The AAT has affirmed the Commissioner’s decision to deny deductions for over $25,000 for meals, groceries, accommodation, motor vehicle, caravan, mobile phone and internet services, incurred in the 2014 and 2015 income years.

Normally, home to work travel, travel between two different employments, and other private expenses are not deductible, on authority of the High Court in Lunney v FCT [1958] HCA 5; (1958) 100 CLR 478. However, there are exceptions, of which ‘itinerant workers’ are one. The taxpayer here contended that he was an itinerant worker and that he was entitled to deduct what would otherwise be private costs on this basis.

The taxpayer had a life-time of experience working on farms, including having his own farms. The bulk of his experience was on strawberry farms. He and his wife were based at his ‘in-law’s place on the Sunshine Coast in southern Queensland. The taxpayer wanted to broaden his experience beyond Strawberry farms and, in 2012, applied for and commenced work at ‘Gaynday’, which is about 300 km northwest of the Sunshine Coast. From there he moved to a farm in ‘Bowen’, which is about 2,000 km north of the Sunshine Coast (nearly as far as Townsville). And from there, he obtained work at ‘Stanthorpe’, which is about 500 km southwest of the Sunshine Coast (almost as far south as Byron Bay). These three employments were exercised, successively, in the course of the same financial year and they continued in that order (following the relevant seasons for the crops) for about 3 financial years. A sense of the periods spent at each of these employments can be gained by looking at the extract form the AAT’s reasons (below).

The AAT, however, found that the taxpayer was not an ‘itinerant worker’ in the relevant sense (see extract of reasons below for the case law and the Commissioner’s ruling on this). The central reason for this was that he had successive employments at three employer’s farms broadly in line with three seasons of produce grown at each farm. Each employment was for a period of some months and he effectively settled at each place before moving on to the next.

The AAT also dismissed the taxpayer’s alternative argument that he was entitled to claim deductions for meals and accommodation while living away from home on a temporary basis for work purposes. The AAT did so on the basis that the taxpayer’s circumstances were clearly distinguishable from that of employees who in the course of their employment are compelled by their employer. By comparison, the taxpayer travelled by choice.

The AAT also dismissed the taxpayer’s claim that he was entitled to a deduction for the expenses of travel between the various work locations under s25-100 of the ITAA 1997 . This section allows deductions for travel directly between 2 places of work, but only if it is part of the same employment and does not go via home. In this case, one employment had ceased before the taxpayer travelled to the next, so the provision didn’t apply. [It is not clear to me why s25-100 was enacted as the case law would allow deductions here – in fact it is not as extensive as the exceptions to the rule in Lunney’s case.]

(Re Walker and FCT [2017] AATA 324, AAT, File Nos: 2016/0267 and 2016/0268, Molloy DP, 14 March 2017.)

[FJM; LTN 54, 22/3/17]

Extract from AAT’s reasons – facts

  1. Mr Walker is a farm worker or farm supervisor. He was at all relevant times a PAYG taxpayer. He gave his address as a home on the Sunshine Coast where his mother-in-law lives and owned by his brother-in-law. It is Mr Walker’s postal address and where he is enrolled as a voter.
  2. He and his wife have general use of the home and exclusive use of two rooms when they are there. They use one of the rooms to store their furniture. They do not pay any rent or board but help out with maintenance.
  3. Mr Walker grew up on a farm. He has had his own farms, and has managed farms, mainly strawberry farms. In 2012 he found there was a need for good farm supervisors, in particular to help farmers supervise their foreign workers.
  4. In 2012 Mr Walker applied for and obtained a position with Benyenda Citrus located near Gayndah. He did not look for work on or near the Sunshine Coast at the time. He acknowledges that he probably could have found work there in the strawberry season which is from May to November. He wanted to get away from strawberries, however, to gain experience in other areas and learn about other lines of produce.
  5. At Benyenda Citrus the produce was mandarins, and Mr Walker worked as a sorter and supervisor. He then moved on to employment at a farm near Bowen, run by Craxcorp, where the produce was mini capsicums. He then found work through an acquaintance at Wrenco Produce at Stanthorpe. The crops at Wrenco were strawberries, Brussel sprouts and broccolini.
  6. Mr Walker worked for these three employers in each of the two years under consideration. He has worked for the same employers at the same three locations in subsequent years. His periods of employment in the relevant years were as follows:
  • Benyenda Citrus 7 July to 30 July 2012 23 days
  • Craxcorp 1 August to 16 November 2012 108 days
  • Wrenco Produce 23 November 2012 to 17 March 2013 114 days
  • Benyenda Citrus 2 April to 13 May 2013 41 days
  • Craxcorp 14 May to 10 November 2013 180 days
  • Wrenco Produce 31 December 2013 to 2 May 2014 122 days
  • Craxcorp 3 May to 30 June 2014 58 days

Extract from AAT’s reasons – ‘itinerant worker’ law

  1. In Federal Commissioner of Taxation v Payne[4], the High Court, referring to Lunney v FCT[5] (“Lunney”), said (emphasis in the original):

The principle which had to be applied in that case, and must be applied in this, is one which limits the allowance of a deduction for outgoings to those outgoings that are incurred in the course of deriving assessable income. It is a principle which excludes outgoings which, although incurred for the purpose of deriving assessable income, are not incurred in the course of doing so.

  1. Lunney involved two taxpayers who each claimed as deductible the expenses of travelling from their homes to their respective places of work. Mr Lunney was a ship’s joiner who travelled from his home at Narraweena to his place of employment at Darling Harbour, Sydney. Mr Hayley was a dentist with his own practice, and travelled from his home in Strathfield to his surgery at Macquarie Street, Sydney. The majority of the High Court found that the expenses incurred by each of the taxpayers in travelling between home and work were not deductible. In a joint judgment Williams, Kitto and Taylor JJ said[6]:

The question whether the fares which were paid by the appellants are deductible under s. 51 should not and, indeed, cannot be solved simply by a process of reasoning which asserts that because expenditure on fares from a taxpayer’s residence to his place of employment or place of business is necessary if assessable income is to be derived, such expenditure must be regarded as “incidental and relevant” to the derivation of such income. No doubt both of the propositions involved in this contention may, in a limited sense, be conceded but it by no means follows that, in the words of the section, such expenditure is “incurred in gaining or producing the assessable income” or “necessarily incurred in carrying on a business for the purpose of gaining or producing such income”. It is, of course, beyond question that unless an employee attends his place of employment he will not derive assessable income and, in one sense, he makes the journey to his place of employment in order that he may earn his income. But to say that expenditure on fares is a prerequisite to the earning of a taxpayer’s income is not to say that such expenditure is incurred in or in the course of gaining or producing his income. Whether or not it should be so characterised depends upon considerations which are concerned more with the essential character of the expenditure itself than with the fact that unless it is incurred an employee or a person pursuing a professional practice will not even begin to engage in those activities from which their respective incomes are derived.

  1. Mr Walker’s expenses in respect of his travel to take up employment at his various employment locations are not allowable deductions according to the principle in Lunney. Nor are his travel expenses between his caravan and his work-place. These are expenses incurred for the purpose of deriving income but not in the course of doing so. Less still would there be an entitlement to deduct his travel expenses to and from town for supplies.
  2. Travel at Mr Walker’s own expense between a single employer’s separate farms, during and in the course of his duties, are in a different category. So too may be travel from one employment location to another to take up employment with a different employer. These matters aside, however, Mr Walker’s travel expenses could not on the Lunney principle be regarded as justifiable deductions.
  3. On Mr Walker’s behalf, however, it is said that his travel expenses may be claimed because he is an itinerant worker. This exception was canvassed by the Federal Court in Federal Commissioner of Taxation v Genys [1987] FCA 20. (“Genys”), where Northrop J said that an exception to the principle in Lunney “is where the taxpayer travels between home and shifting places of work, that is, an itinerant occupation.”
  4. In Genys the taxpayer was a registered nurse who used an employment agency to seek relief work with various hospitals. She was not continuously employed by any one hospital. When a hospital was in need of additional staff they contacted the agency, which would then contact the taxpayer. Each engagement undertaken by the taxpayer constituted a separate employment contract.
  5. The Federal Court in Genys held that the taxpayer’s employment was not itinerant. The taxpayer was not required to travel between two places of work after the commencement of her duties. She merely travelled to work and home again. In reaching his conclusion, Northrop J quoted from the decision of Brightman J in Horton v Young [1972] Ch 157 (at p164).

…where a person has no fixed place or places at which he carries on his trade or profession but moves continually from one place to another, at each of which he consecutively exercises his trade or profession on a purely temporary basis and then departs, his trade or profession being in that sense of an itinerant nature, the travelling expenses of that person between his home and the places where from time to time he happens to be exercising his trade or profession will normally be, and are in the case before me, wholly and exclusively laid out or expended for the purposes of that trade or profession. I have used the adverb ‘normally’ because every case must to some extent depend on its own facts.

  1. Another case which considered itinerancy, and upon which Mr Walker places reliance, is Federal Commissioner of Taxation v Wiener (1978) 8 ATR 335 (“Wiener”), a decision of the Supreme Court of Western Australia. There a teacher was required to attend four to five schools each day. Smith J said (at p339):

‘…that travel was a fundamental part of the taxpayer’s work, is not open to challenge. Viewed objectively, it does not seem to me to be open to question that the taxpayer would not have been able to perform her duties without the use of her motor vehicle.
…it was a necessary element of the employment that on those working days transport be available at whichever school the taxpayer commenced her teaching duties and that transport remained at her disposal throughout each of those days.’

  1. Mr Walker also relies on Taxation Ruling TR 95/34 which provides guidelines for establishing whether an employee is carrying on itinerant work, and discusses the tax treatment of transport expenses incurred by employees carrying out itinerant work claimed under the then s51(1) of the ITAA36.
  2. According to TR 95/34 the following characteristics have emerged from the cases as being indicators of itinerancy:
    1. travel is a fundamental part of the employee’s work;
    2. the existence of a ‘web’ of work places in the employee’s regular employment, that is, the employee has no fixed place of work;
    3. the employee continually travels from one work site to another. An employee must regularly work at more than one work site before returning to his or her usual place of residence;
    4. other factors that may indicate itinerancy (to a lesser degree) include:

(i)      the employee has a degree of uncertainty of location in his or her employment (that is, no long term plan and no regular pattern exists);

(ii)     the employee’s home constitutes a base of operations;

(iii)    the employee has to carry bulky equipment from home to different work sites (paragraphs 63 to 71 below);

(iv)    the employer provides an allowance in recognition of the employee’s need to travel continually between different work sites (paragraphs 72 to 75 below).

  1. It was submitted that Mr Walker meets the requirements of itinerancy because:

(1)     He has a regular web of workplaces to which he travels.

(2)     Travel is a fundamental part of his work because he must move with the seasons.

(3)     He maintains a home base on the Sunshine Coast where he is on the electoral rolls, stores personal affects, and from which he has his mail redirected.

(4)     While working he lives in rough temporary accommodation.

(5)     He generally travels to more than one work location before he returns home to the Sunshine Coast.

  1. Particular reliance was placed on two examples in TR 95/34
  2. Example: Valerie is a fruit picker. She does not have a regular circuit, but organises her next job before completing the work at the current farm. Valerie normally works and lives at many properties before returning home, remaining at each farm for two to three weeks. Valerie is engaged in itinerant employment because:

(a) her employment has a web of work places; and

(b) there is continual travel from one farm to another before returning to her normal place of residence.

  1. Example: Ian is a shearer who has agreements with various property owners and therefore travels on a circuit to the same farms each year returning home only periodically. When he finishes work at a property, he travels directly to the next property on his circuit. Although there is no uncertainty in Ian’s employment pattern, his work is considered itinerant. This is because:

(a) travel is a fundamental part of his work;
(b) his work structure displays a ‘web’ of workplaces; and
(c) he continually moves from one place of work to another before returning home.

Category: Tax Month - March 2017

Author: John Morgan

John Morgan is a tax specialist lawyer of more than three decades experience now practicing at the Victorian Bar - w: www.FJMtax.com e: f.john.morgan@vicbar.com.au