Private ruling: Home Office Expenses
Date of advice: 21 November 2017
Published: April 2018
Ruling period: Year ended 30 June 2017 | Year ended 30 June 2018 | Year ended 30 June 2019
Date scheme commenced: 1 July 2016

Ruling: Q1: Is the taxpayer entitled to claim a deduction for a percentage of home office occupancy expense for the area of the home used as a place of business as well as the associated running expenses? | A1: Yes

Relevant facts and circumstances: You have been employed full time by Company A since mid 201A. You report to head office located in the Country Z. Company A does not have a corporate headquarters in Australia. The only Australian site is a warehouse delivery point. Company A does not provide any alternative places for the client to do his work. You use a room on the upper floor of the apartment to conduct his business. This is a dedicated area including office furniture computer equipment filling cabinets. This is used almost exclusively for work and is not readily convertible back for private or domestic use. You also store private financial records in the office. Running expenses of the apartment include electricity, gas, telephone and internet. The employer does not provide an alternative workspace and many of your tasks require an element of confidentiality.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1

Reasons for decision: Detailed Reasoning - Home office expenses: Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses or 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. Taxation Ruling TR 93/30 sets out the Commissioner's view on the deductibility of home office expenses. As a general rule, expenses associated with a taxpayer's home are private or domestic in nature, and do not qualify as a deduction for taxation purposes. However, where the home has the character of a 'place of business', a deduction will be allowable for a proportion of 'occupancy expenses' such as rent, interest, repairs, and house and contents insurance, and 'running expenses' such as heating, lighting, cleaning and depreciation. 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. In determining whether deductions for a home office are available, there is a distinction between situations where the home office can be characterised as a place of business and where it is not a place of business but is used in connection with work activities. In order to be eligible to claim a deduction for home office occupancy expenses, the home office must have the character a place of business. Taxation Ruling TR 93/30 Income tax: deductions for home office expenses provides that if part of a taxpayer's home qualifies as a place of business, the taxpayer may be able to claim a portion of the occupancy expenses incurred under section 8-1 of the ITAA 1997. The actual amount which can be claimed is dependent on the taxpayer's individual circumstances. In most cases, the apportionment of the total expense incurred on a floor area basis is the most appropriate method. | Detailed Reasoning - Place of business:: TR 93/30 lists some of the factors which may indicate that a part of a home has the character of a place of business. The existence of any of these factors or a combination of them will not necessarily be conclusive in ascertaining the character of an area used as a home office. Rather the decision in each case will depend on whether, on a balanced consideration of: ● the essential character of the area; ● the nature of the taxpayer's business; and ● any other relevant factors, the area constitutes a "place of business" in the ordinary and common sense meaning of that term. The absence of an alternative place for conducting income producing activities has also influenced a court or tribunal to accept a part of a taxpayer's residence as a place of business. Examples include: ● a self-employed script writer using one room of a flat for writing purposes and for meetings with television station staff ( Swinford's Case); ● an employee architect conducting a small private practice from home (Case F53 , 74 ATC 294; Case 65 , 19 CTBR(NS) 452); ● a country sales manager for an oil company whose employer did not provide him with a place to work ( Case T48 , 86 ATC 389; Case 47 , 29 CTBR(NS)355). In each of these cases the taxpayer was able to show that, as a matter of fact, there was no alternative place of business, it was necessary to work from home, and that the room in question was used exclusively or almost exclusively for income producing purposes. In circumstances such as those referred to, a place of business will exist only if: ● it is a requirement inherent in the nature of the taxpayer's activities that the taxpayer needs a place of business; ● the taxpayer's circumstances are such that there is no alternative place of business and it was necessary to work from home; and ● the area of the home is used exclusively or almost exclusively for income producing purposes. | Detailed Reasoning - Application to your circumstances: You have established the space utilised as a home office is used exclusively as a home office. The office has office furniture and facilities such as a computer, printer office desk, filling cabinet and bookcase that would not make it readily convertible back into bedroom. You have provided a statement from your employer stating they do not provide any other office space for you to do your employment activities. They have also stated due to the nature of your interactions with clients and the reports you analyse/develop necessitates the need for a private space and does not lend itself to an open office environment. Consequently you have been able to establish that you set aside an area of your home exclusively on the second floor as a place of business and accordingly your claim for a proportion of occupancy expenses has been allowed. However, the term home office refers exclusively to the office area only and does not include the bathroom. The portion of your running expenses, equivalent to the area of your home office are also deductable. Please note as a general rule, when calculating floor area of the home is measured overall of external walls and includes verandas and out buildings. Also please remember to exclude the weeks you are on holidays, when the area is not used for work.

Other references (non ATO view): Swinford v. FC of T (1984) 15 ATC 1154; 84 ATC 4803 | Handley v FC of T (1981) 11 ATR 644 ; 81 ATC 4165 | Forsyth v FC of T (1981) 11 ATR 657; 81 ATC 4157