As accountants, we get asked a lot about the nature of travel between a person’s home and their place of work; and how to separate the motor vehicle expenses into components for “travel during income-earning activities” and “travel for private and domestic purpose”.
In general, travel between home and work is considered to be a private nature and therefore not deductible for tax purpose. This means, travel between home and a place of work is traditionally regarded as outside the scope of income-earning activities so that relevant expenses are of a private or domestic nature.
However, the concept of “home” where it appears in the definition of “private use or enjoyment” does not apply where the home concerned is not used exclusively as a home, but also as a workplace. Below is a number of situations that business usages arise where:
– the taxpayer has no fixed place of work so that travel away from home is travel for work purpose;
– the home is also a place of work. This leads to some analysis to determine whether the taxpayers’ residence can, in fact, also be classified as a place of work in part.
When is home a place of business?
Criteria that the Inland Revenue consider when determining whether “significant business” is conducted from home include:
– What is the nature of the business?
– At what locations are the business activities carried out?
– What business activities and functions are carried out at home and what is the relationship of the work carried out to the business?
– Why are business activities carried out at the home?
– What is the daily business routine and what is the length of time spent on business activities at the home and at other premises?
– Why is the vehicle taken to the home?
There is also a distinction between travel to enable the taxpayer to commence work and travel in the course of performing work. Travel to enable the taxpayer to commence work is not deductible. Travel between home and work would be travel “on work” if the taxpayer had commenced work at the time of leaving the home or before the taxpayer leaves the home to travel to work.
There have been cases that have confirmed that:
– the fact that the home is a place where work is performed (whether or not under a contractual obligation) is not sufficient. The need for the travel must arise from the nature of the work and not from the personal choice or circumstances of the employee;
– Whether the need for travel arises from the nature of work is determined objectively; and
– If the work could have been done anywhere but is done at home from the taxpayer’s personal choice or because of the taxpayer’s personal circumstances travel between the home and another workplace is private travel.
Circumstances where travel between home and work is not private travel
1. Where a vehicle is essential for the transport of goods or equipment necessary for the performance of income earning activities.
2. Where the taxpayer carries on an “itinerant occupation” – this means the taxpayer does not work from a fixed workplace and the home is the taxpayer’s base of operations.
An occupation would be regarded as an itinerant one if the following conditions are satisfied:
– the taxpayer’s home is the taxpayer’s base of operations; and
– the nature of the taxpayer’s income earning activity is such that travel is essential to the carrying out of the activity; and
– the taxpayer is required to undertake work at a number of workplaces during the course of a day or the sequence of workplaces and the periods of time spent by the taxpayer at each workplace vary and are unpredictable so that it is impractical for the taxpayer to carry out the income earning activity without the use of a car; and
– the taxpayer can be regarded as travelling in the performance of the taxpayer’s work from the time of leaving home;
– the mere fact that a taxpayer is required to be accessible at the home to receive business calls is not sufficient.
If you have any further questions, please feel free to get in touch with us for further clarifications.