Private ruling: Travel and accommodation expenses
Published: April 2013
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Is a deduction allowable for the accommodation expenses (rent and electricity) that you incurred when you worked for company A in a capital city, away from your family home? | A1: No. | Q2: Is a deduction allowable for the cost of travel (car expenses) between your family home and your temporary accommodation in the capital city, when you worked for company A? | A2: No. | Q3: Is a deduction allowable for the cost of travel (daily public train fare) between your rented accommodation and place of work, when you worked for company A in the capital city? | A3: No. Issue 2 - Employment with company V (temporary position) | Q4: Is a deduction allowable for the accommodation expenses (rent and electricity) that you incurred while you were away from your family home, when you worked in the capital city for company V on a temporary basis? | A4: No. | Q5: Can the substantiation exception for domestic travel allowance expenses be applied to the allowance you received for car travel in your temporary position for company V, so that the amount of the allowance is allowed as a deduction without substantiation and therefore not be included in assessable income? | A5: No. | Q6: If the answer to question two is no, is a deduction allowable for the cost of travel (car expenses) between your temporary residence in the capital city and your family home due to the need to travel between these two cities and stay at these residences overnight to complete the tasks of your temporary position with company V? | A6: No. Issue 3 - Employment with company V (permanent position) | Q7: Can the substantiation exception for domestic travel allowance expenses be applied to the allowance you received for car travel in your permanent position with company V, so that the amount of the allowance is allowed as a deduction without substantiation and therefore not be included in assessable income? | A7: No. | Q8: If the answer to question one is no, is a deduction allowable for the cost of travel (car expenses) between your second residence in the capital city and your permanent family home due to the travel requirements of your employment (permanent position with company V)? | A8: No.

Relevant facts and circumstances: Your family home is situated in a location in the state where you live. For part of the income year you undertook private consulting contracts from your home office in your family home. During this time you stayed at your home residence, with your family. During most of the income year you worked in the capital city of the state where you live, away from your family home. You maintained your main residence with your family during the whole of the income year. You worked in the following positions during the year of income: Position held Location Contract role - Company A Capital city Private consulting Home Temporary position - Company V Capital city Permanent position - Company V Capital city Your temporary employment position with company A was based in the capital city. Due to the distance from your home (several kilometres), you stayed in the capital city from Monday to Friday and returned to your home each weekend. You rented a unit in a suburb of the capital city on a short term basis to accommodate this contract. At the end of your contract with company A, you returned to your family home to undertake private consulting contracts. You then gained a temporary contract, on a trial basis, with company V. Company V has varied business interests including a venture based in another part of the state. Your position for company V is based in the capital city, with regular regional travel as the role requires time at head office in the capital city as well as the venture in another part of the state. You have an office provided both at head office in the capital city and at the venture in another part of the state. You continued the rental of the unit in the suburb of the capital city after obtaining the temporary contract with company V, and you stayed there during your time in the capital city. You used your family home for accommodation when you were required to be at the venture in another part of the state. On weekends you returned to your family home. You were paid a travel/car allowance equivalent to a certain amount per annum for the period of your temporary contract with company V. This allowance was paid due to the requirement to travel between the capital city and the venture in another part of the state. The position at company V was made permanent during the income year. When the role became permanent, you ceased your temporary rental in the suburb of the capital city and took a long term rental in another suburb of the capital city as a second residence. You continued to use your family residence for accommodation when working at the venture in another part of the state. You continued to be paid a travel/car allowance equivalent to a revised certain amount per annum for the period after your position became permanent, due to the ongoing requirement to travel between the capital city and the venture in another part of the state. You travel from the city to the venture in another part of the state normally a few times a month for scheduled meetings at the venture. These trips are normally of a couple of day's duration, although a couple of times a year at special meetings this can be for longer each time. There is also occasional interstate and overseas travel associated with your role, but those travel costs are paid for by company V. Only your intrastate (regional) travel costs are covered by your allowance. You have stated that it is several hours drive from the capital city to the location where the venture is in another part of the state, and that the location of the venture is less than half this distance away from your family home. The time that you travel between the capital city and the location of the venture depends on the scheduled meeting time. Given the distance between the two places of work, it is sometimes necessary to travel outside of normal office hours. You have stated that: · If you go direct from the capital city to the location of the venture, you have to leave your residence in the capital city in the early hours of a morning to get to the venture by a certain time, which is the usual time set for a range of meetings. You sleep at your family home overnight and then go back to the venture the next day from your family home. · If you have to chair a meeting at the venture at X am, you sometimes split the journey into two trips. That is, you leave the capital city the previous evening and arrive at your family later that night, stay overnight at your family home and leave early the next morning to travel to the venture. · Sometimes you travel back to the capital city directly from the venture, for example, if you finish at the venture at lunch time you will travel back to the capital city. Sometimes you go to your family home and then travel back to the capital city from your family home. · To return to the capital city from your family home after a trip to the venture requires leaving in the early hours of the morning in order to get to the head office in the capital city during normal hours. · Depending on what time you arrive back in the capital city, you will either head to the office or, if it is later, you will go to your rented unit and return to the office the next day. You use your car to travel between the capital city and the location of the venture in another part of the state. You own the car and it is designed to carry a load of less than one tonne and fewer than 9 passengers. You have stated that the allowance paid to you by company V covers both your own car and food expenses when travelling from the capital city to the venture in another part of the state. The amount paid is not a reimbursement and you do not have to produce receipts. You get paid a certain set amount every fortnight, as part of your salary. The amount of allowance paid is the same amount every fortnight irrespective of the number of trips undertaken. The amount each fortnight is not based on a specified number of overnight stays, and there is no requirement to repay that part of the allowance entitlement referrable to trips not undertaken. When you travel to the venture in another part of the state you generally just take paperwork and a laptop. Sometimes when you come back from the venture you will bring some products back for company V's distribution and marketing division. There is a room in head office to store the products and the products are then distributed. You have kept a log book to calculate the relevant kilometres travelled. You have stated that the log book method is the most beneficial method of claiming car expenses for you, due to the number of kilometres you travel.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 Section 8-5 | Income Tax Assessment Act 1997 Section 12-5 | Income Tax Assessment Act 1997 Division 28 | Income Tax Assessment Act 1997 Subsection 995-1(1) | Income Tax Assessment Act 1997 Section 28-90 | Income Tax Assessment Act 1997 Section 25-100 | Income Tax Assessment Act 1997 Subsection 25-100(3) | Income Tax Assessment Act 1997 Subsection 900-30(1) | Income Tax Assessment Act 1997 Subsection 900-15(1) | Income Tax Assessment Act 1997 Subsection 900-50(1) | Income Tax Assessment Act 1997 Subsection 900-30(2) | Income Tax Assessment Act 1997 Subsection 900-30(3)

Reasons for decision: Summary: The expenses for accommodation to enable you to stay in the capital city, in travelling between your family home and the capital city and the daily train fare between your rented accommodation in the capital city and place of work (when you worked for company A) were incurred in order to enable you to earn income but were not incurred in the course of gaining or producing that income. Furthermore, the expenditure is of a private or domestic nature. A deduction is therefore not allowable for these expenses. | Detailed Reasoning - Deductions: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) deals with general deductions. It allows a deduction for an outgoing to the extent to which it is incurred in gaining or producing assessable income, except where the outgoing is of a capital, private or domestic nature. The deductibility of train fares and accommodation expenses such as rent and electricity falls for consideration under section 8-1 of the ITAA 1997. There are also provisions in the income tax law which deal with specific deductions, including car expenses (sections 8-5 and 12-5 of the ITAA 1997). | Detailed Reasoning - Deductions for car expenses: Division 28 of the ITAA 1997 deals with the deductibility of car expenses. It sets out the rules for working out deductions for car expenses if you own or lease a 'car'. A 'car' is defined in subsection 995-1(1) of the ITAA 1997 as a motor vehicle (including a four wheel drive vehicle) designed to carry a load of less than one tonne and fewer than nine passengers. You own your car which has a carrying capacity of less than one tonne and seats fewer than nine passengers. Therefore, Division 28 applies in your case. There are four different methods of calculating car expenses deductions under Division 28. You wish to claim car expenses using the log book method. To be eligible to claim a deduction for car expenses under the log book method, section 28-90 of the ITAA 1997 requires that there be business kilometres, that is, kilometres the car travelled in the course of: · producing your assessable income, or · your 'travel between workplaces'. 'Travel between workplaces' is defined in subsection 995-1(1) and section 25-100 of the ITAA 1997 as travel directly between two places, to the extent that: · while you were at the first place, you were engaged in activities to gain or produce your assessable income, and · the purpose of your travel to the second place was to engage in activities to gain or produce your assessable income, and you engaged in those activities. 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, in considering whether you are entitled to a deduction for travel in your car it is necessary to consider whether the expenses were incurred in travelling in the course of producing your assessable income, or in travelling directly between two places where you engaged in activities to produce your assessable income. You believe that your travel and accommodation expenses were incurred in earning your assessable income. However, certain expenditure is incurred in order to be in a position to be able to derive assessable income, for example unless one 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. Rather, the expenses are incurred to enable the taxpayer to commence income earning activities (Lunney v. FC of T (1958) 100 CLR 478 (Lunney's Case)). In Lunney's Case the Full High Court laid down the principle that for a deduction to be allowable it is not enough for the expenditure to be an essential prerequisite to the derivation of assessable income. In that case it was 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 (at pages 498 - 499): 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. The issue of expenses incurred for travel to, and accommodation near, the work place while maintaining a family residence in another location has been considered in a number of cases. Some of these cases are discussed below. In Re Williamson and FC of T [2006] AATA 1507; 64 ATR 1264 (Williamson's Case), the taxpayer lived in Sydney but accepted a job working in Canberra. His family remained living in Sydney and the taxpayer commuted to Canberra for the purposes of his employment. He lived in rented accommodation in Canberra during the week and returned home to Sydney on weekends. The taxpayer incurred motor vehicle expenses in travelling between his job in Canberra and home in Sydney. It was held that Lunney's Case applied, and that the travel expenses incurred by the taxpayer in travelling between home and work were not deductible. In FC of T v. Toms 89 ATC 4373; (1989) 20 ATR 466 (Toms' Case), the taxpayer was a forest worker who during the working week lived in a caravan in a bush camp 108 kilometres from his family home in Grafton. He claimed it was too far to travel each day to his work in the forest, so that it was necessary to establish a caravan at the camp. He would return home on weekends. He claimed the costs of maintaining his caravan and other living expenses such as the cost of heating and lighting. The Federal Court considered that the caravan was rendered necessary as much by the taxpayer's choice of the place of his residence in Grafton as by his choice of employment in the forest, and its purpose was to enable him to retain his residence at Grafton although employed in the forest. It was held that the expenses incurred in relation to the temporary accommodation near the workplace while maintaining a family residence in another location were dictated not by his work but by private considerations, and therefore were not deductible. | Detailed Reasoning - Your travel and accommodation expenses: In your case, the expenses that you incurred for accommodation to enable you to stay in the capital city, in travelling between your family home and the capital city, and daily train fares between your rented accommodation and place of work when you worked for company A were incurred in order for you to be in a position to be able to derive assessable income from your work in the capital city. The expenses were a prerequisite to the earning of assessable income. They were incurred in order to enable you to earn income but were not incurred in the course of gaining or producing that income. Further, the expenditure is private or domestic in nature as it arose due to your choice of where to live. That is, as you have chosen to reside and have your family home at a place which is some distance from where it is necessary for you to be in order to gain your income (as in Williamson's Case and Tom's Case). A deduction is therefore not allowable under section 8-1 of the ITAA 1997 for the expenses that you incurred for accommodation (rent and electricity) in the capital city and for the cost of travel (daily public train fare) between your rented accommodation and place of work when you worked for company A. Similarly, a deduction for the cost of travel (car expenses) that you incurred in travelling between your family home and your rented accommodation in the capital city is not deductible under section 28-90 of the ITAA 1997 as this travel does not constitute business kilometres. This is because these kilometres were not travelled in the course of producing your assessable income nor were they travel between workplaces. Rather, the kilometres were travel between residences. Subsection 25-100(3) of the ITAA 1997 specifically 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. | Detailed Reasoning - Your arguments: You have stated that you are not making any claim for accommodation expenses for the period after your position with company V became permanent, as you consider that from that time the second residence maintained in the capital city is a private choice of residence. You believe that Miscellaneous Taxation Ruling MT 2030 provides useful guidance in relation to usual residences and have quoted the following paragraph from that Ruling: which states that: A person is regarded as living away from a usual place of residence if, but for having to change residence in order to work temporarily for his employer at another locality, the employee would have continued to live at the former place. It would be relevant in reaching that view that there is an intention or expectation of the employee returning to live at the former place of residence on cessation of work at the temporary job locality. You have also quoted from paragraph 20 of MT2030, which states that employees who move to a new locality to take up a position of limited duration with an intention to return to the old locality at the end of the appointment would generally be treated as living away from their usual place of residence. You have stated that for the period prior to the date that your position with company V became permanent, the nature of your temporary roles meant that you were intending to return to live at your former place of residence. You believe that it would appear from the discussion in MT 2030 of previous decisions, including Case B47 (1951) 2 TBRD 201, that your short term rentals to enable your temporary work were a necessary part of deriving your income and were not your usual residence, hence were not private in nature. You believe that the accommodation expenses (rent and utilities) of renting the unit in the capital city on a short term basis (for the period prior to when your position with company V became permanent) are deductible. However, MT 2030 deals with fringe benefits tax and living away from home allowance benefits. It contains guidelines for determining the circumstances in which an allowance paid to an employee is to be treated as a living-away-from-home allowance, and explains the principles that distinguish between a travelling allowance and a living-away-from-home allowance. It does not provide guidelines on the deductibility of accommodation and travel expenses for income tax purposes. In Case B47, the taxpayer lived in Perth and was required by his employer to work at a town 130 miles away. He maintained his home in Perth where his spouse lived for a period of six years while he worked away and he returned home each weekend and for holidays. During the week he stayed in hotel accommodation and his employer paid him a weekly allowance in respect of the extra expense which he thereby incurred. The Board of Review found that his home in Perth was more permanent and was his usual place of abode, and that the allowance paid by the employer was a living away from home allowance. Case B47 is not relevant in your case as it deals with whether an allowance paid for the extra expense of living in a hotel away from home was a living away from home allowance. The fact that an employment position is temporary or permanent is not determinative of whether or not accommodation and travel expenses are deductible for income tax purposes. This is made clear in a number of decisions, including Case H37 1976 ATC 312; 21 CTBR (NS) Case 3 and Case V96 88 ATC 634. The taxpayer in Case H37; Case 3, was a senior lecturer at a university and was granted special leave with pay from his full time employment to take up temporary employment in Canberra during the university long vacation. So that he would be able to do the work required of him in that temporary employment, the taxpayer travelled from his home town to Canberra and found himself accommodation there. At all relevant times the taxpayer had his family home in the same town as the university. He claimed a deduction for the return air fare from his home town to Canberra and for living expenses incurred during the period of his employment in Canberra. It was held that the expenses were not deductible. The cost of the taxpayer's air fare to and from Canberra was incurred in getting to, not in doing, work as an employee. The living expenses which he incurred while in Canberra were expenses of a private or domestic nature. In Case V96, the taxpayer was transferred by his employer from the north of New South Wales to a project in the south of the State. It was intended that he stay for only a few months, but he actually worked on the project for over two years. His spouse and children remained in the north. The taxpayer was not provided with any accommodation and he rented a unit near the project. He argued that he was entitled to deductions for rent and electricity because he had been forced to move location for the purposes of his employment. It was held that the expenditure claimed was not deductible because it had not been incurred in the course of gaining or producing assessable income. In any event, the expenditure was excluded from deductibility because it was of a private or domestic nature. You have stated that FC of T v Weiner 78 ATC 4006, 8 ATR 335, (Weiner's Case) as discussed in Taxation Ruling IT 112 (which deals with deductibility of travel expenses between residence and place of employment or business) supports your claim for travel expenses. You have quoted from paragraph 21(e) of IT 112, which states that cases comparable with Weiner's Case, where travel expenditure may have the character of expenditure incurred in gaining or producing assessable income, are those where: …… the taxpayer's contract of employment must require him to perform his duties at more than one place of employment …… and, it must be able to be said of the taxpayer that he is travelling in the performance of his duties from the time of leaving home. However, paragraph 21(e) of IT 112 also states that to be comparable with Weiner's Case, the office or employment of the taxpayer must be precisely the same as that in Wiener's Case, namely, it is inherently of an itinerant nature and travel must be a fundamental part of the taxpayer's work. In Weiner's Case, the taxpayer was a teacher. From Monday to Thursday of each week, she taught at five different schools spending about one hour a day at each school. She had a limited teaching program on Fridays, and that day was kept by the taxpayer for work such as photocopying. It was held that the nature of the job itself made travel in the performance of its duties essential, and that the taxpayer's employment was itinerant. Taxation Ruling TR 95/34 provides guidelines for establishing whether an employee is carrying out itinerant work, and discusses the deductibility of motor vehicle expenses incurred by itinerant employees. The Ruling states that the following characteristics are indicators of itinerancy: · the existence of a web of work places in the employees regular employment, that is, the employee has no fixed place of work · the employee continually travels from one work site to another. An employee must regularly work at more than one work site before returning to his or her usual place of residence · the employee has a degree of uncertainty of location in his or her employment (that is, no long term plan and no regular pattern exists). There is not a web of workplaces in your employment and there is no uncertainty of location in your employment. Rather, you have two fixed places of work, head office in the capital city and the venture in another location in the state. Whilst you travel between these two locations, normally a few times a month, you do not continually travel from one work site to another. You do not regularly work at more than one work site before returning home, as the taxpayer in Weiner's Case did, teaching at five different schools on most days of the week. Consequently, you are not engaged in itinerant work. You have also argued that given the distance between your two places of work (head office in the capital city and the venture in another location in the state), it is necessary to travel outside of normal office hours to enable a practical day. The issue of distance travelled and travelling outside of normal hours was considered in Case V111 88 ATC 712. In Case V111 the taxpayer worked as a labourer on a power station site 400 km from his home. Each Monday morning at 3 a.m. he would leave his family home and travel by car directly to the work site, only to commence the return journey at 3 p.m. the following Saturday. During the week, the taxpayer resided in the employer-provided accommodation at a camp near the work site. He received a travel allowance under the relevant industrial award. It was held that the taxpayer was not entitled to a deduction for his travel expenses. The High Court decision in Lunney's Case that expenses of travelling from home to work and from work to home were not ordinarily allowable as deductions was applied. It was held that nothing in the decisions such as Lunney's Case turned on the significance of the length of distance travelled or the frequency of such travel. | Summary: The substantiation exception, and the Commissioner's reasonable amounts, for domestic travel allowance expenses are not applicable in your case as you did not receive a bona fide travel allowance. | Detailed Reasoning - Detailed reasoning: Your position with company V requires you to travel between the capital city and the venture in another location of the state, and you use your own car for this travel. You were initially paid a travel/car allowance by your employer, company V, equivalent to a certain dollar amount per annum for the period your contract was temporary. The allowance was increased to an amount equivalent to a certain dollar amount per annum for the period after your role became permanent. You have asked whether the substantiation exception for domestic travel allowance expenses can be applied to the allowance you received for car travel in your position (both temporary and permanent) with company V, so that the amount of the allowance is allowed as a deduction without substantiation and therefore not be included in assessable income. The receipt (or non-receipt) of an allowance does not automatically entitle an employee to a deduction. A deduction is only allowable if an expense: · is actually incurred · meets the deductibility tests, and · satisfies the substantiation rules. | Detailed Reasoning - Incurred: It is only the actual amount incurred on an expense that may be claimed as a deduction. The Commissioner of Taxation publishes annually amounts that are considered reasonable in relation to domestic travel expenses. Taxation Determination TD 2011/17 contains the reasonable amounts for the year of income. The reasonable amounts are published for the purpose of determining whether the substantiation exception for work expenses of employees that are reasonable travel allowance expenses applies. If such an allowance is received and the amount of the claim for expenses incurred is no more than the reasonable amount, substantiation is not required. If the deduction claimed is more than the reasonable amount, the whole claim must be substantiated. The reasonable allowance amounts do not determine the amount of deduction that can be claimed, but whether substantiation is required. The amount of an expense, which meets the deductibility tests and satisfies the substantiation rules, that can be claimed as a deduction is the amount actually incurred. | Detailed Reasoning - Deductibility tests: You use your own car to travel between the capital city and the venture in another location in the state. Division 28 of the ITAA 1997 sets out the rules for deductibility of car expenses. | Detailed Reasoning - Substantiation rules: The substantiation rules for work expenses are set out in Division 900 of the ITAA 1997. A work expense is defined in subsection 900-30(1) of the ITAA 1997 as a loss or outgoing incurred in producing salary or wages. Subsection 900-15(1) of the ITAA 1997 states that to deduct a work expense, it must qualify as a deduction under some provision of the Act and be substantiated by written evidence. | Detailed Reasoning - Exception for domestic travel allowance expenses: Subsection 900-55(1) of the ITAA 1997 provides that a taxpayer can deduct a 'travel allowance expense' for travel within Australia without getting written evidence or keeping travel records if the Commissioner considers reasonable the total of the losses or outgoings the taxpayer claims for travel covered by the allowance. The term 'travel allowance expense' is defined in subsection 900-30(2) of the ITAA 1997 as a loss or outgoing for accommodation, food or drink or incidentals incurred for travel that is covered by a travel allowance. A 'travel allowance' is an allowance paid by an employer to cover losses or outgoings for accommodation, or for food or drink or incidentals that are incurred for travel away from the employee's ordinary residence that is undertaken in the course of the employment duties (subsection 900-30(3) of the ITAA 1997). Taxation Ruling TR 2004/6 discuses the substantiation exception for reasonable travel allowance expenses, and states that for domestic travel allowance expenses to be considered for exception from substantiation, the employee must be paid a bona fide travel allowance. That is, the amount paid must be an amount that could reasonably be expected to cover accommodation, or meals or incidentals. The Ruling states that an amount for travel expenses that has been folded-in as part of normal salary/wages is not considered to be an allowance. TR 2004/6 states that the travel allowance must be paid to cover the cost of accommodation or food or drink or expenses incidental to the travel, and must be paid for specific journeys undertaken or to be undertaken for work-related travel. A travel allowance that is not paid to cover relevant expenses for specific journeys undertaken or to be undertaken for work-related travel, is not a travel allowance for the purposes of the exception from substantiation. The following examples of expenses relating to allowances that would not qualify for the exception from substantiation because they are not travel allowances paid to cover deductible expenses for specific journeys are given in TR 2004/6: · where a fixed annual travel allowance amount of, say, $2,000 a year is paid, regardless of how often or even whether travel is actually undertaken; or · where a travel allowance is paid at a certain rate per hour for hours worked, even if deductible work-related travel is not undertaken. TR 2004/6 goes on to state however, that a fixed annual entitlement for travel expenses may be a travel allowance where the allowance is based on a specified number of overnight stays and there is a requirement for recipients to repay that part of the entitlement referrable to trips not undertaken. You are entitled to a fixed annual travel allowance amount. Initially it was the equivalent of a certain dollar amount per annum and this was increased to a certain dollar amount per annum when your position became permanent. You are paid the allowance as a certain set amount every fortnight, as part of your salary. The amount of allowance paid is the same amount every fortnight irrespective of the number of trips undertaken. The amount each fortnight is not based on a specified number of overnight stays, and there is no requirement to repay that part of the allowance entitlement referrable to trips not undertaken. The allowance that you are paid by company V is not considered to be a travel allowance, in accordance with TR 2004/6. As you did not receive a bona fide travel allowance the substantiation exception, and the Commissioner's reasonable amounts, for domestic travel allowance expenses are not applicable in your case.