Private ruling: Home office expenses - occupancy
Date of advice: 2 September 2016
Published: November 2016
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Are you entitled to claim a deduction for home office occupancy expenses? | A1: Yes

Relevant facts and circumstances: Your employer is based overseas. They do not have a local office in your area, nor do they provide you with office space to undertake your employment. You have a home office which you use exclusively for business purposes. You have no alternative place to undertake your business activities.

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

Reasons for decision: Summary: As a general rule, expenses associated with a taxpayer's home are of a private or domestic nature and do not qualify as deductions for taxation purposes. An exception to this general rule is where part of the home is used for income producing activities and has the character of a "place of business". In such cases some of the expenses incurred in respect of the home such as rent, interest, repairs, house and contents insurance, rates and property taxes may be partly deductible. Another exception to this general rule is where part of the home is used in connection with the taxpayer's income earning activities but does not constitute a place of business. In this case, a more limited range of deductions may be available. Whether an area of the home has the character of a place of business is a question of fact which depends on the particular circumstances of each case. This is likely to be the case where a part of a residence is set aside exclusively for the carrying on of a business by a self-employed person (e.g., a doctor's surgery). Another example is where part of the home is used as a taxpayer's sole base of operations for income producing activities (e.g., where no other work location is provided to an employee by an employer). The following factors, none of which is necessarily conclusive on its own, may indicate whether or not an area set aside has the character of a "place of business": • the area is clearly identifiable as a place of business; • the area is not readily suitable or adaptable for use for private or domestic purposes in association with the home generally; • the area is used exclusively or almost exclusively for carrying on a business; or • the area is used regularly for visits of clients or customers. The existence of any of these factors or a combination of them will not necessarily be conclusive in ascertaining the character of an area used as a home office. Rather the decision in each case will depend on whether, on a balanced consideration of: • the essential character of the area; • the nature of the taxpayer's business; and • any other relevant factors, the area constitutes a "place of business" in the ordinary and common sense meaning of that term. The absence of an alternative place for conducting income producing activities has also influenced a court or tribunal to accept a part of a taxpayer's residence as a place of business. Examples include: • a self-employed script writer using one room of a flat for writing purposes and for meetings with television station staff ( Swinford v FC of T 84 ATC 4803 ) ; • an employee architect conducting a small private practice from home ( Case F53 , 74 ATC 294; Case 65 , 19 CTBR(NS) 452); • a country sales manager for an oil company whose employer did not provide him with a place to work ( Case T48 , 86 ATC 389; Case 47 , 29 CTBR(NS) 355). In each of these cases the taxpayer was able to show that, as a matter of fact, there was no alternative place of business, it was necessary to work from home, and that the room in question was used exclusively or almost exclusively for income producing purposes. Generally, a place of business will exist only if: • it is a requirement inherent in the nature of the taxpayer's activities that the taxpayer needs a place of business; • the taxpayer's circumstances are such that there is no alternative place of business and it was necessary to work from home; and • the area of the home is used exclusively or almost exclusively for income producing purposes. In your case, you undertake salaried employment which you conduct from home. You have a dedicated home office which is used purely for business purposes. It is accepted therefore that your home office will be considered a place of business for the following reasons: • you do not maintain any alternative place of business for your consulting/marketing activities; • your home office is exclusively set aside for use in your business activities; and • you are not provided with a place of employment by your employer. As part of your home qualifies as a place of business, you may be able to claim a portion of the occupancy expenses incurred under section 8-1 of the ITAA 1997. The actual amount which can be claimed is dependent on the taxpayer's individual circumstances. In most cases, the apportionment of the total expense incurred on a floor area basis is the most appropriate method. This is the method you have identified to calculate your home office occupancy expenses. However, where an area of the home is a place of business for part of the year only, it may be necessary for expenses to be apportioned on a floor area and a time basis. The time apportionment under this method should reflect the period of the year in which the room is used for income producing purposes.