Private ruling: Overseas travel expenses
Published: September 2013
Ruling period: Year ended 30 June 2013
Date scheme commenced: 1 July 2012

Ruling: Q1: Are you entitled to a deduction for your overseas travel expenses? | A1: No.


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, or a provision of the ITAA 1997 prevents it. A number of significant 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 current income-earning activities. Taxation Ruling TR 98/9 considers the deductibility of self education expenses and occasions where travel expenses may have the essential character of an income-producing expense. As outlined in TR 98/9, a deduction is allowable for self education expenses if a taxpayer's current income earning activities are based on the exercise of a skill or some specific knowledge and the subject of the self education enables the taxpayer to maintain or improve that skill or knowledge ( Federal Commissioner of Taxation v. Finn (1961) 106 CLR 60, (1961) 12 ATD 348. Similarly, if the study of a subject of self education objectively leads to, or is likely to lead to an increase in a taxpayer's income from his or her current income earning activities in the future, a deduction is allowable. However, no deduction is allowable for self-education expenses if the study is to enable a taxpayer to get employment, to obtain new employment or to open up a new income-earning activity (whether in business or in the taxpayer's current employment). This includes studies relating to a particular profession, occupation or field of employment in which the taxpayer is not yet engaged. The expenses are incurred at a point too soon to be regarded as incurred in gaining or producing assessable income. They are incurred in getting, not in doing, the work which produces the income (High Court decision in FC of T v. Maddalena 71 ATC 4161; (1971) 2 ATR 541 ( Maddalena's case) ). TR 98/9 also explains that if the subject of the self-education is too general in terms of the taxpayer's income-earning activities, the necessary connection between the expense and the income earning activity does not exist. Taxation Ruling IT 2198 deals with allowable deductions for voluntary expenditure incurred by employee taxpayers. Paragraph 13 states that the Taxation Boards of Review have seen a number of teachers seeking income tax deductions for overseas travelling expenses. Most of the claims were rejected because the teachers were not able to establish a positive connection between the overseas travel and the performance of their duties of employment as teachers. In the ultimate the claims have been based on a general proposition that the overseas travel has made the taxpayers better able to carry out their duties which, of itself, is not sufficient to enable the expenditure to be allowed as a deduction. In Case R94 84 ATC 628 a college librarian was disallowed overseas travel expenses in making a study tour of China organised by the Library Association. The benefits derived by the taxpayer might have made her a better librarian, but the nexus between the outgoings and deriving assessable income was too remote. The taxpayer voluntarily made the trip and the expenditure was essentially of a private nature. In the Board of Review Case R47 84 ATC 380; (1984) 15 ATR 824, the taxpayer, a French language teacher, claimed a deduction for part of the expenses in travelling to France. The trip was not undertaken at the request of the taxpayer's employer. She asserted that the trip increased her teaching skills. The Board of Review stated that the fact that the taxpayer became a better teacher because of the trip did not mean that expenses were incurred in the course of gaining her assessable income as a teacher. The expenditure was incurred in relation to a period during which the taxpayer was without obligation to render service to her employer. Notwithstanding that her experience would be of value when she resumed performing the duties of her employment, the essentially recreational nature of the journey did not alter. In Case U109 87 ATC 657, the taxpayer was a science teacher who specialised in geology and was the head of the school science department. He undertook a 17 day trip to Indonesia organised by a natural museum history society of which he was a member. During the course of the trip he visited several volcanoes and other geological sites, and attended a geological congress. He also visited some tourist attractions. The taxpayer took many slides of the geological sites and prepared a taped commentary which he used in his teaching on his return. The Administrative Appeals Tribunal (AAT) examined previous court decisions dealing with teachers who had claimed for the cost of overseas travel. It concluded that the trip was essentially recreational in character and not deductible. The AAT also stated that some taxpayers are fortunate in finding personal and recreational satisfaction in their field of endeavour and that in this case the trip was recreational in character and not deductible. The Federal Court in FC of T v. M I Roberts 92 ATC 4787; (1992) 24 ATR 479 ( Roberts case ) applied the principle in Maddalena's case in disallowing the self education expenses. Mr Roberts was retrenched by his employer in Australia and then undertook an MBA course in the US. On his return to Australia, he was re-employed as a mine manager by another company at a significantly increased salary when compared with his previous position. It was held that the moneys were spent to obtain a new employment, albeit one in a better position and on higher wages, rather than in the course of employment. The taxpayer was not in employment at the time the expenses were incurred and, accordingly, there was insufficient connection between the expenses and the gaining or producing of assessable income. The expenses were a prerequisite to the gaining of assessable income and they were private in nature. The circumstances of your case can be compared to the above decisions. It is acknowledged that the travel and exhibition provided you with first hand knowledge, but as with the cases quoted above, it does not in itself mean that the expenditure is incurred in gaining or producing your assessable income. While the experience gained contributed to your professional understanding and you shared the knowledge with your new colleagues on your return, this is not enough to demonstrate a sufficient connection between the travel and your income-producing activities. At the time of travel you were not currently earning assessable income with your new employer. As in Maddalena's case and Roberts case, the associated expenses with your overseas trip are incurred at a point too soon to be incurred in gaining your assessable income from your new employer. Your expenses were aimed at helping you produce future income with your new employer. The benefits of the travel and the knowledge gained from your trip are not considered to be incurred in the course of gaining your assessable income. There are many experiences and places of interest which may help, however this does not automatically mean that the associated expenses are deductible. It is considered that there was not a sufficient connection between your travel expenses and your assessable income. Furthermore, the essential character of the trip is recreational in nature. Accordingly, the costs you incurred in relation to your travel and attending the exhibition are not deductible under section 8-1 of the ITAA 1997.

Relevant facts: You are a registered professional. | You and your spouse travelled overseas. | You attended an international exhibition and toured some key recent projects and sites. You organised some of these visits before leaving Australia. You met other professionals informally during your travel. | You also spent some days on vacation during your time overseas. | Your original purpose for the trip was to attend exhibition. | The attendance at the exhibition has contributed to your ongoing professional understanding and advancement. | You started work with your new employer after your return from overseas. You were not on paid leave when overseas. | You shared your knowledge via visual presentations to your new colleagues on your return and provided your employer's practice with some insight into advancement of the business into the immediate future. This helped your employer's understanding of global trends. You also shared printed material collected whilst at the event. | Your employer used your knowledge of the exhibition when carrying out investigations into participating in a recent competition to curate the 20XX exhibition. | You incurred expenses for your flights, accommodation, car hire, taxi fares and admission ticket and photograph processing as well as other sundry expenses. Your ticket to the exhibition was purchased when you arrived overseas. You did not receive an allowance or reimbursement for any expenses incurred.