Australia: Allowable deductions for work related expenses, where the applicant is located beyond daily travelling time to get to work

If you are required to live away from home for lengthy periods for work, in this case at least 30% of the year, and it is your only source of income at the work location, you may not be able to claim work related travel expenses as this case ruled that the deductions for work related expenses are no different from someone who has to travel to and from work on a daily basis.

Case Note: Laurence Fox v Commissioner of Taxation [2013] AATA 471.

On 8th July 2013, Senior Member RW Dunne affirmed the income tax objection decision under review in Laurence Fox v Commissioner of Taxation [2013] AATA 471 ruling that:

Work-related travel expenses are not a deduction under section 8-1 of the Income Tax Assessment Act 1997 where these expenses are daily travel allowance for days away from home, and it is not required that you do so to perform duties in the workplace but a choice that you make.

Background

Laurence Fox (Mr Fox) who owned his own vehicle and was not reimbursed for fuel to commute from Adelaide to Port Augusta where he was working as a grade eight local driver on a five-day on, two days off, five nights on, three days off roster is a drive-in drive out truck operator. Before the first shift, he would drive from Adelaide to Port Augusta and return to Adelaide upon the completion of his last shift. For 2009/2010 tax year, his tax agent filed a return where amongst otherthings, a deduction was soughtfor work-related expenses being the cost of accommodation, food and expenses calculated atthe daily rate of $264 for 127 days for when he worked in Port Augusta.

Permissible deductions

S8-1 of ITAA 1997 permits a deduction for all losses going to the extent to which they are incurred in gaining or procuring assessable income or necessarily incurred in carrying out a business for the purpose of gaining or producing such income. However, no deduction is allowed under this section for expenses to the extent to which they are of a capital, private or domestic nature or incurred in gaining or producing exempt or non-assessable non-exempt income, or otherwise prevented from being deductible by a specific provision of section 8-1 of ITAA 1997.

Furthermore, for a taxpayer to deduct a work expense the expense must qualify as a deduction under this provision and the taxpayer needs to substantiate the expense by getting written evidence unless the Taxation commissioner considers it reasonable for that expense to have no written evidence.

Taxation Commissioners contentions

The Commissioner Of Taxation accepted that where you are required to sleep away from home in the performance of your duties, expenditure on the cost of travel, food and drink is considered to have been necessarily incurred in the performance of your duties is allowable as a deduction. However, expenses incurred for travelto and from work are not permissible deductions.

It was Mr Fox's choice to work in Port Augusta and to take motel accommodation for the times he worked there. It was a choice he made, and as a consequence he is not entitled to a deduction for expenses involved because this is no different from expenses incurred by taxpayers who travel day to day from their homes to places of employment back again. In Lunney v The Commissioner of Taxation¹ , these expenses were found to be not deductible by the High Court.

Mr Fox contention

Mr Fox's contention was that he received a travel allowance of approximately A$5000, and in the circumstances he was entitled to a deduction for the remaining work-related expenses of 21,751². Mr Fox's contended that he had to travel to procure his assessable income, and as a consequence he should be entitled to the deduction. However in cross examination, Mr Fox acknowledged that he had a residence in Morphett Vale, 332 kilometres from Port Augusta, and it was his choice not to move to Port Augusta.

Decision

Work related expenses relating to the travel, accommodation and meals are deductions that are not permissible as Mr Fox was not required to live away from home to procure the income.

The Tribunal decided that Mr Fox was not required to live away from his home in performance of his duties but that he chose to do so, and as a consequence of that the deduction was not permissible.

Was there a lack of reasonable care by Mr Fox?

The tribunal further decided that Mr Fox could not be expected to take reasonable care to comply with the taxation law other than engaging his tax agent and providing the appropriate materials for the agent to complete. An administrative penalty at the rate of 25% was permissible under s 284 - 75(1) Schedule 1 of the Taxation Administration Act 1953 for the 2009/2010 year because his agent's level of care was unreasonable. However,the Tribunal did rule that the application was harsh, in light of the fact that Mr Fox 's straightforward, open, and candid approach to the hearing and the tribunal did not apply the penalty.

Footnotes

¹ (1958) 100 CLR 478
² This amount was reduced from the initial amount of 28,000 after Mr Fox accepted that there were some errorenous claims for accommodation and work diaries.

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