Private ruling: Home Office Expenses
Date of advice: 6 December 2016
Published: May 2017
Ruling period: Year ended 30 June 2016
Date scheme commenced: 1 July 2014

Ruling: Q1: Are you entitled to a deduction for occupancy expenses, including mortgage interest, and running expenses in relation to your home office? | A1: Yes.

Relevant facts and circumstances: You are employed at a corporation. You do not have a desk or workspace at the corporation's office or any of the corporation's branches, and have no alternative place to work from. You do not travel to meet clients. You only go to the corporation's office to meet with your team leader 3-4 times a month. You are the only person living in your two bedroom apartment. Your home office is set up in your living and dining area, and you have set up one of your bedrooms as your usual living and dining area. Your home office is a dedicated area for work which consists of approximately 50% of your apartment.

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

Reasons for decision: Summary: Your home office is considered to be place of business. You are entitled to a deduction for your occupancy and running expenses in relation to your home office. | Detailed Reasoning - Detailed reasoning: Section 8-1 of the Income Tax Assessment Act 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 capital, private or domestic nature, or relate to the earning of exempt income. Taxation Ruling TR 93/30 Income tax: deductions for home office expenses (TR 93/30), discusses home office expenses. It states that deductible expenses in respect of a home office can be divided into two broad categories: ● Occupancy expenses, i.e., expenses relating to ownership or use of a home which are not affected by the taxpayer's income earning activities. These include rent, mortgage interest, municipal and water rates and house insurance premiums. ● Running expenses, i.e., expenses relating to the use of facilities within the home. These include electricity charges for heating/cooling, lighting, cleaning costs, depreciation, leasing charges and the cost of repairs on items of furniture and furnishings in the office. If the area of the home being used has the character of a place of business, occupancy expenses associated with that part of the home take on a business or business like character and a proportion of those costs are allowable deductions under section 8-1 of the ITAA 1997. Where an area of the home is simply used in connection with a taxpayer's income producing activities but does not have the character of a place of business, then only additional running costs attributable to the income producing area of the home will be allowable. Paragraph 5 of TR 93/30 sets out the following criteria, none of which are necessarily conclusive on their own, to be considered in determining whether an area within a taxpayers home 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. Furthermore, where a taxpayer can show that is necessary to work from home in the absence of an alternative place, a court or tribunal will accept a part of a taxpayer's residence as a place of business, and the relevant occupancy costs will be considered deductable ( Case T48, 86 ATC 389; Case 47 , 29 CTBR(NS) 355). In such cases, paragraph 13 of TR 93/30 states that a place of business will only exist 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 is necessary to work from home; and ● the area of the home is used exclusively or almost exclusively for income producing purposes. In your case, you have converted your living and dining areas into a home office and adapted one of your two bedrooms to serve as your private living and dining area. The area is a dedicated space which you use for work only and is used exclusively or almost exclusively for your income producing activities. Your employer does not provide an alternative workspace for conducting your income producing activities. Your home office is considered to have the character of a place of business and therefore you are entitled to a deduction for the appropriate portion of your occupancy expenses, including mortgage interest, body corporate costs and water rates, as well as running expenses under section 8-1 of the ITAA 1997. | Detailed Reasoning - Further information: To calculate a deduction for occupancy expenses, it is necessary to apportion expenses between private and business use. In most cases apportionment of expenses should be made on floor area, and in addition, where the area of the home is a place of business for only part of the income year, a time basis.