Private ruling: Deductibility of home office expenses
Date of advice: 12 September 2018
Published: October 2018
Ruling period: Period Ended 2018
Date scheme commenced: 01 July 2017

Ruling: Q1: Are you entitled to claim the work related portion of your home office expenses incurred, including occupancy expenses and running expenses under Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: Yes 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. In your situation as you do not have a dedicated work space provided by your employer, and you have allocated an area for exclusive use as a home office you are therefore able to claim apportioned expenses for occupancy and running expenses. 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. TR 93/30 discusses the ability to claim a portion of your occupancy and running expenses electricity, gas, rates and interest incurred. Those amounts that have been paid for or reimbursed by your employer are not deductible. Generally, capital gains tax does not apply to a person's main residence. However, section 118-190 applies when the main residence disposed of was also used for the purpose of gaining or producing assessable income during the period of ownership. Where an area of a home is set aside and used as a place of business the capital gains provisions will apply. | Q2: Are you entitled to claim connection fee in relation to the National Broadband Network (NBN)? | A2: No Under Section 8-1 of the ITAA 1997 a deduction is not allowable for the cost of installing or connecting a telephone, mobile phone, pager, beeper or other telecommunication equipment as it is considered to be a capital expense or a private expense. In Case M53 80 ATC 357; 24 CTBR (NS) Case 29 , it was held that (ATC at 359; CTBR at 236): '...on payment of the connection fee, this taxpayer brought into existence an advantage for the enduring benefit of his newly established medical practice...it follows that it is "like" an expenditure of a capital nature.' In your situation it the installation of the NBN would be considered to be a capital or a private expense therefore not deductible. | Q3: Are you entitled to claim entertainment expenses including coffees and meals incurred when you meet with clients? | A3: No Section 32-5 of the ITAA 1997 provides a general prohibition on the deductibility of entertainment expenses under section 8-1 of the ITAA 1997. Entertainment is defined in section 32-10 of the ITAA 1997 and includes entertainment by way of food, drink or recreation. As outlined in subsection 32-10(2) of the ITAA 1997, you are taken to provide entertainment even if business discussions or transactions occur. That is, business lunches are entertainment for Division 32 purposes. Exemptions to the classification of entertainment are activities such as meals on business travel overnight, theatre attendance by a critic and a restaurant meal of a food writer. As you are not travelling on business overnight, the costs you incur at your business meetings for drinks and meals would be deemed to be entertainment and therefore they are not deductible. | Q4: Are you entitled to claim the small business exemptions for instant asset write-off for assets under $20,000.00, for the curtains and blinds installed in your home office space? | A4: No Your do not meet the meaning of a small business entity under section 328-110 of the ITAA 1997. You are an individual who is an employee. You do not hold an Australian Business Number. You do not operate a small business or gain assessable income as a sole trader therefore you cannot apply the immediate deductibility threshold for a small business.

Relevant facts and circumstances: You are an employee. You do not hold an Australian Business Number. You do not operate a small business or act as a sole trader. Your employer acknowledges that they do not have an office within Australia and you are required to work from your residence. Your employer pays for your travel to staff and industry conferences throughout the year. You work from your residence. You have allocated a dedicated area, the enclosed balcony within your residence as your office space. This space is not utilised for any other purpose. This represents 14.5 square metres of 104.9 metres square of the unit floor space. Your employer has provided you with tools of the trade including, computer, office furniture and cost of internet and outgoing calls. Your duties include remote management of staff, project management of client campaigns, and internal meetings with colleagues. You do not meet with clients at your residence. Any meetings with clients or suppliers happen outside your home office space, usually at public meeting space (e.g. Café) or at your clients’ offices. You incurred costs to have the NBN installed in your residence. You incur costs for electricity, gas, rate, mobile phone, internet and interest. You have incurred costs in your home office for curtains and blinds.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1 | Income tax Assessment Act 1997 Section 32-5 | Income tax Assessment Act 1997 Section 328-110