Private ruling: Travel expenses
Date of advice: 22 December 2015
Published: March 2016
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Are you entitled to a deduction for the full cost of your initial airfare from city B to country A and your final return trip from country A to city B? | A1: No. | Q2: Are you entitled to a deduction for a portion of your initial airfare from city B to country A and your final return trip from country A to city B? | A2: Yes. | Q3: Are you entitled to a deduction for your two return trips back to Australia during your overseas study leave? | A3: No. | Q4: Are you entitled to a deduction for the cost of shipping items to country A? | A4: No. | Q5: Are you entitled to a deduction for the cost of the shipping for the return trip to city B? | A5: No. | Q6: Are you entitled to a deduction for the work related portion of the cost of your train tickets and car hire to attend a conference, do library research and attend work related meetings? | A6: Yes.


Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1. | Income Tax Assessment Act 1997 Division 900.

Reasons for decision: Summary: Allowable deductions 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 ( Lunney's case )), • 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 ( Ronpibon's case) ), 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). A deduction is only allowable if an expense: • is actually incurred, • meets the deductibility tests, and • satisfies the substantiation rules. Taxation Ruling TR 98/9 Income tax: deductibility of self-education expenses incurred by an employee or a person in business discusses the circumstances under which self education expenses are allowable as a deduction. 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). TR 98/9 considers occasions where travel expenses may have the essential character of an income-producing expense where the expenditure is incurred while away from home overnight on a work related activity or away from home overnight in connection with a self-education activity. Such expenses incurred may be deductible under section 8-1 of the ITAA 1997. Airfares TR 98/9 states that airfares incurred on overseas study tours or sabbatical are an allowable deduction under section 8-1 of the ITAA 1997. TR 98/9 discusses the apportionment of overseas travel expenses where there is a dual purpose for the travel. As highlighted in TR 98/9, if the travel was undertaken equally for income earning purposes and for private purposes the expenses would be apportioned equally. In your case, you were travelling to country A for work related study. However, you travelled via country C to collect your relation. This additional cost was for private purposes only, therefore the additional associated cost is not an allowable deduction. The relevant portion of your initial airfare that relates to your work related purpose is an allowable deduction. That is, as your initial airfare expense is not fully deductible, you will need to apportion the expenses using a reasonable basis. Apportionment is a question of fact and involves a determination of the proportion of the expenditure that is attributable to deductible purposes. The Commissioner believes that the method of apportionment must be fair and reasonable in all the circumstances. As your initial trip had a dual purpose, one way to apportion your expenses is to claim 50% of your airfare cost. Your special study leave did not require you to return to Australia before the completion of your study. The return trips to Australia were for private purposes. The fact that you worked at your work place during your return to Australia does not change the travel into a work related expense. The cost of your two return airfares is not sufficiently connected to your assessable income and is private in nature. Therefore no deduction is allowed for these airfare costs. The cost of your final airfare from country A to Australia is an allowable deduction. Please note if the airfare was not directly to Australia, then only the relevant portion is an allowable deduction. Shipping costs The cost of shipping work related material overseas that relate directly to your study is generally an allowable deduction under section 8-1 of the ITAA 1997. However, where the costs relate to both work related and private purposes, you need to be able to show the work related portion and have the relevant documentation to support your claim before a deduction is allowed. Division 900 of the ITAA 1997 sets out the substantiation rules. To deduct work expenses you need to substantiate the expenses by obtaining written evidence of the expense. You need to keep travel records if your travel expense involves you being away from your ordinary residence for six or more nights. As outlined in section 900-145, the purpose of a travel record is to show which of your activities were undertaken in the course of producing your assessable income, so that your losses or outgoings or portions of them can be attributed to income producing purposes. In your case, you have incurred costs for shipping items to and from country A. However you have no travel diary. You have provided a copy of the receipt to show the total amount of the cost, however you do not have any documents to determine the work related portion of the shipping costs. You advise that the shipping costs related to both work and private items; however you have not provided and cannot find the inventory of the items shipped. There is no information to show the number, size and weight of the items shipped to help determine the work related portion of your expenses. You think the work related portion is X% and X% however no documents or records have been provided to show how you calculated the work related portion. The fact that a removalist was used to ship your items back to Australia indicates that the main purpose for the shipping costs was private. As you have not met the substantiation requirements and the work related portion of your expenses cannot be determined, no deduction is allowable for your shipping costs. Conference fees A deduction is allowable for the travel expenses paid to attend a work related conference, work related meetings and to do library research. Therefore the cost of your train tickets and car hire to attend these events is an allowable deduction. Please note where a trip also has a private purpose, then only the work related portion is an allowable deduction. Other information Please ensure you keep the necessary travel records and documentary evidence of your work related expenses incurred.

Relevant facts: You are employed at a higher educational institution. | You were approved by your employer to have special study leave in country A. | You received an allowance from your employer to assist in meeting the costs of travel and living. The allowance is included as assessable income on your tax return. | You also received your full pay from your employer during the trip. | You incurred costs for the following: | • your airfare from city B to country C, | • your airfare from country C to country A, | • airfare from country A to city B after the completion of your overseas study, | • cost of two return trips, | • shipping costs to and from country A | • train trips to attend conferences, research meeting and do library research, | • car hire to attend research meeting. | You shipped to country A work related items that related to your research. You think clothing items were included in the shipping. | Your return shipping costs included some personal items. | You cannot find the inventory of items shipped either to or from country A. | You have receipts for the some of the above expenses. You did not keep an overseas travel diary. | You returned to city B twice during your study leave. The second return trip coincided with the birth of your relation. | During your return trips you worked at your normal work place. | You travelled initially to country C where you collected your relation and brought them with you to country A to spend time with you and other relations. You only spent one day in country C. | The rest of your family joined you overseas after some time. | You were granted permission by your employer to remain attached to a research centre in city D where you continued your research. You had a week of vacation before returning home.