Private ruling: Home office expenses
Published: May 2014
Ruling period: Year ended 30 June 2012 | Year ended 30 June 2013
Date scheme commenced: 1 July 2011

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


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 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. For an expense to constitute an allowable deduction, it must be shown that they were incidental or relevant to the production of the taxpayer's assessable income ( Ronpibon Tin NL & Tong Kah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 4 AITR 236; (1949) 8 ATD 431. As a general rule, any expenses incurred which relate to the use or ownership of a home will be of a private or domestic nature, and therefore not deductible. However, a taxpayer who carries on part or all of their employment activities from home may be entitled to a deduction for part of the outgoings on the home. The deductions allowable depend on whether the home can be regarded as a place of business, or whether a room of the home is merely used as a study or home office. The deductible expenses in respect of a home can be divided into two broad categories: • Expenses relating to ownership or use of a home which are not affected by a taxpayers income earning activities (i.e. occupancy costs) • Expenses relating to the use of facilities within the home (i.e. running costs) If an area of the home has the character of a place of business, some of the expenses from both the above categories may be claimed as a deduction. Whether an area of a taxpayer's home has the character of a place of business depends upon: • The essential character of the area; • The nature of the taxpayer's 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; • The area is used exclusively or almost exclusively for income producing purposes; • The area is used regularly for visits of clients or customers; • The taxpayer requires a place of business; • The taxpayer does not have an alternative place of business; and • The area is used exclusively or almost exclusively for income producing purposes. It is considered that in your circumstances you meet the conditions and an area in your rented property has the character of a place of business and you are entitled to a deduction for a proportion of the occupancy expenses of your rented property.

Relevant facts: You are an area sales manager and you regularly visit clients within your area. | Your employer is interstate and does not provide a local office for you to complete your employment activities and duties. | You use a dedicated office space in your home to complete the sales and administration activities. These activities include communication with clients and your employer for sales, ordering, invoicing and stock related activities. | You often receive and store client items, stock, samples and other business correspondence which is sent directly to your home. | A percentage of the property you rent is a dedicated office space which is utilised exclusively for your income producing activities.