Private ruling: Deductions
Date of advice: 14 May 2019
Published: June 2019
Ruling period: Year ended 30 June 2018 | Year ending 30 June 2019 | Year ending 30 June 2020 | Year ending 30 June 2021
Date scheme commenced: 1 July 2017

Ruling: Q1: Are the expenses associated with your large vehicle such as depreciation, fuel, insurance, repairs, caravan site fees and registration deductible? | A1: No | Q2: Are a portion of the expenses associated with your other vehicle such as fuel, insurance, registration and repairs deductible? | A2: Yes | Q3: Are a portion of the expenses associated with your trailer such as insurance, registration and repairs deductible? | A3: Yes | Q4: Are the expenses of providing food for yourself and your family deductible? | A4: No | Q5: Are a portion of the expenses of a home office on the large vehicle deductible? | A5: Yes

Relevant facts and circumstances: You are a resident of Australia for taxation purposes. You and your spouse run a networking and marketing business; you sell a brand of natural products and are a life coach. You also provide business mentoring and personal mentoring to clients. Your business growth comes from meeting people in person and online. You support a team which involves, online meetings, emails, and holding workshops and connecting with team members on the ground face to face both in Australia and internationally. The international team is part of your network marketing organisation. They are enrolled in your organisation with you as their leaders, and then they are enrolling their own organisation of people in their country. You go to support them in person to grow their business, which is part of your business. You are paid on their rank, the volume of product they sell and rely on them to be paid certain bonuses. You are also paid on their team/organisation. The organisation holds official events which are held throughout the year both in Australia and overseas, adding to the travel. Connections and networking in person and through your Social Media (family travel page). You are the leader for a number of international accounts. There is only allowed one account per family/married couple so this represents whole families in a lot of cases. You travel overseas 3-4 times a year and you expect this will increase as the business grows. You have been running this business since mid-2016. You have sold your family home and have purchased a large vehicle for your family to live in. You are constantly travelling. You and your spouse and your X children live in the vehicle. You use the log book method to calculate your work related travel. You home school the children. You use the following equipment in the office space of the vehicle , computer, phone, photo booth, and printer. You spend 8-10 hours per day working in the business and your spouse spends less than 5 hours per day working in the business. You are both available at all times taking calls all hours of the night. You meet people at large vehicle or out at parks or coffee shops to conduct your business. You have a trailer which you use to transport your vehicle , along with display equipment, banners, marquee, chairs/tables used for market stalls, storage of stock. You have a business web site. You do not have a phone number exclusively for your business. You have a virtual assistant which you contract to carry out duties for you. You use the other vehicle to travel from the large vehicle to meet clients. You use the log book method to log your work related travel in relation to the vehicle.

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

Reasons for decision: Summary: 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. | Detailed Reasoning - The large vehicle: Section 40-25 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for the decline in value of a depreciating asset to the extent that it is used for the purpose of producing assessable income. The decline in value of a depreciating asset is calculated on the basis of the effective life of the asset. The Commissioner produces an annual determination of the effective life of a range of assets in accordance with subsection 40-100(1) of the ITAA 1997. The most recent such determination is Taxation Ruling TR 2018/4 - Income tax: effective life of depreciating assets (applicable from 1 July 2018). You sold your family home and purchased a large vehicle to live in. The large vehicle is your home where you and your family live and sleep eat and play. You have been moving around from place to place in the large vehicle. Your family live with you in the large vehicle. The large vehicle is used for living in and carrying out day to day living activities that would normally be undertaken in a house permanently fixed to the one location. Although you may use the large vehicle as office space to carry out some of your business duties the large vehicle is your home and is therefore all expenses relating to it area private in nature. The ownership and running expenses of a home are not allowable expenses unless they are also either business premises, if a person has a home office some of the running expenses relating to that office may be deductible That your home is mobile and moves from place to place does not change the nature of the home while you use some of the home as a home office the ownership expenses of the home remain of a private nature. The large vehicle is not a business premises. The cost of moving the home from place to place is also private. See the further explanation below under Home Office. None of the expenses mentioned, including depreciation, fuel, insurance, repairs, caravan site fees and registration are deductible. | Detailed Reasoning - The other vehicle: The expenses relating to the vehicle are an allowable deduction to the extent it is used in the derivation of your income. The portion of the expenses relating to the usual day to day use of the vehicle such as transporting children around, shopping and going on family trips are private expenses and are not deductable. The expenses such as a trip which has the sole purpose of meeting a client or to run a workshop would be deductible. If a trip has a dual purpose the expenses would need to be apportioned between business related and private use. | Detailed Reasoning - Trailer: The expenses, such as, depreciation and registration, related to the trailer also need to be apportioned as the trailer is used to carry and store items which are used both for business use and private use. The apportionment would have to be made on the basis of the use of each item transported and stored in the trailer – for example transport of the vehicle would be apportioned on the same basis as the expenses of the vehicle are apportioned. | Detailed Reasoning - Food: Food for you and your family is a private expense and is not an allowable deduction under section 8-1 of the ITAA 1997. | Detailed Reasoning - Home office: Taxation Ruling TR 93/30 outlines the factors that indicate whether or not a home office has the character of a ‘place of business’. This is likely to be the case where part of a residence is set aside exclusively for the carrying on of a business by a self-employed person, such as a doctor or dentist with a surgery or consulting rooms at home or a tradesperson with a workshop at home. Another example is where part of the home is used exclusively as the sole base of operation for an employee and no other work location is provided by the employer. The following factors may indicate whether or not the 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 a business; or ● The area is used regularly for visits of clients or customers. Taxpayers who maintain an office or study in their homes where they can do income-producing work, but which does not constitute a place of business cannot claim deductions for occupancy expenses, such as mortgage interest, rates, rent, insurance or repairs referable to their home office. However they can claim a deduction for additional running costs. In your case you use a part of the large vehicle as a home office to carry out work for your business. This area is not set aside exclusively for the business and is also used for personal use by you and your family. You do not regularly see clients or customers in this area. The occupancy expenses are not an allowable deduction. Running expenses Individual taxpayers may claim eligible running expenses (heating, cooling, lighting and decline in value of office furniture) based on additional costs incurred. This is not available where the work activity is undertaken in an area where other family members are present and so there is no additional energy cost. The rate is based upon average energy costs and the value of common furniture items used in home offices. Individual taxpayers who claim home office expenses are required to be able to substantiate that they have incurred such expenses. Such taxpayers must also be able to establish a connection between the use of their home office and their work or business. You can claim a deduction for running expenses in relation to the home office as you use this area to carry out duties in relation to the business. Apportion of running expenses As discussed above, you are able to claim expenses you have incurred to run your home office. Some of these expenses are incurred are both deductible and non-deductible, such as electricity, they must be apportioned and only the deductible portion can be claimed. In relation to running expenses, the Commissioner will generally accept a bona fide estimate based on a reasonable percentage of the overall running expenses of the household, but may choose not to accept your basis of apportionment where that basis is not reasonable. A common method for working out the apportionment of expenses for an area that is exclusively used for income producing purposes is based on floor plan method as follows: Floor area used for business Total floor area X Relevant expenditure But where the space is used for multiple purposes the amount claimed would need to be further reduced to take account of the mixed use. So if an area was used for only 3 hours a day for business purposes it may be reasonable to reduce any claim by 1/8 th .