An employee may claim deductions for transport expenses (i.e., their costs of travel) under the general deduction provision in S.8-1 of the ITAA 1997 to the extent these expenses:
- are incurred in gaining or producing their assessable income;
- are not capital, private or domestic in nature; and
- satisfy the relevant substantiation requirements (which may be found in Division 900 and, where the expenses relate to a care, in Division 28).
TR 2019/D7 focuses specifically on when the conditions in paragraphs (a) and (b) above are satisfied in respect of an employee’s cost of travel. That is, by discussing relevant principles and providing various examples, TR 2019/D7 provides guidance to employees on when these costs are considered to be incurred in gaining producing assessable income, and when the ATO accepts that they do not have a private or domestic character.
While TR 2019/D7 does not discuss in detail about the specific deduction provision in S.25-100 (for travel between work locations), understanding how this section operates remains a worthwhile exercise, as employees who do not qualify for a general deduction may nevertheless be entitled to a deduction for their costs of travel where they meet the requirements of this provision.
Broadly, S.25-100 entitles an employee to deduct the costs of travel between work locations that are not capital in nature, provided all of the following conditions are satisfied:
- The employee travels directly between both work locations.
- Neither work location is a place at which they reside.
- While at the first work location, they engage in income earning activities.
- Travel is undertaken to the second work location for the purpose of engaging in further income earning activities, and they actually engage in those activities whilst there.
- They have not ceased a business, employment or any other arrangement to gain or produce assessable income at the first work location at the time of travel to the second work location.
Specifically, S.25-100 confers a deduction to a taxpayer for their costs of travel between two work locations (neither of which they reside at) in which separate income earning activities are carried on. This rule was introduced to counter the effect of the High Court’s decision in FCT v Payne [2001] HCA 3(‘Payne’s case’), where it was held that a general deduction was not available in these circumstances.
In the ATO’s view, the specific deduction provision (in S.25-100) only applies to an employee travelling between work locations in which separate income earning activities are carried on. It does not apply where the same employment or income earning activities are carried out at both work locations (e.g., where an employee travels between different work locations of the same employer).
In these circumstances, a deduction is only available where the relevant conditions in S.8-1 (i.e., the general deduction provision conditions) are satisfied.