Private ruling: Work related expenses - Home Office
Date of advice: 8 December 2015
Published: February 2016
Ruling period: Year ended 30 June 2015
Date scheme commenced: 1 July 2014

Ruling: Q1: Are you entitled to a deduction for rent paid for the portion of your house you use for work purposes? | A1: Yes.

Relevant facts and circumstances: You are employed as a business development manager. The principal role of the position is to promote new business, engage, maintain existing business, perform the full office tasks and functions required in a normal office environment, with the assistance of email, telephone and internet. You perform your employment from an allocated office space in your own residence in order to perform your duties as an employee. Your employer does not provide any office space. There is no dedicated head office or branch office in your state. You must work from an office in order to complete your tasks on a daily basis. You perform all tasks from home in an allocated home office. You spend 40-50 hours per week working in your home office for your position as a specific manager. The home office space is approximately 15% of the total home area.

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 persons' 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 (Taxation Ruling TR 93/30). 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. Whether an area of the home has the character of a place of business is a question of fact. Paragraph 4 of TR 93/30 states that an area is likely to be a place of business where a part of the residence is set aside exclusively for the carrying on of a business by a self-employed person. Another example is where part of the home is used as a taxpayer's sole base of operations for income producing activities, that is, where no other work location is provided to an employee by an employer ( Case T48 86 ATC 389; (1986) 29 CTBR (NS) Case 47). In your case, the latter of the example applies. Your employer has not provided you with a work location so you therefore use a room of your home as an office. You use this office almost exclusively for work your employment and keep all work related equipment in this office room. Furthermore, the nature of your work requires that you maintain an office in your home. It is clear you have no alternative place of business, you require an office to complete your work duties and it is necessary for you to work from home. The floor area in your home dedicated for your business is considered to be a place of business. Consequently, you are entitled to claim a deduction for the portion of your occupancy expenses such as rent attributed to this home office on a floor area basis. Paragraph 7 of TR 93/30 considers the floor area basis as a reasonable apportionment.