Private ruling: Home Office Deduction
Date of advice: 9 March 2017
Published: August 2017
Ruling period: Year ended 30 June 2015 | Year ended 30 June 2016 | Year ending 30 June 2017 | Year ending 30 June 2018
Date scheme commenced: 1 July 2014

Ruling: Q1: Are you entitled to a deduction for occupancy expenses, including mortgage interest, and running expenses in relation to your home office? | A1: Yes

Relevant facts and circumstances: You were employed by Company A. Company A did not have a physical office location in your city; you were required to work form your home address. Your duties while working at Company A included business development, account management, client management, software sales, services sales, territory planning and reporting, and product presentation and demonstration. You are employed by Company B. Company B does not have a physical office available in your city; you are required to perform all your duties from your home address. Your duties at Company B include operational management of the company, staff recruitment, business development, account management, client management, software and services sales, product presentation and demonstration, P&L management, and company growth and development. You use one room as your designated office for both roles with an office desk, and other office equipment. The room has not been used for any other purposes. You spend several hours per day in the home office depending on meetings and presentations scheduled. You do not use your home office to meet clients, if a client wants to meet, you will hire a boardroom for meeting. Your home office is located on the ground floor of your house and is a dedicated office space.

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 a loss and outgoing to the extent that it is incurred in gaining or producing assessable income. However, a loss or outgoing is not deductible if it is of a capital, private or domestic nature, or it is incurred in gaining or producing exempt income. Taxation Ruling TR 93/30 Income tax: deductions for home office expenses: discusses home office expenses. It states that 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. If the area of the home being used has the character of a place of business, occupancy expenses associated with that part of the home take on a business or business like character and a proportion of those costs are allowable deductions under section 8-1 of the ITAA 1997. Where an area of the home is simply used in connection with a taxpayer's income producing activities but does not have the character of a place of business, then only additional running costs attributable to the income producing area of the home will be allowable. Paragraph 5 of TR 93/30 sets out the following criteria, none of which are necessarily conclusive on their own, to be considered in determining whether an area within a taxpayers home 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. Furthermore, where a taxpayer can show that is necessary to work from home in the absence of an alternative place, a court or tribunal will accept a part of a taxpayer's residence as a place of business, and the relevant occupancy costs will be considered deductable ( Case T48 , 86 ATC 389; Case 47 , 29 CTBR(NS)355). In such cases, paragraph 13 of TR 93/30 states that a place of business will only exist 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 is necessary to work from home; and ● the area of the home is used exclusively or almost exclusively for income producing purposes. Based on the distinctions outlined in TR 93/30, we consider that part of your home is a 'place of business' as there is no suitable alternative for you to work at your head office, it is necessary for you to work at home and that area of the home is used exclusively for income producing purposes. Subsequently, you can claim deductions under section 8-1 of the ITAA 1997 for occupancy expenses for your home office. Home office expenses need to be apportioned usually by floor area. Where an office is also used for a private purpose (for example storage of incidentals) you would also need to apportion the use and costs. If the office is only used for part of the year, then costs would also need to represent this.