Private ruling: accommodation expenses
Published: April 2012
Ruling period: Year ended 30 June 2012
Date scheme commenced: 1 July 2011

Ruling: Q1: Are you entitled to a deduction for accommodation expenses incurred when working away from home? | A1: No.

Relevant facts and circumstances: Through a tendering process you won a maintenance contract. You primary residence is located in one state, and when you travel to another state for work your family does not travel with you. As the cost of motel accommodation is too prohibitive, you rent a caravan each time for the duration of your stays. The tender is ongoing, however the length of each trip varies and depends on the size of the area that requires maintenance. Each town might be hundreds of kilometres away from the last so equipment is loaded onto a trailer truck and carted to the next location. You provide your own equipment to complete the work required. Sometimes you will hire a trailer truck to transport your equipment. On other occasions, the employer will have a trailer truck in the area that they use to move the equipment for you.

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

Reasons for decision: Summary: You are not entitled to a deduction for accommodation expenses incurred to work away from home as these expenses are considered to be private in nature. | Detailed Reasoning - Detailed reasoning: 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. As a general rule, expenditure on accommodation while working away from home is not allowed as a deduction. These costs are essentially 'living expenses' of a private or domestic nature. The fact that income cannot be earned unless these expenses are incurred is not determinative of deductibility. The expenses are a prerequisite to the earning of assessable income rather than being incurred in the course of gaining that income. This principle was derived by the High Court in Lunney & Hayley v. Federal Commissioner of Taxation (1958) 100 CLR 478; (1958) 7 AITR 166; 77 ATC 4076: ( Lunney's Case ) where it was found that the expenses in travelling from home to work did not have a connection with the activities carried out by the taxpayers to earn their income. It was accepted that although the travel expenses were necessary and a prerequisite to earning income, the travel itself was not an activity that earned the income. The issue of expenses incurred in relation to accommodation near the workplace while maintaining a family residence in another location was considered in the cases of Federal Commissioner of Taxation v. Toms 89 ATC 4373: (1989) 20 ATR 466 (Toms' Case ) and Federal Commissioner of Taxation v. Charlton 84 ATC 4415; (1984) 15 ATR 711 ( Charlton's Case ). These cases established that accommodation expenses incurred by an individual who lives away from home to carry out the duties of their employment will not be deductible. Expenses of this nature were found to be private in nature and incurred before or after the activity of earning assessable income. In Charlton's Case , the taxpayer was a pathologist employed to carry out autopsies for the local coroner in Bendigo. He rented a flat in Bendigo while maintaining a permanent family home in Melbourne, located approximately 150 kilometres away. The taxpayer claimed that the rental was incurred in the production of assessable income, but the Court ruled that the expense of accommodation was considered private and domestic in nature and would not be deductible. 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 your case, you incurred expenses for accommodation due to having your home in one town and your work contract in another. Whilst the 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. Also, the expenses are considered to be private in nature as they are incurred due to your choice of where you live and where you work. The accommodation expenses are considered to be of a private or domestic nature. Therefore, you are not entitled to a deduction for the accommodation expenses under section 8-1 of the ITAA 1997.

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