Private ruling: Deduction for expenses
Published: August 2012
Ruling period: 30 June 2012
Date scheme commenced: 01 July 2012

Ruling: Q1: Are you entitled to a deduction for rental and travel expenses? | A1: No

Relevant facts and circumstances: Your principal residence is in one city and your employer moved you to another city to work and you live there in rented accommodation. Your family continues to live in your principal residence. You travel between your rented accommodation and your principle residence when you are not working.

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 (ITAA1997) allows a deduction for all outgoings to the extent to which they are incurred in gaining or producing assessable income, or are necessarily incurred in carrying on a business for that purpose. However, a deduction is not allowable for outgoings that are of a capital, private or domestic nature. Generally, accommodation and travel expenses are private in nature and are not deductible. The issue of expenses incurred in relation to accommodation near the work place while maintaining a family residence in another location was considered in FC of T v. Toms 89 ATC 4373; (1989) 20 ATR 466 (Toms' Case) . In 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. In Toms' Case , the expenses are a prerequisite to the earning of assessable income. They are incurred in order to earn income but are not incurred in the course of gaining or producing that income. Your accommodation expenses are not considered to be incurred in the course of undertaking your income earning activities. Rather the expenses are incurred by you in putting yourself in a position where you can commence performing your duties, rather than in the performance of those duties. In Lunney v. FC of T (1958) 100 CLR 478 ( 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. Lunney's Case settled the principle that travel to and from work is ordinarily not deductible under section 8-1 of the ITAA 1997. This travel is considered to be of an essentially private or domestic nature. A deduction is generally not allowable for the cost of travel between home and work and between your home and your rented accommodation, 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. In your case, you incur expenses for renting accommodation to enable you to work in a different place to where your principal residence is and you also incur expenses to travel to visit your family, therefore we consider that the accommodation and travel are not a fundamental part of your work. A deduction is therefore not allowable for your rental accommodation and travel expenses.

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