Private ruling: Work Related Expenses: Travel
Date of advice: 20 August 2018
Published: October 2018
Ruling period: Year ended 30 June 20XX | Year ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Is the rent on a unit overseas, which is used on an approximately two weekly basis out of six, for business purposes by the employee/director of the company for accommodation, fully deductible as a business expense for the company? | A1: Yes

Relevant facts and circumstances: XYZ Co. Pty Ltd, is an Australian registered engineering company based in State AA, that has various contracts with a Country BB company. The Country BB company has hired XYZ Co. Pty Ltd to design and inspect structures. The director/employee of the company is required to travel to Country BB two weeks out of every six week period. XYZ Co. Pty Ltd has compared accommodation costs and determined that leasing a unit for 12 months was the most cost effective option, compared to staying in a hotel during those 2 weeks. XYZ Co. Pty Ltd will pay for the lease of the accommodation unit to facilitate the work in Country BB . The unit will not be rented out to unrelated parties when it is not being used by the director/employee.

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) 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. In relation to the facts of your circumstance we have considered that the company is renting an apartment overseas in order to provide accommodation for the director/employee when required to stay during their two week visit. In applying the above to the accommodation provided by the employer to the director/employee: (a) The recipient of the benefit (the director) is an employee of the company. (b) In respect of the benefit, if the employee had incurred and paid the unreimbursed expenditure, they would be able to claim a deduction under section 8-1 of the ITAA 1997 on the basis that the expense was necessarily incurred in producing their assessable income. (c) The accommodation is an “exclusive employee residual benefit” because if the director/employee had incurred the accommodation expenditure, the expenditure would have been exclusively incurred in gaining or producing the salary or wage income in respect of the employment to which the fringe benefit relates. Therefore section 52(1)(c)(i) applies and the employee should not be required to provide a declaration in a form approved by the Commissioner in respect of the benefit received by the employee. In relation to whether the employee would be able to claim a deduction for the cost of accommodation while they are undertaking travel on business for the company, paragraph 54 of Draft Taxation Ruling TR 2017/D6 states that accommodation expenses are incurred by an employee in performing an employee’s work activities, and are therefore deductible, only where: ● The employee’s work activities require them to undertake the travel; ● The work requires the employee to sleep away from home overnight; ● The employee has a permanent home elsewhere; and ● The employee does not incur the expense in the course of relocating or living away from home. Paragraph 72 of Draft Taxation Ruling TR 2017/D6 also states that whether an employee is living away from home depends on the facts of each case. Relevant factors 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 or visited by family or friends. Furthermore, paragraph 55 of Draft Taxation Ruling TR 2017/D6 states that expenses must be apportioned to the extent that they are of a private nature or are not incurred in producing assessable income. In applying the above factors to the facts, the following conclusions may be made: ● The nature of the employee’s work and the scope of his duties require him to undertake the travel; ● From a practical point of view, the work requires the employee to sleep away from home overseas for two out of six weeks; ● The employee has a permanent home in Australia; ● The facts indicate that the employee does not incur the expense in the course of relocating or living away from home as: ● The employee stays in the apartment two weeks out of six; ● The employee has a usual place of residence in Australia; ● The employee works away from home and stays in settled accommodation (the apartment), but not for a considerable period (for two weeks out of six) (paragraph 80 of Draft Taxation Ruling TR 2017/D6); and ● The employee does not intend to be accompanied by his spouse when he stays in the apartment. In this case, your employee will be working overseas for an estimated 2 weeks out of 6. It is considered that for this period he will be travelling on work duties rather than living away from home for work. Therefore, the accommodation expenses are considered to be a necessary work expense. As these expenses are not private and domestic in nature, a deduction is allowable.