new locality of employment outlines the deductibility of relocation expenses 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 2614 Income tax and fringe benefits tax: employee expenses incurred on relocation of employment 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. This view is supported in the following cases: 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. We acknowledge that your circumstances differ somewhat from the circumstances outlined in the above cases; however, the principles remain relevant. After you were relocated to state B, your family remained in state A and you travelled to and from your work in state B. 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 ( Case V111 88 ATC 712). A deduction is not generally allowable for the cost of travel between home and a person’s normal place of work. However, the Commissioner accepts that expenses incurred in travelling between home and work may be deductible in some limited circumstances, for example where the taxpayer has to transport by vehicle bulky equipment necessary for employment. That is a deduction is allowable if the transport costs can be attributed to the transportation of bulky equipment rather than to private travel between home and work (see FC of T v. Vogt 75 ATC 4073; 5 ATR 274). In order to establish that the deduction is allowable, the worker must be able to first demonstrate that the equipment is bulky. If this is satisfied, it must then be established that the workplace is not secure enough to store the equipment while the worker is absent. If the equipment is transported to and from work by the worker as a matter of convenience or personal choice, it is considered that the transport costs are private and no deduction is allowable (see Case 59/94 94 ATC 501; AAT Case 9808 (1994) 29 ATR 1232). 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 toolbox was not easily portable. The transport cost was 'attributable' to the transportation of such bulky equipment rather than private travel between home and work. The employer did not provide a secure storage area for the toolbox and the use of public transport was not a viable option. In Case 43/94 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 75 cm long x 55 cm wide x 50 cm 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. In your case, you carry equipment to and from state B. Similar to the decision in Case 43/94, s uch items are not considered to be bulky. That is the equipment carried is not considered to be of such bulk that it would change the primary purpose of your travel from one of transporting yourself to and from work to one of transporting the equipment. The transport of these items is incidental to the primary purpose of transporting yourself to work. Therefore, the travel expenses you incur in travelling between your home and state B cannot be attributed to the transportation of bulky equipment and no deduction is allowed on this basis. Therefore we need to consider whether there are other aspects of your travel that makes it an allowable deduction. In Lunney’s case , the Full High Court, in disallowing a deduction for travel expenses, held that the costs incurred by a taxpayer in travelling to the place where they work, are expenses incurred in order to enable them to earn income but are not expenses incurred in the course of earning that income. Williams, Kitto, and Taylor JJ stated: It is, of course, beyond question that unless an employee attends at his place of employment he will not derive assessable income and, in one sense, he makes the journey to his place of employment in order that he may earn his income. But to say that expenditure on fares is a prerequisite to the earning of a taxpayer's income is not to say that such expenditure is incurred in or in the course of gaining or producing his income. Lunneys case confirmed that: ● the essential character of expenditure incurred in travelling between home and work is of a private nature, and ● generally, the duties of a salary and wage earner will not commence until the arrival at a place of work and will cease on departure from work. In considering the deductibility of travel expenses a distinction is made between travel to work and travel on work. It is only if the duties of the job require a taxpayer to travel that the taxpayers expenses can be deducted ( Taylor v. Provan 1975 AC 194). A deduction is generally not allowable for the cost of travel between home and work because the expenses are not considered to be incurred in producing assessable income. These expenses are incurred as a consequence of living in one place and working in another and any expenses incurred to enable a taxpayer to commence their income earning activities are therefore considered private in nature. The mode of transport, lack of suitable public transport, time of travel, distance of travel are all factors which do not alter the essential character of travel between home and work as private in nature. The cost of travel between home and work is generally incurred to put a person in a position to perform duties, rather than in the performance of those duties ( Case V111 88 ATC 712, Taxation Ruling IT 2543). Your circumstances are similar to a fly-in fly-out employee. Your work starts when you arrive at your interstate work place. You are not subject to your employer’s direction, control and code of conduct when you travel between state A and state B. The travel is not part of your paid employment duties. In Federal Commissioner of Taxation v. Toms 20 ATR 466; 89 ATC 4373 ( Toms case ), 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. As highlighted in Toms case, accommodation and living expenses near a person’s work place is regarded as private in nature and not an allowable deduction. Even where a job transfer or placement is not voluntary, and the position of the new placement is some distance away from a previous work place, this does not change the nature of the expenses. They are not incurred in earning assessable income. The above principles can be applied to your circumstances and travel expenses. Your choice to fly to and from state B during the year is not an expense incurred in carrying out your employment duties. The connection between your airfare and taxi expenses and your income earning activities is too remote. Your fares are incurred to put you in a position to carry out your duties and not in the performance of your duties. We acknowledge the relocation was not your choice, however even though the expenditure had a causal connection with your employment, the expenditure is inherently of a private or domestic nature and not an allowable deduction under section 8-1 of the ITAA 1997. Your travel expenses are not deductible against any other provision in the ITAA 1997 or Income Tax Assessment Act 1936.

Relevant facts: You are employed by entity A. | During the 2015-16 income year your employer relocated your place of employment from one state to another state. | You are expected to cover your own transport costs, including the cost of flights and taxi fares to and from state B in order to retain your position within the organisation. | You incurred costs for airfares and taxi fares for this travel for the 2015-16 income year. | You did not receive an allowance from your employer for your travel. | You were not reimbursed for your travel costs. | You have kept records of your expenses. | Your employer provides accommodation for you in state B. | Your family remain in state A. You returned to your residence in state A several times during the 2015-16 income year when not working in state B. | You transport all equipment with you when travelling to and from state B. The equipment weighs less than 10kg. | Your total luggage is not over the airport’s allowed luggage limit of approximately 25kg. | On site, you have a room where you stay which is where you are required to keep all your equipment. Once you finish, you take your equipment home as there is no secure storage facility on site.