Private ruling: work related expenses
Published: November 2011
Ruling period: Year ended 30 June 2011
Date scheme commenced: 1 July 2010

Ruling: Q1: Are you entitled to a deduction in respect of accommodation and travel expenses incurred whilst working away from home? | A1: 

Relevant facts and circumstances: You are an electrician whose principal place of residence is in location A From September 2010 you were offered various short term contracts in location B. You rented accommodation in location B and stay there during your rostered shifts. You travel back to your home in location B on your days off. You hope that in the future you will secure work in location A. You have incurred travel and accommodation costs. You are not required to carry bulky tools. Your home does not constitute a place of employment and your employment duties do not commence before leaving home. Your employment is not of an itinerant nature. You are not required to break your journey to perform employment duties.

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. | Detailed Reasoning - Accommodation: As a general rule, expenditure on accommodation while working away from home is not allowed as a deduction. These costs are essentially 'living expenses' of a private or domestic nature. The fact that income cannot be earned unless these expenses are incurred is not determinative of deductibility. The expenses are a prerequisite to the earning of assessable income rather than being incurred in the course of gaining that income. This principle was derived by the High Court in Lunney & Hayley v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 7 AITR 166; 77 ATC 4076: ( Lunney's Case ) where it was found that the expenses in travelling from home to work did not have a connection with the activities carried out by the taxpayers to earn their income. It was accepted that although the travel expenses were necessary and a prerequisite to earning income, the travel itself was not an activity that earned the income. The issue of expenses incurred in relation to accommodation near the workplace while maintaining a family residence in another location was considered in the cases of Federal Commissioner of Taxation v. Toms 89 ATC 4373: (1989) 20 ATR 466 (Toms' Case ) and Federal Commissioner of Taxation v. Charlton 84 ATC 4415; (1984) 15 ATR 711 ( Charlton's Case ). These cases established that accommodation expenses incurred by an individual who lives away from home to carry out the duties of their employment will not be deductible. Expenses of this nature were found to be private in nature and incurred before or after the activity of earning assessable income. In Charlton's Case , the taxpayer was a pathologist employed to carry out autopsies for the local coroner in Bendigo. He rented a flat in Bendigo while maintaining a permanent family home in Melbourne, located approximately 150 kilometres away. The taxpayer claimed that the rental was incurred in the production of assessable income, but the Court ruled that the expense of accommodation was considered private and domestic in nature and would not be deductible under section 8-1 of the ITAA 1997. Similarly, the Federal Court in Toms' Case disallowed a forest worker's deduction for the cost of maintaining a caravan and other living expenses. The taxpayer incurred the expenses in providing temporary accommodation at the base camp. These expenses were dictated not by work but by private considerations. Therefore the essential character of the expenditure was considered to be of a private or domestic nature. In your case, you have incurred accommodation expenses to work away from home due to the distance of your employment from where you normally reside. The expenses you incurred are a prerequisite to the earning of your assessable income. They were incurred in order to enable you to earn income but were not incurred in the course of actually gaining or producing that income. The accommodation expenses are considered to be of a private or domestic nature. Therefore, you are not entitled to a deduction for the accommodation under section 8-1 of the ITAA 1997. | Detailed Reasoning - Travel expenses: 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 taxpayer's expenses can be deducted ( Taylor v. Provan [1975] AC 194). 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 of employment, rather than in the 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. Taxation Ruling IT 2543 summarises these situations as follows: § the taxpayer's home constitutes a place of employment and travel is between two places of employment or business § the taxpayer's employment can be construed as having commenced before or at the time of leaving home § the taxpayer has to transport by vehicle bulky equipment necessary for employment § the taxpayer's employment is inherently of an itinerant nature § the taxpayer is required to break his or her normal journey to perform employment duties (other than including incidental duties such as collecting newspapers, mail, etc.) on the way from home to the usual place of employment, or from the place of employment to home. In your case: § Your home does not constitute a place of employment. § Your employment did not commence at the time of you leaving home. § You did not transport any bulky equipment to your employment. § Your employment is not of an itinerant nature, that is, your work location is fixed. § You do not break your journey for work purposes when travelling to and from your employment. Therefore as you are travelling to work rather travelling on work and as you do not meet any of the situations as outlined in IT 2543, the expenditure you incur travelling between location A and B is not an allowable deduction under section 8-1 of the ITAA 1997 .

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.