Private ruling: home office occupancy expenses
Published: September 2013
Ruling period: · Financial year ended 30 June 2011 | · Financial year ended 30 June 2012 | · Financial year ended 30 June 2013
Date scheme commenced: 1 July 2010

Ruling: Q1: Are you entitled to a deduction for home office occupancy expenses under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for the financial yeas ended 30 June 2011, 2012 and 2013? | A1: No. | Q2: Do I need to keep records in addition to tax receipts, a diary and employer letters to substantiate any home office occupancy expenses? | A2: No, as a deduction is not allowable.

Relevant facts and circumstances: You are employed on a full-time basis. Your job requires you to attend to customer emergency calls out of usual business hours, for which you must remotely use your computer to make the customer's system functional again. For emergency call service purposes, you are also required to be on call and your employer pays you an on call allowance for this. Your job requires you to attend customer sites. Having customer sites far away from the work office, your employer requests you continue and/or start your work from home, not attending the office at all. Your job requires you to liaise with work colleagues and partners in overseas countries. These work activities include exchange of information and documentation through your computer online, telephone, email and video connections. This work is done late at night (out of usual working hours) to enable coordinated work activities with overseas contacts. Your job requires you to remotely conduct maintenance tasks such as upgrades and updates of software. Due to the nature of the system, this work is required to be done during low load times of the system, being between 11.00pm and 6.00am the next day. Your employer requires you maintain a working environment at your home to carry out work activities. As part of this requirement, your employer has assessed your home and deemed it meet the Occupational Health and Safety requirements. You use an existing room of your home that you maintain as a study to undertake your work-related activities. The room is furnished with a wardrobe, bookshelf, table, chair, computer and computer-related equipment and a telephone. Less than 50% of the home office's total use is for your work-related activities.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1. | Income Tax Assessment Act 1997 Subdivision 900-E

Reasons for decision: Summary: You are not entitled to a deduction for home office occupancy expenses as the area does not have the character of a 'place of business'. As such, occupancy expenses are considered expenses of a private or domestic nature. As you are not entitled to a deduction for occupancy expenses, you are not required to keep written evidence to substantiate related costs. | Detailed Reasoning - Home office occupancy expenses: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for a loss or outgoing to the extent it is incurred in gaining or producing assessable income, except where the loss or outgoing is of a capital, private or domestic nature. Normally, expenses associated with a taxpayer's home are private or domestic in nature and therefore do not qualify as allowable deductions. However, where part of the home, the 'home office', is used for income producing activities, a portion of home office expenses may be deductible. Taxation Ruling TR 93/30 discusses home office expenses and divides home office expenses into two broad categories: · Occupancy expenses - expenses relating to ownership of use of a home which are not affected by the taxpayer's income earning activities. These include rent, mortgage interest, municipal and water rates, land taxes and house insurance premiums. · Running expenses - expenses relating to the use of facilities within the home. These include electricity charges for heating, cooling and lighting; cleaning costs; depreciation; leasing charges and the cost of repairs on items of furniture and furnishings in the office. The deductibility of these categories of home office expenses depends on whether the home office has the character of a place of business or a private study. Paragraph 7 of TR 93/30 provides that where the home office has the character of: · a place of business - some part of the expenses from both categories, occupancy expenses and running expenses, may be deductible. · a private study - only some part of the running expenses may be deductible. Some factors which may indicate whether or not an area set aside has the character of a 'place of business' include: · 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 taxpayer's circumstances are such that there is no alternative place for conducting work-related activities, making it necessary to work from home | Detailed Reasoning - The area is clearly identifiable as a place of business: In your case, the home office area is not clearly identifiable as a place of business, it is just a room set aside in your house. The place of business is the employer's business premises. | Detailed Reasoning - The area is not readily suitable or adaptable for use for private or domestic purposes in association with the home generally.: You have demonstrated the room to be readily suitable, adaptable and capable for private or domestic use as the room is mostly used for private or domestic purposes. The inclusion of some office furniture in the area does not alter the area to such a degree that it cannot also be used for domestic purposes. | Detailed Reasoning - The area is used exclusively or almost exclusively for carrying on a business: You use a room in your home less than 50% for work-related activities. The room would not be considered to be used exclusively or almost exclusively, for your work-related activities. | Detailed Reasoning - The area is used regularly for visits of clients or customers: The area is not used for visits from clients or customers. Meetings with clients and customers are mostly at either the client's premises or remotely, via your computer and telephone. | Detailed Reasoning - No alternative place for conducting work-related activities: Your job requires you to attend to customer emergency calls out of usual business hours, for which you must remotely use your computer to make the customer's system functional again. You are also required to be on call and your employer pays you an on call allowance for this. Your occupation also necessitates you liaise with personnel in overseas countries to undertake work activities. These work activities include exchange of information and documentation through the telephone, email and video connections. This work is done late at night (out of usual working hours) to enable coordinated work activities with overseas contacts. Your occupation also requires that you remotely conduct maintenance tasks such as upgrades and updates of software. Due to the nature of the system, this work is required to be done during low load times of the system, being between 11.00pm and 6.00am the next day. Because of these work requirements, your employer requires you maintain a working environment at your home to carry out these activities. As part of this requirement, your employer has assessed your home and deemed it meet the Occupational Health and Safety requirements. Due to the inherent nature of your work activities, you must carry out some work at home which cannot reasonably be otherwise carried out at your employer's business premises. We consider you are not using your home office as a matter of convenience. However, your home office is not the only place that you carry out your work-related activities, and the sole base of operations is your employer's business premises. Consideration of the above factors to your situation indicates that the essential character of your home office was that of a private study rather than a 'place of business'. While we recognise that at times, there is no reasonable alternative place to your home office for conducting your work-related activities, there are no other supporting factors that indicate that your home office has the character of a 'place of business'. Accordingly, you are not entitled to claim a deduction for home occupancy expenses for your home office under section 8-1 of the ITAA 1997 as the home occupancy expenses are considered expenses of a private or domestic nature. However, since you do 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. | Detailed Reasoning - Record keeping: Subdivision 900-E of the ITAA 1997 tells you what written evidence including records you must have to support a claim for a deduction, including claims for home office occupancy expenses. Generally, you must obtain documentation that includes relevant details such as the nature of the expense, the amount and date of the expense, from the supplier of the goods or services the expense is for. Generally, tax receipts will meet this requirement. Where a taxpayer's home office qualifies as a place of business, the taxpayer may be able to claim a portion of the occupancy expenses incurred. The actual amount which can be claimed is dependent on individual circumstances. Taxation Ruling TR 93/30 provides that in most cases, the apportionment of the total expense incurred on a floor area basis is the most appropriate method. In your case, your home office does not qualify as a place of business and you are not entitled to a deduction for occupancy expenses. Therefore, you are not required to keep written evidence to substantiate related costs.