Private ruling: Home-based deduction
Date of advice: 9 August 2024
Published: 23 September 2024
Ruling period: Year ending 30 June 2024
Date scheme commenced: 1 July 2023

Ruling: Q1: Are you entitled to claim a portion of electricity costs as a deduction in accordance with section 8-1 of the Income Tax Assessment Act 1997 ? | A1: Yes.

Relevant facts and circumstances: You have been carrying on a caretaker service through the NDIS under your Australian Business Number (ABN). Your client resides in a care facility. Your client's unit at the care facility does not contain a kitchen. Your client's dietary requirements are for vegetarian meals that the care facility can not provide satisfactorily. Your client has engaged you to prepare vegetarian meals that will meet their dietary requirements. You are party to a National Disability Insurance Scheme (NDIS) service agreement which outlines the following: • The agreement is between you as the named service provider and your client as the named NDIS participant. • The service agreement is made according to the rules and the goals of the NDIS. Further, you and the NDIS participant agree the service agreement aligns with the main ideas of the NDIS in providing more choices, achieving participants goals, and taking part in the community. • The support to be provided is shopping, preparation and cooking of vegetarian meals in your home, packaging and delivering to the NDIS named participant at their care facility. • This will consist of a number of meals to be delivered several times a week. • The agreed cost between the participant and supplier is based on a weekday hourly rate. • You are required to issue invoices and statements for the support you are providing. • Payment for services will be made by electronic transfer by the Plan Management Provider within 7 days of receipt of invoice. Since you commenced this activity you have been cooking the required number of vegetarian meals a week in your own home for the named NDIS participant. The service you are providing to your client is a new income stream to your existing caretaking services. None of the other caretaking services you provide involve using your home electricity. You will be relying on your electricity bills, appliance measurements and business-related usage as a part of your record keeping to calculate a deduction for your electricity costs.

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 or necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. However, you cannot deduct a loss or outgoing to the extent that: (a) it is a loss or outgoing of capital or of a capital nature; or (b) it is a loss or outgoing of a private or domestic nature; or (c) it is incurred in relation to gaining or producing exempt income or non-assessable non-exempt income; or (d) a provision of ITAA 1997 prevents you from deducting the loss or outgoing. Taxation Ruling 93/30 Income tax: deduction for home office expenses outlines the Commissioner's view about taxpayer's entitlement to claim expenses when using their home to gain or produce assessable income. Paragraph 2 of TR 93/30 states, as a general rule, expenses associated with a taxpayer's home are of a private or domestic nature and do not qualify as deductions for taxation purposes. However, an exception to this general rule would be where part of the home is used for income producing activities and has the character of a "place of business". In such cases, relevant expenses may be partly deductible. Paragraph 4 states, subject to the facts and circumstances of each case, examples of what is meant by the character of a "place of business" could include circumstances where part of the residence is set aside exclusively for the carrying on of a business or where part of the home is used as a taxpayer's sole base of operations for an income producing activity. Paragraph 7 of TR 93/30 states that where an area of the home is simply used in connection with income producing activities but does not have the character of a place of business, only running expenses are allowable. The amounts allowable as deductions are the additional expenses incurred as a result of income producing activities. Running expenses are expenses relating to the use of facilities within the home. These include electricity charges for heating, cooling, lighting, cleaning costs, depreciation, and the cost of repairs on items that are held or used by the taxpayer for the purpose of producing assessable income. TR 93/30 states it is not practicable to provide an exhaustive list of all running expenses that may be allowable deductions. It does discuss heating, cooling, and lighting expenses. Paragraph 23 of TR 93/30 states the amount a taxpayer is entitled to claim is the difference between what was actually paid for heating, cooling, and lighting and what would have been paid had the taxpayer not worked from home. The additional expense paid is that amount the taxpayer did incur working from home. A taxpayer can claim the actual cost or a bona fide estimate because the quantum of any allowable deduction for the additional expense will be a small amount (paragraph 25). Paragraph 24 of TR 93/30 provides an appropriate method to calculate a deduction based on the actual cost. | Detailed Reasoning - Application to your circumstances: In your case, you do not carry on your caretaking activities at your home and it would not be regarded as a place of business. As part of your caretaking services, you have entered into a service agreement with a client. The services you provide under the agreement include preparation and cooking of meals that meet the client's dietary requirements. You are paid based on an hourly rate. As the meal preparation occurs at your home it is recognised that part of the electricity supplied to your home is used for meal preparation activity for your caretaking services. Therefore, according to section 8-1 of the ITAA 1997 you are entitled to a deduction for a portion of the electricity costs that relates to meal preparation for your client, but not for the cost of the electricity bill that relates to your private or domestic use. You will need to calculate the proportion of the electricity cost that relates to the meal preparation. It would be reasonable for you to use the formula set out in paragraph 24 of TR 93/30 for heating, cooling, and lighting and apply the formula for other appliances that are powered by electricity or gas. You can work out the cost of your electricity and gas (energy expenses) for appliances powered by electricity or gas by using the: • cost per unit of power you use (your electricity or gas bill has this information) • average units you use per hour (the appliance power consumption) - this information may be found in the manufacturer information, the star energy rating label or by searching the internet and is: o per kilowatt (kw) hour for each electrical appliance, equipment or light you use o per megajoule (MJ) hour for gas appliances you use • total annual hours used for income producing purposes by checking your record of hours worked or your diary. To claim your running expenses using actual costs method, you must keep: • a record showing either: o the number of actual hours you carried on your activity from home during the entire income year - for example a timesheet record or spreadsheet o a continuous 4-week period that represents your usual pattern of carrying on your activity from home for example a diary. You must also keep records that show: • the additional running expenses you incurred while carrying on your activity from home such as the electricity and/or gas bills, receipts and other documents • the power consumption information for each electricity or gas appliance which may be found in the manufacturer information, the star energy rating label or by searching the internet (download and keep a copy of the result from your internet search) • how you worked out the amount of your deduction.