Private ruling: Work related expenses - Home office
Date of advice: 15 April 2016
Published: June 2016
Ruling period: Year ending 30 June 2016
Date scheme commenced: 1 July 2015

Ruling: Q1: Are you entitled to claim a portion of your rent in relation to your home office as work related expenses? | A1: Yes.

Relevant facts and circumstances: You are employed by a consulting firm. Your role involves helping business make better decisions with training, auditing and on-site support. Your work requires you to perform approximately 50 percent of your duties at client sites and hotels. The remaining 50 percent of your duties are performed in a room of your home which has been set up as a home office and used solely for this purpose. About four times a year, when you require an office to meet with a client, a generic office space is hired by your employer for the period of your use. Your employer does not hold business premises for your use. It is a requirement of your job that you work from home. You employer has provided you with a laptop and pays for your mobile phone. You have supplied your own desk and chair. You pay for your power and rent as part of your domestic household expenses. You keep a daily timesheet of the projects you are working on at any time; however it does not specify the amount of time spent in the home office, or at other sites.

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 person's home are private or domestic in nature, and therefore do not qualify as an allowable deduction ( Handley v. FC of T (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 examples apply. 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 exclusively for work related to your employment and keep all work related equipment in this office room. Based on the above, it is considered that your home office is a place of business. As a result, you are entitled to claim deductions for both running expenses and occupancy expenses. Your occupancy expenses would generally be apportioned on a floor area basis. Apportionment - Occupancy expenses To calculate a deduction for occupancy expenses, it is necessary to apportion expenses between private and business/employment use. In most cases apportionment of expenses should be made on the business use percentage of the overall floor area of your home, and in addition, where the area of the home is a place of business for only part of the income year, a time basis.