Living a nomadic lifestyle, seeing Australia, meeting new people, having new experiences while working on farms - this is an attractive way of living. To pay your way you can work as a fruit picker or do another type of job. You can move from farm to farm soaking up the sunshine and expanding your life experiences. It sounds great, but there is a bonus - you may be able to claim your expenses as a tax deduction.

The expenses we are talking about are things like travel costs and basic living expenses. When you are able to claim them back, your effective rate of pay becomes much more palatable. In fact, many people are able to make a comfortable living far away from the daily 9-to-5 grind.

How is this possible? It all comes down to shearers. You don't have to become a shearer, but if your work practices are similar (travelling from location to location for work), you can take advantage of the same tax rules that shearers use. This means your living expenses and car costs can be claimed on your tax bill as soon as you leave home.

There are some criteria you need to meet:

• You need a web of workplaces, which simply means you need a plan where you don't leave one employer until you have another one to go to
• You need to go to at least two employers before returning home
• You need to live in temporary accommodations at the places of work (so you can't take out a lease on a house, for example)
• You must have a home to return to once the work is finished (although this could be just a bedroom in the home of a relative)
• You can't stay and work anywhere for longer than six months
• You need to keep records to back up your claims (log books, diaries, etc.)

What if you can't meet some of the criteria listed above? You won't be able to claim the full amount of your expenses as a tax deduction, but there may be some things that you can still claim. For example, if you carry over 18kgs of equipment in your car that you need for work, you might be able to claim car expenses. This depends on the type of equipment, but it is possible to make this deduction in many circumstances. You might also be able to get zone rebates.

So, regardless of whether you meet the criteria above or not you should:

• Continue reading to get a better understanding of how the system works
• Take advice on how it applies in your personal circumstances
• Always keep good records of dates, places, employers, money earned, expenses, etc.

OVERVIEW

The tax law that governs travelling workers was decided by looking at shearers. A number of cases went through the courts, and it was decided that shearers are able to claim car costs and living expenses like food and accommodations. These costs can be claimed from the time they leave home until they return.

Here is the important bit though - the rules don't apply only to shearers. They apply to anyone who works in a similar way. So if you are an itinerant worker, regardless of the work you do, you should be able to make the same tax deductions. For example, you can travel around Australia as a fruit picker moving from farm to farm and can claim your travel expenses, car depreciation costs, living expenses, and meal expenses as a tax deduction.

If you plan to do this though it is recommended that you become self-employed. Instead of being an employee of a farm, you would become a contractor and would give the farmer an ABN. It is best to get professional advice before doing this.

CAR EXPENSES

A number of cases have gone through the courts to decide who can claim car expenses and in what circumstances. Many of them involve shearers, but the rulings do not apply only to people in that field. You can claim car expenses if you can answer yes to one of the following questions:

• Are you an itinerant worker?
• Do you carry bulk equipment or tools?
• Are you a contractor (self-employed) who uses your home as a base for your operations?

Let's look at a shearer as an example since that was one of the first cases to be decided in the field of tax law. Shearers who store and maintain their equipment at home and then travels from farm to farm to carry out work as a sub-contractor while carrying equipment in their car as they go meet all three of the criteria.

Everyone's circumstances are different, but in general, you are more likely to meet the first two criteria if you are self-employed. This means it might be difficult to claim that your home is the base of your operations if you are in the regular employ of someone.

Let's explore these criteria in more detail:

Are you an itinerant worker?

Most workers can be put into one of four categories:

1. They travel to work, complete their duties, and travel home again
2. They have a home and travel around the country from place to place looking for work
3. They have a home and travel around the country in a web or workplaces, moving from one to the other
4. They travel from place to place for work but have no home base

The first is the easiest to understand - most employees in Australia and many self-employed people fall into this category.

A fruit picker or shearer could fall into one of the other three categories, but only one qualifies them as an itinerant worker. An itinerant work must travel from place to place for work. They must also have a home base but leave that base to work in at least two separate locations before returning. And they must have a web of workplaces, which means having the work set up in advance of leaving the current job and travelling to the new location.

Therefore, an itinerant worker is someone who has a home base and travels around the country in a web or workplaces moving from one place to another.

The ATO's website has more information on what qualifies as an itinerant worker - you can search for TR95/34 if you want to look it up. One of the easiest ways to understand it is by looking at the examples they give.

• Ian the shearer - Ian has a circuit of farms that he travels around. It is a regular circuit because he has long-standing agreements in place with the various farmers. He spends most of his time travelling from farm to farm, only returning home periodically. He is considered an itinerant worker.
• Valerie the fruit picker - Valerie does a very different job than Ian the shearer, but the way she works is very similar. She travels from farm to farm picking fruit, returning home every now and then. The difference between her and Ian is that she does not have a regular circuit of farms that she visits. However, before leaving work at one farm, she arranges work with the next one. Therefore, she is also regarded as an itinerant worker.
• Hai the other fruit picker - Hai picks fruit like Valerie, and he travels around different farms to do this work. There is one crucial difference though - he completes one job and then starts travelling and looking for another job. He is not considered as an itinerant worker because the travelling took place before he had a job to travel to. From the ATO's perspective, that travel was not directly connected to his subsequent employment.
• Ryan the other shearer - Ryan, like Ian, works as a self-employed shearer. Also like Ian, he works with a group of regular farmers. However, they are all located within a reasonable driving distance from his home. When he is called into one of the farms, he leaves his home in the morning and returns again in the evening. Therefore, Ryan is not considered an itinerant worker.

Do you carry bulk equipment?

Bulk equipment has to be either:

• Heavy (over 18kg), or
• Large and awkward to carry, unless you use a car

However, it is not possible to carry just anything. For example, you can't carry a 20kg builder's toolbox around with you if you are a fruit picker, as those tools are not required to do the job.

If you carry bulk equipment you can claim for your journeys between farms and jobs. After all, there is no other way for you to get your equipment to your next place of work.

Once you are at a place of work, you may have to carry the equipment in your car between your campsite or caravan park to the farm. You can claim this provided you can show that you have a good reason for doing so. One of the most common reasons is there is that there is nowhere safe to store the equipment, so you have to carry it to and from the place where you are staying every day. However, if the farmer you are working for provides a secure storage area you might not be able to claim for these journeys.

Claiming Car Expenses and Keeping Travel Records

How you record your vehicle expenses is dependent on how many miles you will travel and claim for the course of a year.

If you claim less than 5,000km, you can make a reasonable estimate of the miles travelled and apply the ATO rate to those miles to reach a figure. Remember, you have to be the person driving for those miles. If another owner of the car, like your spouse, shares the driving duties, he or she will have to make a separate claim for the miles that they drive.

If you claim for more than 5,000km things get a bit more complicated. You have to keep a car log book, readings from the odometer will have to be recorded to show the miles travelled over the course of the year, expenses relating to the vehicle will have to be kept, and receipts related to those expenses will have to be kept too.

CLAIMING LIVING EXPENSES

The description of an itinerant worker outlined above also applies to claiming living expenses. This means that if you can show that you are an itinerant worker, you should be able to claim the cost of accommodation and meals as well as car expenses. The key thing to remember is that the accommodation and meals must be directly related to the act of travelling for work.

Again, a lot of the laws and guidelines in this area of taxation are determined by cases involving shearers. Therefore, you should try to mimic the way that a shearer operates in order to be able to claim similar tax deductions.

One difference might be the nature of your employment. Most shearers are self-employed, but as a fruit picker you might be directly employed by the farms that you work on, even though that work only lasts a short period of time. It is accepted that employees can often make the same deductions as self-employed people if the way of working is the same, but it is usually easier to prove your claims if you are self-employed and do things like maintain and carry your own bulky equipment.

Travelling for Work vs. Living away from Home

In order to be able to claim living expenses, it is important that you understand the difference between travelling for work and living away from home in order to work. If you travel away from home to work but establish another home close to the place of work, you are regarded as living away from home. If you are living away from home you cannot claim the same tax deductions.

So how can you tell the difference? There is no absolute rule, as everyone's circumstances are different. The tax authorities look at a number of factors.

These include whether you have a home to return to. To be considered travelling for work you must have a home, and you have to return to it periodically. This home can take many forms. For example, it could be a room in a relative’s house, or it could be a house that you allow someone else to live in and look after. You must have a home base though.

Also, be careful if you are renting out your home as this can complicate your claims and may even mean you can’t make the deductions.

Another thing that you should consider in relation to proving that you are travelling for work is the length of time that you stay in a single place. A ruling made in relation to fringe benefits tax gives the guideline of 21 days. This is not a hard and fast rule, and other factors are considered, such as whether the accommodation you are staying in is regarded as permanent or temporary. If you stay in one location for more than 21 days at a time, you run the risk of being considered living away from home rather than travelling for work.

The type of accommodation that you stay in is also important. For example, is it a tent, caravan, hotel, or motel? These are all examples of temporary accommodations that would indicate that you are travelling for work. However, if you live in a house or a flat, you might be deemed to be living away from home.

Where your family is located is also considered, meaning that you might find it more difficult to argue that you travel for work if your family is living with you. A more realistic scenario would be that you are moving from place to place to work while your family lives at your main home, a place where you return to periodically.

An example given by the ATO is a person who travels to a different city (or country) to do a three-week course. The person travels alone and stays at a hotel for the duration. The person then decides to stay in the city to do a six-month course. He takes out a lease on a flat, and his family moves to the city too. The expenses incurred in the first three weeks would be tax deductible, but the six-month period would be regarded as living away from home, so it is treated differently.

Claiming Living Expenses and Keeping Good Records

It is crucial that you keep good records to back up your claims. This should include all receipts. You may incur some expenses where obtaining a receipt is impossible (paying for electricity meters in a caravan park, for example). In these situations you should keep a detailed and accurate diary.

It is also good practise to keep a diary for expenses that do have receipts. This includes all accommodation expenses as well as your meals, snacks, and drinks.

Your diary should include the following information:

• Name of the supplier
• Amount of the expense
• Description of the expense
• Date of the expense
• Date that you are making the diary entry

Your diary should also record the income that you earn in detail. This includes the date that the work started, the nature of the work, the date that the work ended, and how much you earned.

What you are trying to do with this is demonstrate the expenses were in relation to travelling for work and not for private travel. This doesn't mean you cannot claim living expenses on your days off when you work on either side of those days - you can usually claim for these living expenses. You do, however, have to show behaviour that is consistent with travelling for work, all your expenses must be reasonable (you will probably be able to claim for a glass of wine with your meal, but it is unlikely you will get away with claiming a couple of bottles), and they must be documented with a receipt and/or a diary entry.

The importance of substantiating your claims with good records cannot be overstated. If the ATO gets the opportunity to deny a particular deduction they will take it. One of the most common causes of this is poor records leading to a claim that cannot be proven. The rules regarding this are called substantiation, and many of them have already been outlined above. These rules must be followed, and accurate records must be kept, or you run the risk of your claim being denied.

Finally, it is important to remember that you cannot claim tax deductions on expenses if your employer gives you an allowance for the expense.

OTHER TAX CONSIDERATIONS FOR TRAVELLING WORKERS

Zones

If you spend enough time per year in an area classified by the ATO as a zone you can get a rebate on your tax bill. The number you have to remember is 183 - you have to spend 183 days in a zone in order to claim a rebate.

The calculation is made over a two year period, which opens up a number of scenarios. If you spend 183 days or more in a zone in a single financial year, you can claim the rebate. If you spend 183 days or more in a zone over a two-year period, you can claim the rebate in the second financial year. This means you might be able to work your schedule so that you qualify for the rebate every two years, even if you spend considerably less than 183 days in a zone per year.

Here are a couple of other things to remember when thinking about spending 183 days in zones:

• You don't have to be in a zone for the full day - part of a day counts
• You don't have to work - holidays count as well
• You don't have to spend 183 days in the same type of zone - any zone counts towards the total

If you spend times in different types of zone, the calculation of your rebate is done on a pro-rata basis. So, say you spend 100 days in zone B and 83 days in a special zone. The rebate you will get will be 100 times the zone B daily rate plus 83 times the special zone daily rate.

You can claim a zone rebate for your spouse or dependent children too if they were with you in the zone.

So, how much can you get? At the top of the list are special zones. If you spend 183 days or more in a special zone you will get a tax credit of $1,173. At the other end of the scale are zone B areas. The annual tax credit if you spend 183 days in a zone B is $57.

As a fruit picker or other type of travelling worker, you might find that you spend time in various zones, so let's look at the example above to see how much the tax credit would be worth for someone who spends 100 days in a zone B and 83 days in a special zone.

You first need to work out the daily rate for each zone:

Zone B: 57 divided by 183 = $0.31

Special zone: 1,173 divided by 183 = 6.41

You then do the sum:

100 days at 0.31 plus 83 days at 6.41 = a tax credit of $563.

To make this work, you first have to know if you are in a zone. You can find that out by going to the ATO website. Secondly, you need to keep detailed records of exactly where you were in the zone and the days that you were there so you can back up your claim.

When you add the tax credits you can get by spending time in zones to the savings you make through tax deductions, the total saving can be significant.

Capital Gains Tax and Your Main Residence

When looking at your tax situation as a travelling worker, it is not just income tax that is affected by your decisions. Capital Gains Tax, or CGT, can also be impacted. In fact, the decisions you make to help you save money on income tax might end up costing you money on CGT.

This comes down to the home that you own and whether it is regarded as your main residence.

CGT implications only apply if you are planning to sell the house, although it is something you should think about even if you are not planning to sell. Circumstances change, and you might want to sell the house in the future. The decisions you make now could affect your CGT liability then.

The important thing to remember is that the law regarding CGT applies to everyone, whether you are a travelling worker or not. That means you can only claim main residence exemption on a property that has a dwelling (the dwelling can be a caravan) and you have to move into the dwelling.

There are two scenarios where you can claim main residence exemption on a property even though you don't live in it. The first is a property that you have lived in, but have now moved out of to rent to someone else. You can do this for a period of six years. You can also keep your main residence exemption if you move out but don't rent the house (i.e. you leave it vacant or let family members live in it rent free). There is no time limit in this scenario.

The other scenario where you can have a house that has main residence exemption even though you don't live in it is when you buy property that needs repair work carried out before you can move in. In this situation you have four years to make the repairs and move in. In addition, you have to move in as soon as the repairs are complete, and you have to live in the house for a minimum of three months.

So how does this affect travelling workers? The answer depends on what home you regard as being your home base, what home you regard as your main residence (and what home the ATO will regard as your main residence - see below), and what you do to the property that you own in terms of renting it out.

One scenario that applies to many travelling workers who own their own home is that they rent it out to generate some income while keeping a part of it to live in as a home base. This covers you for travelling worker tax deduction reasons, but it does have CGT implications. Even though the house is your home base and it is your main residence, the portion of the house that is rented out will be liable to CGT.

Another option you have is to take advantage of the six-year rule outlined above. You would have to move out of the house completely, but you can then rent it out while still maintaining the property's main residence exemption, and you can do this for six years. From a tax perspective, this is a simpler solution than living in part of the house that you own, particularly if you spend extended periods of time travelling. For travelling worker income tax deduction purposes, you still have to set up a home base in another house.

There are a couple of things you need to remember though:

• You must have lived in the house that you own before you move out
• You have to be able to prove that the other home you set up is genuinely your home base

How does the ATO determine if the place you call home is your main residence (for CGT purposes) or your home base (for travelling worker tax deduction purposes)? They look at a number of things including:

• How long you've lived there - the longer the better
• How long you spend in the house
• If your immediate family (children, spouse, partner, parents) lives there
• If you have personal belongings there
• If your mail is delivered to the address
• If you are on the electoral roll
• If the phone and electricity are connected
• Your intentions with the property

Special Tax Considerations for Fruit Pickers

If you are an employed fruit picker (and you are an Australian resident for tax purposes), your employer will collect taxes from you on behalf of the government like any other employer with one exception - the rate is not a real tax rate. The rate your employers will use is 13 percent, but the lowest actual tax rate is 19 percent. As a fruit picker you are liable for the 19 percent rate just like every other Australian worker.

Any difference has to be paid when you do your annual tax return.

Why do they do this? The 13 percent rate is used because there is an assumption that fruit pickers do not work all year round. For example, you will not be working during the time you are travelling from location to location or in the off-season.

The use of the 13 percent rate makes the tax deductions you can claim as a travelling worker even more important. The sweet spot is around $20,000 of taxable income - if this is your taxable income you are unlikely to pay any tax at all. This is because the first $18,200 that you earn per year is not taxable. A low income rebate makes up the rest.

If you earn more than $20,000 a year as a fruit picker, the tax deductions and zone rebates that you can claim should keep your income closer to the $20,000 mark.

Summary

Claiming tax deductions for car expenses and living expenses or claiming zone rebates requires work. This involves understanding how the system works and keeping accurate records so that you can back up everything that you put on your annual tax return.

Doing it right though, will enable you to live the dream as a nomadic fruit picker or travelling worker, earning as you go and saving as much on your tax bill as possible.