Edited version of private advice

Authorisation Number: 1052098737394

Date of advice: 31 March 2023

Ruling

Subject: Deductions - work-related expenses - working away from home

Question 1

Are you entitled to a deduction for accommodation and living expenses while working away from your home?

Answer

No.

Question 2

Are you entitled to a deduction for travel to your work?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are a sole trader operating as a subcontractor in the building & construction industry.

Your main residence is in Town 1.

You have been working in Town 2 several hundred kilometres from Town 1 for an extended period.

You have secured a rental property in Town 2 to reside in near your work (the Rental Property).

You live at the Rental Property on a week-on, week-off basis.

You return to your main residence in Town 1 on your weeks off from work.

You transport bulky equipment for your work when you travel to your workplaces in Town 2.

There is no secure storage for the bulky equipment at the workplaces.

You have incurred a range of expenses, including:

(a)           Living and accommodation expenses from living at the rental property; and

(b)           Travel expenses for your vehicle travelling to your workplace.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Summary

You have temporarily relocated to another location to work. The expenses you incurred for accommodation and living while working away from home are of a private nature.

The accommodation and living expenses are a prerequisite to the earning of assessable income. They are incurred in order to enable you to earn income but are not incurred in the course of gaining or producing that income. Therefore, your accommodation and living expenses are not deductible.

However, the expenses incurred while travelling to your workplace will be considered deductible as you have to transport bulky equipment that cannot be stored at your workplaces.

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.

Accommodation and living expenses

Accommodation expenses are ordinarily not deductible as they are private and domestic in nature.

However, Taxation Ruling 2021/4 Income tax and fringe benefits tax: employees: accommodation and food and drink expenses, travel allowances, and living-away-from-home allowances (TR 2021/D1) considers the deductibility of accommodation and food. While this ruling refers directly to employees, as we are considering the negative limbs of section 8-1 of the ITAA 1997, it would also apply to sole traders.

Paragraphs 13-14 of TR 2021/4 states:

13. Living expenses are a prerequisite to gaining or producing an employee's assessable income and are not incurred in performing an employee's income-producing activities. Living expenses are also private or domestic in nature. This means that even if these expenses were incurred in gaining or producing assessable income, they still would not be deductible due to the application of paragraph 8-1(2)(b).

14. While living expenses must be incurred before any assessable income can be derived, a loss or outgoing is not incurred in gaining or producing an employee's assessable income merely because it is necessary. This is particularly relevant to living expenses. A person must eat and sleep somewhere, whether or not they engage in employment.

Furthermore, paragraphs 25 of TR 2021/4 states:

25. An employee cannot deduct accommodation and food and drink expenses they have incurred where, due to their personal circumstances, they live far away from where they gain or produce their assessable income. These expenses are living expenses and are not deductible.

Therefore, accommodation and meal expenses incurred while working away from home are essentially living expenses of a private or domestic nature and therefore are not deductible.

In this case, your decision to live in Town 1 and not in Town 2 meant that the rental expenses from the rental Property for gaining accommodation was a prerequisite to producing income, and not incurred in performing your work to earn income. Furthermore, as your rental accommodation and living expenses were due to personal circumstances, the expenses will be private or domestic nature and thus not deductible.

Travel Expenses

Generally, accommodation and travel expenses incurred by a person, who lives away from home in order to carry out employment duties at the place of employment, will not be deductible. Expenses of this nature are private or incurred before or after the activity of earning assessable income. This is an established principle of law outlined in Lunney v. Commissioner of Taxation [1958] ALR 225;1958 - 0311H - HCA;100 CLR 478;(1958) 11 ATD 404;(1958) 32 ALJR 139).

One of the exceptions to this general principle is when an employee is required to transport bulky equipment necessary for their employment. In such cases, a deduction for the cost of transporting that bulky equipment may be available provided some other requirements are met. However, this exception is construed by the Commissioner as a narrow exception per paragraph 79 to 81 of Taxation Ruling TR 2021/1 Income tax: when are deductions allowed for employee's transport expenses.

The basic requirements for a deduction to be allowed for the cost of transporting bulky equipment between a taxpayer's home and their place of work are detailed in paragraphs 63 and 64 of Taxation Ruling TR 95/34 Income tax: employees carrying out itinerant work - deductions, allowances and reimbursements for transport expenses.

Essentially the basic requirements detailed in the paragraphs referred to are:

(a)           the equipment is not being transported as a matter of convenience or personal choice;

(b)           there is no secure storage for the equipment at the workplace; and

(c)           the equipment being transported is bulky.

In this case, you transport various work equipment when you travel to your workplaces, including carpentry tools and ladders. There is no secured storage for this equipment as you have varying workplaces. Furthermore, as need the equipment to perform your work, the equipment must be taken with you and is not being transported due to convenience or choice.

Therefore, the expenses incurred in travelling to your work are considered to be incurred in gaining or producing assessable income and not private in nature. Consequently, a deduction for your travel expenses is deductible under section 8-1 of the ITAA 1997.

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