Private ruling: Home office
Date of advice: 10 July 2018
Published: September 2018
Ruling period: Period ended 30 June 20XX
Date scheme commenced: 1 July 20XX

Ruling: Q1: Can you claim a proportion of your rent as a home office expense? | A1: No

Relevant facts and circumstances: You are employed as an Forecaster/Dealer. Your role is to optimise the supply your product to customers, through monitoring of the market and identifying opportunities to make changes. Your role does not require you to trade in stocks. You have a residential address which is rented. You do not have a clearly identifiable place of business, you are not visited by clients at your residence and you do not carry on a business at your residence. You are an employee. You are provided with a work location by your employer. You do not hold any historical records of the actual hours you work whilst rostered afterhours. You would speak to the control room overnight and send bids each night during weekday rosters. On weekends you are required to call or bid regularly. Making an actual bid or phone call would take about 10 minutes. Your work afterhours work can fluctuate; with high levels of responses some weekends. When sleeping you are notified by phone notification software which alarms your phone or through the direct contact to you if certain criteria are meet which require you to respond to the market. There are no special policies related to your afterhours work, all policies related to in office work extend to the afterhours work from home. You conduct the out of hours’ work from your home where you can remotely access your work computer. Out of hours timings are 5pm to 8am weekdays and 24 hours over weekends. Your afterhours work allowance represents the hours’ of heavier response which are 6pm to 11pm weekdays and 7am to 10pm weekends. During the 20XX financial year you received payment for your afterhours work for a number of occurrences, representing weekday occurrences and occurrences on weekends. Four fortnightly payslips have no afterhours allowances. You have made a claim in your 20XX Income Tax Return for a value, dissected this represents a portion of your rental expenses per week based on the percentage of your utilised space as a home office. The room utilised for your afterhours which equates to 17 percent of your residence. The room utilised for your afterhours activities is not occupied by anyone however it is utilised to store some items including clothing.

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

Reasons for decision: Summary: You advised you are provided with a work location by your employer and you do not conduct a business from your home. Therefore the occupancy expenses associated with the use of your home office space are seen to be of a private or domestic nature and do not qualify as a deduction for taxation purposes. | Detailed Reasoning - Detailed reasoning: 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. Taxation Ruling TR 93/30 “ Income tax: deductions for home office expenses ” discusses the circumstances where a deduction is allowable for expenses associated with a taxpayers home. As outlined in paragraph 9, a deduction is generally not allowable for the costs associated with a person’s home as they are private in nature ( Federal Commissioner of Taxation v. Faichney (1972) 129 CLR 38; 72 ATC 4245; (1972) 3 ATR 435). An exception to this general rule is where the property is used for income producing activities and has the character of a 'place of business'. In such cases some of the expenses incurred in respect of the property may be partly deductible. TR 93/30 outlines the factors that indicate whether or not a home office has the character of a place of business. This is likely to be the case where part of a residence is set aside exclusively for the carrying on of a business by a self-employed person, such as a doctor or dentist with a surgery or consulting rooms at home or a tradesperson with a workshop at home. Another example is where part of the home is used exclusively as the sole base of operation for an employee and no other work location is provided by the employer. An apportionment of the area of the home used for business use is usually done on a floor area basis. Where a home office has the character of a place of business, a proportion of running costs and occupancy costs can be claimed as a deduction. Running costs include heating, cooling, lighting and the decline in value of office furniture. Occupancy expenses include rent, interest, rates, insurance and repairs. The following factors 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, ● the area is used regularly for visits of clients or customers. The existence of any of these factors or a combination of them will not necessarily be conclusive in determining whether the home constitutes a place of business in the ordinary and common sense meaning of the term. The determination will depend on a balanced consideration of the essential character of the area, the nature of the taxpayer's business and any other relevant factors. It is not sufficient that a room in the home is used in association with a business. The fact that no other accommodation is available is not of itself sufficient to render a house as a place of business. | Detailed Reasoning - Used only in connection with work: Taxpayers who maintain an office or study in their homes where they can do income-producing work, but which does not constitute a place of business cannot claim deductions for occupancy expenses, such as mortgage interest, rates, rent, insurance or repairs referable to their home office. They can claim a deduction for additional running costs incurred. Individual taxpayers who claim home office expenses are required to be able to prove that they have incurred such expenses. Practice Statement PSLA 2001/6 provides that a diary covering a representative four week period would establish a pattern of usage for that year. Adjustment should be made for periods when the home office is not used for income production, such as holidays and illnesses. Individual taxpayers may claim eligible running expenses (heating, cooling, lighting and decline in value of office furniture) based on additional costs incurred, or a deduction calculated at the rate of 45 cents per hour. This is not available where the work activity is undertaken in an area where other family members are present and so there is no additional energy cost. The rate is based upon average energy costs and the value of common furniture items used in home offices. | Detailed Reasoning - Application to your circumstances: Whilst it is acknowledged that your employer requires you to conduct out of hours work from home, this does not convert your home to a place of business. You are not self-employed and your home is not your sole base of operations. You carry out some work at home. You also work at your employer’s business premises. Although it is appreciated that there are time constraints inherent in the type of work that you do, and having the home office space makes it possible for you to do your work from home, your home office is not regarded as a place of business for tax purposes, and the Commissioner has no discretion under the tax laws to make an exemption. It follows you may not claim deductions for occupancy expenses which includes rent. You do not incur additional occupancy expenditure for the purpose of producing assessable income. You would have had to pay the same amount of rent regardless of whether you used your home for work purposes. Therefore, your occupational expenses including the portion that relates to your home office is considered to be of a private or domestic nature. Your occupancy expenses incurred are not sufficiently related to your income earning activities. Accordingly, no deduction is allowed for the associated occupancy expenses under section 8-1 of the ITAA 1997. However, since you perform income producing activities at home, you will be entitled to a deduction under section 8-1 of the ITAA 1997 for the running costs of your home office to the extent that the costs incurred relate to your income earning activities. That is, your home office deductions should be limited to your additional ‘running expenses’ incurred such as electricity.