Private ruling: Home office expenses
Date of advice: 4 July 2017
Published: November 2017
Ruling period: Year ending 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Are you able to claim a deduction for the rental cost in relation to your temporary home office? | A1: No


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, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income. Taxation Ruling TR 93/30 is about home office expenses. It states deductible expenses in respect of a home office can be divided into two broad categories: ● Occupancy expenses, that is, 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, that is, 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. | Detailed Reasoning - Home office as a place of business: As a general rule, occupancy expense is allowable when the part of the home used for income producing activities has the character of a '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. A place of business may exist where part of the home is used as a taxpayer’s sole base of operations for income producing activities, for example no other work location is provided to an employee by an employer. The following factors, none of which is necessarily conclusive on its own, may indicate whether or not an area set aside 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. The areas in the alternate premises you have rented for a period of time do not have the characteristics of a place of business. You used different areas of the rented property to do your work, and these areas could be suitable or adaptable for use for private or domestic purposes in association with the home generally. | Detailed Reasoning - Occupancy expenses: As it is not considered you have a clearly identifiable place of business, you may not claim occupancy costs such as a proportion of rent. Please note you may be able to claim a proportion of running expenses such as electricity. Further guidance can be found using the Quick Connect link QC 23654 on your internet search engine.

Relevant facts: You are self-employed, and run your business solely from a home office in your place of residence. | Some work is costed out on an hourly basis. | You work at home, and most of your work carried out there is received on the internet, and you rarely have visits by clients. | You have built up the clientele of your business over a long period of time and are very conscious of keeping existing clients as well as growing your business. | You had a situation at your home which made it impossible to work in for a period of time when you had a particularly high workload. | During the time in question you sought alternative office accommodation which was affordable and would also allow you to securely work after normal office hours. | The alternate accommodation was a house which you rented for a time which suited the period of your higher workload. | You lived at the rented premises for the duration of the lease. | When you commenced the lease period at the temporary accommodation, you did not return to your permanent home until the lease had finished. | You attempted to maintain a specific work area; however internet and location of modem and wifi mean that you can be flexible in your choice of work point, and were able to conduct your work in different areas of the house, so there was no clearly identifiable place of business. | You had considerable billable hours for the time at the temporary accommodation. You were working alone at the temporary accommodation, except for when family members visited occasionally as work and other commitments permitted. | Several factors were taken into account when you relocated your office: you have an ageing client base; your increased income has led to additional work in calculating GST obligations, and your alternate home office was more secure than your home office at the time.