Private ruling: Income Tax - Deductions - Work related expenses - Expenditure for relocation
Date of advice: 7 April 2016
Published: June 2016
Ruling period: Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Question and Answer | Can you claim a deduction for expenses incurred from your move as part of your training? | No

Relevant facts and circumstances: The training provider requires a trainee to move to a designated remote location for a specified period in order to work toward their vocational endpoint. Your relocation to a designated remote location is a move to place you into new employment which is a required progression in your vocational development for your chosen specialisation. You were provided an allowance by your training provider for your relocation. The allowance amount did not cover the costs incurred from your relocation from your previous placement location

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

Reasons for decision: Summary: The deductibility of relocation expenses falls for consideration under section 8-1 of the ITAA 1997. Section 8-1 of the ITAA 1997 states that a loss or an outgoing is an allowable deduction if it is incurred in producing assessable income or in carrying on a business for the production of assessable income. Section 8-1 of the ITAA 1997 also provides that a loss or an outgoing of a capital, private or domestic nature is not an allowable deduction. | Detailed Reasoning - Deduction as a work related expense: Generally, relocation expenses are not deductible to the employee, regardless of whether the employee is commencing new employment or transferring within existing employment. Relocation expenses may include the following: • travel costs incurred by the employee and his/her family in travelling to the new location, • removal expenses of furniture and personal effects, • storage, and • temporary accommodation costs until new accommodation is located. The Commissioner's view regarding the deductibility of relocation costs incurred by an employee in transferring to a new locality of employment is made clear in Taxation Ruling IT 2481: 'Where a taxpayer … voluntarily transfers employment at his or her request from one locality to a new locality 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 the Commissioner's view, in gaining or producing assessable income and is not deductible under subsection 51(1) of the Act. The taxpayer is not travelling on his or her work ( c.f. Taylor v Provan [1973] A.C. 194 per Lord Wilberforce at p.215) but is travelling to his or her work. Nor is the taxpayer travelling between two places of employment.' The general rule is that relocation expenses of an employee are not incurred in earning the assessable income of the employee but are a prerequisite to the earning of that assessable income in the same manner as travel expenses to and from work. This is consistent with cases Fullerton v FC of T 22 ATR 757; (1991) 32 FCR 486; 91 ATC 4983 (the Fullerton Case ) and AAT Case U91 87 ATC 525 (the U91 Case ). In the Fullerton Case the taxpayer had worked as a professional forester. His employment position in the town in which he resided ceased to exist. The taxpayer requested a transfer to another town to avoid redundancy. His employer reimbursed a portion of the relocation expenses, and the taxpayer claimed the remaining amount as an income 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 the U91 Case 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. These cases support the Commissioner's position, that claims for expenses incurred in moving house or travelling when changing employment are not deductible (Taxation Rulings IT 2406 and IT 2481). | Detailed Reasoning - Deduction as a self-education expense: In all cases, you will need to show that the self-education expenses were incurred in gaining or producing the taxpayer's assessable income. Specifically, self-education expenses will be deductible where the expense constitutes an allowable deduction and there is a direct connection between the self-education activity and the taxpayer's work activities at the time the expense was incurred which enabled them to: • either maintain or improve the skill(s) or specific knowledge upon which their income earning activities are based (see paragraph 13 of TR 98/9); • or they can show that the study leads to, or is likely to lead to increased income from their current work activities (see paragraph 14 of TR 98/9). However, in accordance with paragraph 15 of TR 98/9, no deduction will be allowed for self-education expenses if the study is undertaken in order to: • obtain employment; • obtain new or different employment; or • open up a new income earning activity as the expenses cannot be considered to have been incurred in gaining or producing assessable income. You are required to progress through a course of professional development which has been mapped out by the vocational placement service. The distance of your regional placement necessitated relocation and consequently you incurred the relocation expenses. Your expenses were incurred in the pursuit of new employment and therefore cannot be considered to have been incurred in gaining or producing assessable income. | Detailed Reasoning - Overall conclusion: Your expenses are not deductible as they are private in nature and are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income.