Private ruling: Accommodation expenses
Published: April 2014
Ruling period: Year ending 30 June 2014
Date scheme commenced: 1 July 2013

Ruling: Q1: Are you entitled to a deduction for accommodation expenses while working interstate? | A1: No.

Relevant facts and circumstances: You are a sole trader operating from your home state. You won a contract interstate. The contract does not require 100% of your time but because you have regular contact with the other stakeholders it is more cost effective to stay interstate than fly to home several times a week. You fund a residence in your home state and a temporary apartment interstate.

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 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 expenses are private in nature and are not deductible. In Lunney v. FC of T (1958) 100 CLR 478 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. 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. Deductibility of accommodation expenses was also considered in Case X4 90 ATC 116 (Case X4) where the taxpayer who was a specialist radiologist with a practice in a town which was over 100 kilometres from the capital city he travelled to regularly to attend professional obligations, which included honorary appointments at various hospitals and teaching commitments. The taxpayer decided to purchase a home in the capital city so that he would have a base there, and claimed expenses related to the ownership of the house such as rates, power and telephone expenses, insurance and repair costs. These expenses were disallowed by the Commissioner in full. The Administrative Appeals Tribunal held that the taxpayer had created a home away from home. He did not want to stay in hotels and preferred to have his own premises with his own facilities and the expenses were therefore of a private or domestic nature and not deductible. Furthermore, even if the expenses could be shown to be of the purpose of producing assessable income, they would still be disallowed due to being of a private or domestic nature. In your case, you will be working interstate for a defined period. This second work location is a regular place of employment and therefore cannot be regarded as an alternative place of work. As the second location will be a normal place of work for you, travelling to and from this workplace is not travelling on work, but rather travelling to and from work and is therefore regarded as a private expense. Therefore your cost of accommodation interstate is a private expense and not deductible.