Private ruling: Overseas travel expenses
Date of advice: 20 April 2016
Published: June 2016
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Question and answer | Are the overseas travel expenses deductible under section 8-1 of the Income Tax Assessment Act 1997 ? | Yes.

Relevant facts and circumstances: You run your own business as a web designer and you are involved with planning and designing digital products such as websites, apps and software. You author designs and provide creative and editorial direction for your clients. This work includes designing digital and mobile magazines You travelled overseas for the purpose of keeping abreast of current trends in your field of work and to obtain the inspiration for your creative work. You wish to claim work related expenses you incurred for flights, accommodation, meals and incidentals. You have receipts for the overseas travel expenses you incurred. You have taken other overseas trips for private purposes in the last few years and have not claimed any expenses in regard to these trips.

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 except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income. A number of 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), • 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). To determine whether your expenses are deductible, the essential character of the expenditure must be considered. It is necessary to determine whether there is a sufficient nexus between the expenditure and your income-earning activities. Taxation Ruling TR 98/9 (TR 98/9) discusses the deductibility of overseas travel expenses by an employee or a person in business and states that where a taxpayer is away from home overnight in connection with a self-education activity, accommodation and meals expenses incurred are deductible under section 8-1 of the ITAA 1997 (examples include an overseas study tour or sabbatical, a work-related conference or seminar or attending an educational institution). The expenses are part of the necessary cost of participating in the tour or attending the conference, the seminar or the educational institution. Likewise, air fares are also deductible for the same reason. It is not considered that such expenditure is of a private nature because its occasion is the taxpayer's travel away from home on income-producing activities. TR 98/9 also includes a summary of FC of T v. Finn (1961) 106 CLR 60; (1961) 12 ATD 348 which relates to deductions in connection with an overseas study tour: 37. the High Court held that expenditure incurred by a senior government architect on an overseas tour devoted to the study of architecture was allowable under section 8-1. All three Judges recognised that the tour expenses were relevant to the activities by which Mr Finn was currently producing income. Kitto J found (106 CLR at 69; 12 ATD at 352) that the tour was incidental to the proper execution of the duties of Mr Finn's office because: 'Its professional status implied an obligation of progressive acquaintance with a living and developing art. It was therefore, I think, plainly incidental to the office that the respondent should avail himself of such opportunities as might arise to add ... to his knowledge and understanding of architectural achievements and trends overseas ...'. 38. Windeyer J (106 CLR at 70; 12 ATD at 352) was of a similar view to Kitto J, stating that: '... a taxpayer who gains income by the exercise of his skill in some profession or calling and who incurs expenses in maintaining or increasing his learning, knowledge, experience and ability in that profession or calling necessarily incurs those expenses in carrying on his profession or calling.' Based on the information provided, we consider that you have demonstrated that the primary purpose for your overseas travel was work related and the expenditure you wish to claim has a direct nexus to producing your assessable income. The overseas travel expenses you incurred are deductible under section 8-1 of the ITAA 1997. Please note that the substantiation requirements for work related expenses are contained in Division 900 of the ITAA 1997.