Private ruling: Assessability of allowance and deductibility of accommodation and meal expenses
Date of advice: 10 December 2015
Published: February 2016
Ruling period: Year ended 30 June 2014 | Year ended 30 June 2015
Date scheme commenced: 1 July 2013

Ruling: Q1: Is the allowance you receive assessable income? | A1: Yes. | Q2: Are you entitled to a deduction for your accommodation and meal expenses? | A2: No.

Relevant facts and circumstances: You are an employee. You are sent by your employer to different construction projects across the state. These constructions projects can last anywhere from 6-24 months. You have maintained a long term main residence with your family. Your family remain in the residence while you work away from home. You incur expenses for accommodation near the construction site while working on the construction project. You travel back to your home on weekends and holidays. You used to be paid a Living Away From Home Allowance that was treated as a fringe benefit. This changed and you were then paid a distance allowance that is included on your PAYG payment summary.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 15-2 | Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1936 Section 23L

Reasons for decision: Detailed Reasoning - Allowance: Section 15-2 of the Income Tax Assessment Act 1997 (ITAA 1997) states that your assessable income includes the value to you of all allowances, gratuities, compensation, benefits, bonuses and premiums provided to you in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by you. Allowances are generally regarded as assessable income except where they are fringe benefits within the Fringe Benefits Tax Assessment Act 1986 (FBTAA). Income derived by a taxpayer through the provision of a fringe benefit by an employer is not assessable income in the employee's hands by the operation of section 23L of the Income Tax Assessment Act 1936 (ITAA 1936). Miscellaneous Taxation Ruling MT 2030 Fringe benefits tax: living-away-from-home allowance benefits (MT 2030) at paragraph 2 provides: A living-away-from-home allowance [under section 30 of the FBTAA] exists where it is reasonable to conclude from all the surrounding circumstances that some or all of the allowance is in the nature of compensation to the employee for additional expenses incurred, or additional expenses incurred and other disadvantages suffered , because the employee is required to live away from his or her usual place of residence in order to perform the duties of employment. Additional expenses do not include expenses for which the employee would be entitled to an income tax deduction. [Emphasis added]. In your case, although employees are not able to return home on a daily basis in order to receive the allowance, employees do have the choice to return home and, as such, your employer does not require employees to live away from home. Additionally, the current agreement does not specify that the payment is to compensate for non-deductible expenses incurred or expected to be incurred whilst living away from home; or specify how the payment should be spent. Based on the information provided, your allowance is not regarded as a living away from home allowance for taxation purposes. There is no other relevant exemption in relation to your allowance. Therefore your allowance is assessable under section 15-2 of the ITAA 1997. | Detailed Reasoning - Deductions: Section 8-1 of the 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. Although an allowance is assessable income, you are not automatically entitled to a deduction for expenses incurred in relation to an allowance. The expenses must meet the criteria for deductibility under section 8-1 of the ITAA 1997. Expenditure on the daily necessities of life (for example, accommodation and meals) is generally not deductible as it is not incurred in gaining or producing assessable income and is also considered to be private or domestic in nature. A deduction is generally not allowable for the cost of accommodation close to your normal work place because the expenses are not considered to be incurred in producing assessable income. These expenses are incurred to enable a taxpayer to commence their income earning activities and are therefore considered private in nature. The distance from a previous home does not alter the essential character of any accommodation or meal expenses incurred as they remain private in nature. The cost of accommodation close to work is generally incurred to put a person in a position to perform duties, rather than in the performance of those duties ( Case V111 88 ATC 712, Taxation Rulings IT 2543 and IT 112). This is supported by the decision in Federal Commissioner of Taxation v. Toms 89 ATC 4373; (1989) 20 ATR 466 ( Tom's case ), where the Federal Court held that expenses incurred in relation to accommodation near the work place while maintaining a family residence in another location were not an allowable deduction as they were considered to be private expenses. The Federal Court disallowed the forest worker's deduction for the cost of maintaining a caravan and other living expenses. The taxpayer's family home in Grafton was some 108 kilometres from the base camp so he lived in the caravan during the week and returned to the family home on weekends. The caravan was rendered necessary as much by the taxpayer's choice of the place of his residence in Grafton as by his employment in the State forest, and its purpose was to enable him to retain his residence in Grafton although he was employed in the State forest. Had he lived at a town closer to the forest, there is no question the caravan would have been unnecessary. The principle from Toms' case that expenses for accommodation near the work place while maintaining a family residence elsewhere are private in nature, is applicable to your case. Also, your accommodation and meal expenses are incurred to put yourself in a position to perform your duties and not in the actual performance of those duties. Therefore, your accommodation and meal expenses are not deductible under section 8-1 of the ITAA 1997.