Private ruling: Home office expenses
Date of advice: 8 December 2016
Published: May 2017
Ruling period: Year ending 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Are you entitled to claim a deduction for occupancy expenses in relation to your home office space? | A1: No. | Q2: Are you entitled to claim a deduction for running expenses in relation to your home office space? | A2: Yes. | Q3: Are you required to apportion deductions for this home office space? | A3: Yes.

Relevant facts and circumstances: You are employed and spend between 15 and 20 hours per week working at home. Your employer provides a place of business. Your work space and equipment at home is shared between your work function and private use.

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, or relate to the earning of exempt income. Taxation Ruling TR 93/30 is about home office expenses. It states deductible expenses in respect of a home office can be divided into two broad categories: ● Occupancy expenses, i.e., expenses relating to ownership or use of a home which are not affected by the taxpayer's income earning activities. These include rent, mortgage interest, municipal and water rates and house insurance premiums. ● Running expenses, i.e., expenses relating to the use of facilities within the home. These include electricity charges for heating/cooling, lighting, cleaning costs, depreciation, leasing charges and the cost of repairs on items of furniture and furnishings in the office. As a general rule, occupancy expenses are allowable when the part of the home used for income producing activities has the character of a 'place of business'. As outlined in paragraphs 12 and 13 of TR 93/30, where there is no alternative place for conducting income producing activities an area of a home may be regarded as a place of business. In your case, in your role as an employee, your employer provides a place of business, ie the event venue, and you work from your home as an alternative for your convenience and practical purposes. Although it is appreciated that there are time constraints inherent in the type of work that you do, and having the home office space makes it possible for you to do some of your work from home, your home office is not regarded as a place of business for tax purposes, and the Commissioner has no discretion under the tax laws to make an exemption. Taking into account the factors mentioned above, in your case we consider that the space you use at home for your work is not a place of business. It follows you may not claim deductions for occupancy. However, you may claim a portion of running expenses in respect to this space. | Detailed Reasoning - Deductions for running expenses (including depreciation expenses): Running expenses are the increased costs of using facilities within your home because of your work activities. Running expenses include: ● the costs of using a room, such as electricity and gas costs for heating, cooling and lighting ● business phone costs ● the decline in value of plant and equipment ● the costs of repairs to furniture and furnishings. You are entitled to claim a deduction for the running expenses in relation to the home office that is actually incurred through the income producing activities which is additional to the private expenditure. To calculate running expenses, the Commissioner accepts a diary kept for a period of four weeks in order to establish the pattern of use for the whole income year. Two acceptable methods taxpayers can use are: ● option one - calculating the actual running expenses and apportioning them according to the pattern of business use shown in the diary, or ● option two - claiming an amount per hour for business/employment use in respect of heating, cooling, lighting and depreciation of furniture. A diary can show the pattern of use. Note that decline in value of home office furniture is included in this calculation but you need to separately calculate some items (for example, telephone expenses, and decline in value of computers) and apportion according to the business use. It would be necessary to look at each of these types of expenses individually to estimate the level of use for business purposes. The floor area as a method of apportionment would only be appropriate where it produced a reasonable estimate of additional use for a particular type of expense. It follows you should apportion your running expenses for the room to exclude any hobby or private purpose. For further guidance, you may refer to Taxation Ruling TR 93/30.