Private ruling: Insurance expenses
Date of advice: 21 July 2016
Published: August 2016
Ruling period: Year ended 30 June 2017 | Year ended 30 June 2018 | Year ended 30 June 2019 | Year ended 30 June 2020
Date scheme commenced: 1 July 2016

Ruling: Q1: Are you entitled to a deduction for the portion of your home and contents insurance in relation to storing your tools at home? | A1: No.

Relevant facts and circumstances: You are a sole trader. You store all of your tools and equipment at your home overnight. The tools are stored in a shed which you also use to do some additional work for your employment. You pack your car with the tools you require for that day and leave the remainder in the shed. You also have a home office which you use for your employment.

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, or relate to the earning of exempt income. As a general rule, any expenses incurred, which are, associated with a taxpayer's home are of a private or domestic character ( Thomas v FC of T (1972) 3 ATR 165; 72 ATC 4094 and FC of T v Faichney (1972) 3 ATR 435; 72 ATC 4245). Therefore, they are not deductible pursuant to section 8-1 of the ITAA 1997. An exception to this general rule is where part of the home is used for income producing activities and has the character of a 'place of business'. In Swinford v FC of T (1984) 15 ATR 1154; 84 ATC 4803 the Supreme Court accepted a part of a taxpayer's residence as a place of business in the absence of an alternative place for conducting income producing activities. In that case, a full-time professional scriptwriter who worked exclusively from home in a room set aside for writing was found not to be using the 'home office' as a matter of convenience. It was the only place where she carried out her writing activities and was the only base of her operations. Taxation Ruling TR 93/30 explains the situations where an area of the home is considered to be a place of business. In such cases some of the expenses incurred in respect of the home such as rent, interest, repairs, house and contents insurance, rates and property taxes may be partly deductible. The following 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: • 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 business; or • the area is used regularly for visits of clients or customers. You have incurred expenses for home and contents insurance in relation to your main residence. For a deduction to be allowed for the insurance expense it is necessary to show that the area of the home is actually used as a place of business for income producing purposes. It is not sufficient that an area of the property is used in association with an employment or business conducted elsewhere. In Case 7/94 , 94 ATC 170 the taxpayer, a specialist medical practitioner, worked in private practice in consulting rooms rented at three hospitals, and also worked at a public hospital. The taxpayer conducts his practice through an incorporated medical practice which employed him and also employed his wife part-time as a secretary. He maintained his practice records, patient records and all administrative facilities at a home office, and also kept equipment there. The deduction was disallowed because the essential character of the expenditure was for the provision of a home for his family. The taxpayer's home could not be described as a place of business. The applicant normally spent between one and two hours each week night in his study and some hours during the weekend, averaging 12 to 13 hours performing duties such as reviewing and preparing reports, make telephone calls to patients, hospitals and other doctors, complete research and prepare lectures to be presented at the hospital and maintain patient files. It was argued that the home was a place of business of the applicant, because that is where the practice is based, that is the location where patient and billing records are located and no other premises are available to the applicant. The conclusion was whilst it may have been the central base where he retained files, patient records, etc, it would be stretching the description of a 'place of business' to say that he carried on a business at his home address. Additionally, in Case 49/94 SA Forgie said at page 433 "…the goods were stored at there but the storage of some of the employer's goods does not of itself make that the place in which a person works or carries on his or her business. It may be an incident of the fact the he is employed or carries on a business but no more." In your case, the storage of your tools in an area of property is not enough for that area of your property to be considered a place of business. However as the area is used in connection with income producing activities the running expenses that relate to the use of the shed are an allowable deduction. Such running expenses may include electricity charges for heating/cooling, lighting, cleaning costs, depreciation and the cost of repairs on items of shelving in the room. A deduction for running costs is only allowed where additional running costs are incurred because of your income producing activities. That is, the amount you are entitled to claim is the difference between what was actually paid for electricity and cleaning and what would have been paid had you not used the room for income producing purposes.