Private ruling: Work related expenses
Date of advice: 9 October 2015
Published: October 2015
Ruling period: Year ending 30 June 2015 | Year ending 30 June 2014
Date scheme commenced: The scheme has commenced

Ruling: Q1: Are you entitled to a deduction for rent paid for the portion of your house you use for work purposes? | A1: Yes

Relevant facts and circumstances: You are employed in sales. You are employed to cover a certain part of Australia. It is a requirement of your job that you live in a certain state of Australia. Your employer does not have an office in that state. You rent a house and use one room as an office and to store stock, demonstration equipment, and marketing material. You use the room 95% of the time for work purposes. You use the room to create quotes, scan purchase orders for stock reconciliation, create policy documents and presentations using a company issued laptop and printer/scanner. When you are not at a customer site, you are home conducting paperwork or collecting stock to take to customers. You have provided copies of your work diary.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1

Reasons for decision: Summary: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income except where the outgoings are of a capital, private or domestic nature. For a deduction to be allowable for home office expenses, the expenses must satisfy the requirements of section 8-1 of the ITAA 1997. Normally, expenses associated with a persons' home are private or domestic in nature, and therefore do not qualify as an allowable deduction ( Handley v. Federal Commissioner of Taxation (1981) 148 CLR 182; 81 ATC 4165; (1981) 11 ATR 644; and FC of T v. Forsyth 81 ATC 4157; (1981) 11 ATR 657). However, where the home is used for income producing activities and has the character of a 'place of business', a deduction may be allowable for a portion of 'occupancy expenses' such as rent, mortgage interest, municipal and water rates and house insurance premiums, and 'running expenses' such as electricity charges for heating and lighting (Taxation Ruling TR 93/30). If the home office is used in connection with the taxpayer's 'income producing activities', but does not constitute a 'place of business', only a proportion of the running expenses are allowable. Whether an area of the home has the character of a place of business is a question of fact. Paragraph 4 of TR 93/30 states that an area is likely to be a place of business where a part of the residence is set aside exclusively for the carrying on of a business by a self-employed person. Another example is where part of the home is used as a taxpayer's sole base of operations for income producing activities, that is, where no other work location is provided to an employee by an employer ( Case T48 86 ATC 389; (1986) 29 CTBR (NS) Case 47). In your case, the latter of the example applies. Your employer has not provided you with a work location so you therefore use a room of your home as an office. You use this office almost exclusively for work your employment and keep all work related equipment in this office room. Furthermore, the nature of your work requires that you maintain an office in your home. Based on the above, it is considered that your home office is a place of business. As a result, you are entitled to claim deductions for both running expenses and occupancy expenses. Your occupancy expenses would generally be apportioned on a floor area basis.