Private ruling: Deduction for company rent of office
Date of advice: 23 February 2017
Published: August 2017
Ruling period: Year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Can the company claim a deduction for rent paid for use of a business office? | A1: Yes.

Relevant facts and circumstances: The company pays rent for the use of part of a residential unit for business purposes. The floor area of the business use portion of the property is a known percentage of the total, being one of the rooms. The company has no other business premises, and the area is used solely for business purposes. The area is a dedicated office and is used for 6 days per week for business purposes only. On the 7th day the space is not used for any other purpose. There is another staff member who works in the office, as well as the director. The company clients are all either based overseas or interstate. Web-based voice and video phone calls are used extensively to meet and communicate with clients.

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 all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income or are necessarily incurred in carrying on a business for the purpose of 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, or a provision of the ITAA 1997 prevents it. Allowable deductions A number of significant court decisions have determined that for an expense to be an allowable deduction: ● it must have the essential character of an outgoing incurred in gaining assessable income or, in other words, of an income-producing expense ( Lunney v. FC of T ; (1958) 100 CLR 478, ● there must be a nexus between the outgoing and the assessable income so that the outgoing is incidental and relevant to the gaining of assessable income ( Ronpibon Tin NL v. FC of T , (1949) 78 CLR 47 ( Ronpibon's case) , and ● it is necessary to determine the connection between the particular outgoing and the operations or activities by which the taxpayer most directly gains or produces his or her assessable income ( Charles Moore Co (WA) Pty Ltd v. FC of T , (1956) 95 CLR 344; FC of T v. Hatchett , 71 ATC 4184). Where a company pays rent for a business office for income producing purposes, such rental expenses are an allowable deduction under section 8-1 of the ITAA 1997. The company is allowed a deduction for its rental expenses.