Private ruling: Home office and work expenses
Date of advice: 17 May 2018
Published: July 2018
Ruling period: Year ended 30 June 20XX
Date scheme commenced: Month A 20XX

Ruling: Q1: Are you able to claim a deduction for occupancy expenses in relation to your home office space? | A1: Yes. | Q2: Are you able to claim a deduction for running expenses in relation to your home office space? | A2: Yes. | Q3: Are you able to claim a deduction for travel expenses from your home office to meetings with business partners and networking events? | A3: Yes.

Relevant facts and circumstances: You are an employee of a business and work solely from a home office in your rented place of residence because your employer does not have any offices in Australia. You are not a contractor or in business but are a salaried employee. One of the rooms in your home is used solely to conduct your work duties and not for any other purposes and most of your work carried out is by telephone, email and Skype. The area of this room accounts for X% of the total area of your home. You use part of your garage for storage of work equipment and filing. You are the Program Manager for an overseas company which brings overseas students to Australian universities. From time to time you use your personal vehicle or public transport to travel from your home office to work meetings with business partners and networking events.

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

Reasons for decision: Summary: You can claim a deduction for occupancy expenses and running expenses in relation to your home office space. You can claim a deduction for travel expenses from your home office to meetings with business partners and networking events. | Detailed Reasoning - Are you able to claim a deduction for occupancy expenses in relation to your home office space?: 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, for example, 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, for example, 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 expenses are 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. According to Taxation Ruling TR 93/30 Income tax: deductions for home office expenses, a place of business will exist only 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 was necessary to work from home; and ● the area of the home is used exclusively or almost exclusively for income producing purposes. In your case, you need to conduct administration duties, attend Skype interviews, draft contracts, review documents and liaise with various stakeholders over email and phone. The nature of these activities requires you to have a place of business. Your employer does not provide a workplace in Australia, and it is a requirement of your income producing activities that you have a place of work. It is necessary for you to work from home, and the area in your home office is used exclusively for this purpose. As you have no alternative place of business and it is necessary to work from home, it is considered that your home office is a place of business. | Detailed Reasoning - Occupancy expenses: As it is considered your home office is a place of business, you may claim occupancy costs such as a proportion of rent and insurance premiums. The proportion of rent should be calculated as a percentage of floor space compared to that of the entire dwelling. This would be X% of your home. The area in your garage used for storage of equipment and filing is not included in this percentage because the garage has not been set aside solely for work purposes. Insurance premiums should be calculated as a percentage of values of your office and related equipment compared to the value of the other items that are insured under the policy. | Detailed Reasoning - Running expenses: Running expenses that are associated with your work are an allowable deduction. It is only the additional expenditure on the running expenses that are incurred as a result of your income producing activities that are allowable. Therefore a portion of electricity charges for heating/cooling, phone and internet costs, lighting and office equipment, depreciation of equipment, and cost of maintaining/repair of office furnishings may be allowed. You should apportion your running expenses to exclude any hobby or private purpose. Running expenses are based on usage and you may keep a diary for electricity and other utility usage for a four week period in order to establish the pattern of use for the whole income year. You must allow for periods such as holidays and illnesses. Instead of recording actual expenses for heating, cooling, lighting and furniture depreciation, you can claim a deduction of 45 cents per hour based on either: ● actual use ● an established pattern of use. This rate is based on average energy costs and the value of common furniture items used in home business areas. You need to separately work out all other home work area expenses, such as phone expenses and depreciation on computers or other equipment. Another alternative is that you can use the floor area used as your office to work out some running expenses. For example, if the floor area of your office is X% of the total area of your home, you can claim X% of some running costs. | Detailed Reasoning - Are you able to claim a deduction for travel expenses from your home office to meetings with business partners and networking events?: You commence work duties before attending business meetings and networking events. You also return to your home office to continue work duties after these meetings and networking events. This means that your home office is a base of employment where you commence work and you continue working when you travel for meetings and events. You are able to claim a deduction for travel expenses from your home office to meetings and networking events.