Private ruling: Home office expenses
Date of advice: 26 July 2016
Published: September 2016
Ruling period: Year ending 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Are you entitled to claim deductions for occupancy expenses and running expenses for an area of your home that is considered to have the character of a place of business? | A1: Yes.

Relevant facts and circumstances: You are employed full time. Your employer is based interstate and does not maintain an office presence or any storage facilities in the state in which you reside. You are required to travel to visit your clients; however you are only away overnight approximately two nights per month. As part of your role, you are required to have catalogues, advertising materials and samples of goods available to take to your customers. As your employer does not provide you with any storage facilities, it is necessary that you store these items at your residence or lease an offsite storage facility, so you choose to store them at home for ease of access and use. You maintain a single room in your home as a home office; containing a desk, filing cabinet, computer and storage area which is exclusively for income producing purposes.

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

Reasons for decision: Summary: You can deduct from your assessable income any loss or outgoing to the extent that it is incurred in gaining or producing your assessable income except where the loss or outgoing is capital or private in nature (section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)). 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. However, a portion of these expenses are allowable deductions where either: a) part of the home is used for income producing activities and has the character of a place of business, or b) part of the home is used in connection with the taxpayer's income earning activities but does not constitute a place of business Whether an area of the home has the character of a place of business is a question of fact. Where part of a home is set aside exclusively for the carrying on of a business by a self-employed person (for example, a doctors surgery), or where it is used as a taxpayers sole base of operations for income producing activities (for example, where no other work location is provided to an employee by an employer), it is likely to have this character (Taxation Ruling TR 93/30). TR 93/30 provides a number of factors which tend to indicate that an area set aside has the character of a place of business which include: • the area is not readily suitable or adaptable for use for private or domestic purposes generally, and • the area is used exclusively or almost exclusively for income producing purposes The deductible expenses in respect of part of a home used by a taxpayer as their sole base of operations can be divided into two broad categories: Occupancy expenses - expenses relating to ownership or use of a home which are not affected by a taxpayer's income earning activities. These include mortgage interest, council and water rates and house insurance premiums, and Running expenses - expenses relating to the use of facilities within the home. These include electricity charges for heating/cooling, lighting, cleaning costs, decline in value, leasing charges and the cost of repairs on items of furniture and furnishings in the area set aside. Where an area has the character of a place of business, some part of the expenses from both categories may be claimed as a deduction. However, where an area of the home is simply used in connection with income producing activities and does not have the character of a place of business, only running expenses are allowable to the extent they are additional expenses incurred as a result of the income producing activities. In your case you have one room in your home set up as a home office and for the storage of product samples and marketing materials. This room is not readily suitable or adaptable for domestic purposes generally and is used exclusively for income producing purposes. You carry out your employment duties in your home office as no alternative location is provided by your employer. Whilst it could be argued that you do have the option of leasing an offsite storage facility for the purpose of storing your marketing materials and samples, it does not alter the fact that your employer does not provide you with either storage facilities or an office space. Your home office is considered to have the character of a place of business; therefore, you are entitled to a deduction for some part of both your occupancy and running expenses under section 8-1 of the ITAA 1997. In most cases the apportionment of occupancy expenses should be made on the basis of floor area and, where the area of the home is used for part of the year only, on a time basis.