Private ruling: Home office expenses
Date of advice: 7 September 2017
Published: January 2018
Ruling period: Year ended 30 June 2017 | Year ending 30 June 2018 | Year ending 30 June 2019 | Year ending 30 June 2020 | Year ending 30 June 2021
Date scheme commenced: 1 July 2016

Ruling: Q1: Are you entitled to claim deductions for occupancy and running expenses relating to your home office? | A1: Yes

Relevant facts and circumstances: You are employed by Company A. You used to work in the City X office however on DDMMYY the City X office was closed. You were given the option to relocate to another office in City Y or City Z, or work from your home in City X. You chose to work from your home in City X. You live in an apartment. You analyse quality assurance for various projects and perform test scripts. You access the Company A network remotely using your own broadband connection. Your role is not client facing and you are not required to visit clients, nor will they visit you. Your work area is not a separate room; however it is a clearly identified area in your apartment. It comprises of a desk space, hard drive, two monitors, printer, 2 3-drawer cabinets, office chair and various office equipment, most of which is provided by Company A. You have made a dedicated workspace declaration to your employer. You have also had a work from home risk assessment completed by your employer. You exclusively use your work area in your apartment for completing Company A duties. It would be difficult for you to revert the work area to private use due to the large amount of office equipment that is set up.

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. For a deduction to be allowable for home office expenses, the expenses must satisfy the requirements of section 8-1 of the ITAA 1997. Normally, expenses associated with a person’s home are private or domestic in nature, and therefore do not qualify as an allowable deduction ( Handley v. Federal Commissioner of Taxation (1981) 148 CLR 182; 81 ATC 4165; (1981) 11 ATR 644; and FC of T v. Forsyth 81 ATC 4157; (1981) 11 ATR 657). However, where the home is used for income producing activities and has the character of a 'place of business', a deduction may be allowable for a portion of 'occupancy expenses' such as rent, mortgage interest, municipal and water rates and house insurance premiums, and 'running expenses' such as electricity charges for heating and lighting. If the home office is used in connection with the taxpayer's 'income producing activities', but does not constitute a 'place of business', only a proportion of the running expenses are allowable. Paragraph 4 of Taxation Ruling TR 93/30 Income tax: deductions for home office expenses states: 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. This is likely to be the case where a part of a residence is set aside exclusively for the carrying on of a business by a self-employed person (e.g., a doctor's surgery). Another example is where part of the home is used as a taxpayer's sole base of operations for income producing activities (e.g., where no other work location is provided to an employee by an employer ( Case T48 , 86 ATC 389; Case 47 , 29 CTBR(NS) 355)). Paragraph 5 of TR 93/30 provides 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", as follows: ● 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. In your case, no other work location is provided; you therefore use an area in your apartment as an office that is clearly identifiable. You use this home office area exclusively for work related to your employment and keep all work related equipment in this area. Furthermore, the nature of your work requires that you maintain a work area in your apartment. Your role does not require client contact. Based on the above, it is considered that your home office is a place of business. As a result, you are entitled to claim deductions for both running expenses and occupancy expenses. Your occupancy expenses would generally be apportioned on a floor area basis.