Private ruling: Work related expenses
Date of advice: 7 July 2017
Published: December 2017
Ruling period: For the year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Are you entitled to a deduction for accommodation and transportation expenses incurred while working in City B away from your principal residence in City A? | A1: No

Relevant facts and circumstances: You have a permanent residence in City A. Your family resides in your permanent residence in City A. You are employed by a company in City B as a General Manager. You are paid a salary. Your employer requires that you attend the City B office on a regular basis to attend client and supplier meetings. You worked in the City B office for a third of the year dispersed over the income year, at times Monday to Friday. You spent approximately 2.5 months of nights in accommodation in City B dispersed over the income year. You stayed in a variety of accommodation including serviced apartments and hotels whilst in City B. You have a choice as to where you stay whilst in City B. You choose not to share accommodations. Your family is not excluded from visiting or travelling with you to City B. At the completion of your stay in City B you return to your main residence in City A. When you are not in attendance at the City B office you work from home. You state the airfares between City B and City A are covered by your employer. Your employer’s HR department stated that your airfares are not paid by your employer. Your employment contract states your employer will pay work related expenses in accordance with their policy and procedures. You pay for your accommodation and transportation costs when you are in City B. You state you have not sought reimbursement from your employer for any of these expenses. Your employment contract does not detail any allowance for travel, or that travel is included as part of your salary. Your employment contract does not specifically state you are required to travel. Your employment contract and confirmation of employment letter do not state it is a requirement for you to work in City A. Your employer’s HR department state that you work for one client which is based in City B.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1

Reasons for decision: Summary: A deduction for accommodation and transportation expenses will not be allowable under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as in this case they are private in nature. These expenses have been incurred to put you in a position to earn income, not incurred in the actual course of gaining income and are a result of your choice of where you live and where you work. | Detailed Reasoning - Detailed reasoning: Section 8-1 of the ITAA 1997 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. | Detailed Reasoning - Choice of where you live and where you work: Paragraph 77 of Taxation Ruling TR 95/34 Income tax: employees carrying out itinerant work - deductions, allowances and reimbursements for transport expenses states travel expenses for the cost of travel by an employee between their home and their workplace is generally not deductible as it is considered private in nature. The cost of such travel is generally incurred to put the employee in a position to perform their duties of employment, rather than in the performance of those duties. Lunney v. Commissioner of Taxation [1958] ALR 225; 1958 0311H HCA; 100 CLR 478; (1958) 11 ATD 404; (1958) 32 ALJR 139 introduced what is now regarded as the essential character test. This test requires that for an expense to be deductible, it must have the essential character of a business or income producing expense. The taxpayer in this case sought to deduct the cost of travelling from his home to his work. The expenses were disallowed as being private and domestic, establishing the broad principle that costs incurred because of living in one place while working in another cannot be regarded as deductible. The reasons given by the High Court were twofold. The fact that certain expenditure, such as travelling to work, must be incurred in order to be able to derive assessable income, does not necessarily mean that the expenditure is incidental and relevant to the derivation of assessable income. It is a prerequisite to the earning of assessable income rather than being incurred in the course of gaining that income. The essential character of the travel to and from work is that of a private and domestic nature, related to personal and living expenses as part of the taxpayer's choice of where to live, in choosing to live away from and what distance from work. In your case, you have incurred expenses for travel between your home, in City A, and your work, in City B. This travel is incurred in order to put you in a position to perform your duties of your employment; it is not incurred in the performance of the duties of your employment. Travel is not a part of your actual work duties. | Detailed Reasoning - Performing work activities: Draft Taxation Ruling 2017/D6 Income tax and fringe benefits tax: when are deductions allowed for employees travel expense , assists in determining whether travel is undertaken in performing an employees work activities. The following factors need to be considered; whether your work activities require you to undertake travel, whether you are paid to undertake the travel, whether you are subject to the direction and control of your employer during travel and whether these factors have been contrived to give a private journey the appearance of work travel. Paragraphs 23-25 of TR 2017/D6 state that a transport expense is not deductible unless your work requires you to undertake the travel. Travelling to start work is not required by work but is preliminary to the work. It also states that travel undertaken because of the choice as to where you live is not incurred in gaining or producing your assessable income and has a private or domestic character. Paragraphs 26-29 of TR 2017/D6 state that a transport expense is not deductible unless the relevant travel can be characterised as an income-producing activity for which the employee is paid. For a salary earner, the requirement that they be paid for travel is satisfied where it is evident from the terms of their employment that the travel is undertaken in performing their work activities. Paragraph 30 and 31 of TR 2017/D6 state that it is important to consider whether the employee is subject to the direction and control during the period of the travel. That being, is the employee subject to their employers orders and direction during the period of travel, and whether or not those orders are exercised. Paragraph 32 and 33 of TR 2017/D6 state that a private journey is not in the performance of an employees work activities merely because an obligation to travel has been contrived to create the appearance of work travel. In determining if the travel arrangement is contrived, consideration must be given to whether the work involves special demands and whether the travel is attributable to the employee having co-existing work locations. In your case, your employment contract does not specify any requirement to travel as part of your work activities. You have provided a letter from your employer stating that it is a requirement for you to work in City B at times as that is where the office is located. Neither this letter nor your employment contract, indicate that it is a requirement for you to work in City A. Your travel is therefore undertaken because of your choice as to where you live and not as a result of a work requirement to travel. Your employment contract states you are on salary; it does not specify that you are paid a travel allowance or that a travel allowance is included in your salary. You stated that the airfares were covered by your employer; however your employer’s HR department stated that they do not pay for your airfares. Further, your contract actually states that any work related expenses will be covered by your employer. You confirmed you have not received any reimbursement for these travel expenses. We therefore consider that you are not paid to undertake travel. As you are not specifically required to travel for work activities, it would not be considered that your work involves special demands. The travel will also not be attributable to having co-existing work locations as the travel is not undertaken in performing your work activities. Further to this, the travel is not between home and an alternative work location; the City B office it is not considered an alternative work location as it is a regular work location as specified in your contract and confirmed in the letter from your employer. We therefore consider that your travel is of a private and domestic nature, and may have a contrived appearance of work travel. In consideration of the abovementioned factors your travel would not be considered to be undertaken in performing your work activities. The travel was instead undertaken to put you in a position to work at your contracted work location in City B; therefore your expenses are not allowable deductions under section 8-1 of the ITAA 1997. | Detailed Reasoning - Accommodation and Incidental expenses: Accommodation expenses are generally 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 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. Draft Taxation Ruling 2017/D6 also assists in determining when accommodation and incidental expenses are deductible. It is a question of fact whether these expenses are incurred in gaining or producing assessable income or are of a private and domestic nature. If they are incurred by an employee in performing their work activities, the expenses are only deductible where; your work activities require you to travel, your work requires you to sleep away from home overnight, you have a permanent home elsewhere and you do not incur the expenses in the course of living away from home. Paragraph 59 of TR 2017/D6 states that accommodation and incidental expenses are not deductible unless the work requires the employee to be away from home. In some cases, it can be concluded from the nature of the work and scope of the employee’s duties that the travel is required. Paragraphs 61-64 of TR 2017/D6 state that these expenses are only deductible to the extent that the work requires an employee to sleep away from home. Sleeping away from home does not describe the activities of employees who choose to sleep near their workplace. Paragraph 65 of TR 2017/D6 states that these expenses may be deductible where the employee has a permanent home elsewhere. Paragraph 69 of TR 2017/D6 states that these expenses are only deductible when travelling in performing work activities and not living away from home. Whether or not an employee is living away from home depends on the facts of each case. Factors which hold relevance are the time spent working away from home, whether the employee has a usual place of residence at a previous location, the nature of the accommodation and whether the employee is or can be accompanied by family. Paragraph 73 and 74 of TR 2017/D6 states that the longer an employee spends working away from home, the more likely they will be considered living away from home. When an employee works at the one location for an extended period of time, that time period is not broken by short trips taken from that location. Paragraph 75 to 77 of TR 2017/D6 states that whether an employee is living away from their usual place of residence usually involves a choice between two places of residence, where they are living at the time and the location. An indication of a usual place of residence in a previous location is that the employee has ownership or possession of premises at that location and that premises is occupied by their family, and will return to this location when the work ceases. Paragraphs 78 to 82 of TR 2017/D6 states that the nature of the employee’s accommodation while working away from home is relevant. Where an employee stays in settled accommodation such as apartments or units would support the view that they are living away from home. Further weight is given to this when the accommodation has amenities common in a home such as an equipped kitchen or laundry. Paragraph 83 to 85 of TR 2017/D6 states that where family members have the ability to accompany for a short stay and then return to live at the family’s permanent home can indicate that an employee is living away from home. As considered above, your travel is not undertaken in performing work activities which also means you are not required to be away from home. Further, as you work as a General Manager, the nature of this work does not imply travel is required. We would therefore consider that you are not required to work away from home. Your work does not specifically require or imply, in your employment contract or in any correspondence provided, that you stay overnight away from home. It is your choice to sleep near the workplace for convenience as opposed to being required to stay away. We would therefore consider that you are not required to stay overnight away from home. You do have a permanent residence in City A which would be considered a permanent home elsewhere. You have spent a significant amount of time at the City B office, at times Monday to Friday. The time period of consideration for living away from home is not broken by the short weekend trips home when you have spent all week in City B. As the period is quite long, we would consider it more likely you are living away from home. Given the time frame over which these expenses took place and that the time would be unbroken for most; we would therefore consider this factor indicates you are living away from home. You have a permanent residence in City A which is currently occupied by your family and which you will return to at the completion of work in the City B office. This factor indicates you are living away from home. You have a choice in where you stay whilst in City B and choose not to share in accommodations. From the receipts you have provided, the majority of your stays are in serviced apartments. Accommodation of this type is equipped with amenities common in homes such as kitchens. We therefore consider that the nature of your accommodation indicates you are living away from home. From the information you have provided your family is not excluded from travelling or visiting with you, we therefore consider that this indicates you are living away from home. All the above mentioned factors indicate that you are living away from home. In your case, you incur expenses for accommodation to enable you to work in a different city to where your principal residence is. Whilst these expenses would not be incurred but for the distance of your work place from your family home, the expenses are a prerequisite to the earning of assessable income. That is, they are incurred in order to put you in a position to be able to earn income but are not incurred in the actual course of gaining or producing that income. These expenses are considered private in nature as they are incurred due to your choice of where you live and where you work. Further, as you have not incurred the expenses in performing your work activities, you are not required to travel for work, you are not required to sleep away from home, you have a permanent home elsewhere and have incurred the expenses as a result of living away from home; your expenses would not be an allowable deduction under section 8-1 of the ITAA 1997.