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

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

Relevant facts and circumstances: You are employed in Australia but you are responsible for servicing clients located overseas. You work from your employer's office from 7:30am until 5:30pm. However you are required to work for an additional amount of time from your home office to assist trading desks in countries with different operating hours and time zones. Your work is almost entirely dependable on the availability of your employer's system and computers, and although your employer's office is available after work hours, their computer systems are not available, especially during weekends and public holidays. Given your job requirements, you require a home office where you can work and remotely login from your home computer system. As you live with your spouse and child, you have rented a X bedroom house, with Y rooms being used privately by family members and the other used exclusively by you to perform your after hours work duties. The furnishings of the office are a sofa, study table, office chair and a computer secured by password. You do not require a file cabinet, as all documents related to your work are confidential and are kept online. They are not allowed to be printed or brought home. The office is not used for any reason other than for work purposes.

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

Reasons for decision: Summary: Section 8-1 of the ITAA 1997 allows a deduction for any loss or outgoing to the extent that it is incurred in gaining or producing your assessable income, or it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. However, you cannot deduct a loss or outgoing to the extent that it is capital, or of a 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. Generally, expenses associated with a taxpayers home are private or domestic in nature and therefore do not qualify as allowable deductions for taxation purposes. 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 relating to ownership or use of a home. These include rent, mortgage interest, municipal and water rates and house insurance premiums, and § running expenses relating to the use of facilities within the home. These include electricity charges for heating/cooling and lighting, cleaning costs, decline in value, and repairs to equipment (Taxation Ruling TR 93/30). Place of business 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 or where part of the home is used as a taxpayer's sole base of operations for income producing activities (for example, where no other work location is provided to an employee by an employer). Taxation Ruling TR 93/30 sets out the following criteria, none of which are necessarily conclusive on their own, to be considered in determining whether a home office is 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 income producing purposes · the area is used regularly for visits of clients or customers · it is a requirement inherent in the nature of the taxpayers activities that the taxpayer needs a place of business, and/or · the taxpayers circumstances are such that there is not alternative place of business and it was necessary to work from home. In Case T48 a country sales manager for an oil company was able to show that, as there was no alternative place of business, it was necessary to work from home and the room in question was used exclusively or almost exclusively for income producing purposes ( Case T48 , 86 ATC 389; Case 47 , 29 CTBR(NS) 355). In your case: · the area is not readily suitable or adaptable for use for private or domestic purposes in association with the home generally · you have established a home office that is used exclusively for income producing purposes · it is a requirement inherent in the nature of the your employment that you need a place of business while working after your regular office hours, and · there is no alternative workplace for assisting clients and co-workers in different time zones after your regular office hours. Therefore, the room you have set aside to perform your income earning activities is considered to be a place of business, and you will are entitled to a deduction for a portion of your occupancy expenses under section 8-1 of the ITAA 1997. Apportionment - Occupancy expenses To calculate a deduction for occupancy expenses, it is necessary to apportion expenses between private and business/employment use. In most cases apportionment of expenses should be made on floor area, and in addition, where the area of the home is a place of business for only part of the income year, a time basis.