Private ruling: Business deductions - rent
Date of advice: 15 October 2025
Published: 1 December 2025
Ruling period: Year ended 30 June 20YY
Date scheme commenced: 1 July 20YY

Ruling: Q1: Are the rental accommodation expenses incurred during the relevant income year deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)? | A1: No.

Relevant facts and circumstances: The Company is a private company providing consulting services. The directors of the Company are Person A and Person B. Person A provides the services and is the only employee of the Company. The Company entered a consultancy agreement with a project management firm. The project management firm was appointed to manage a specific project. The Company, through the project management firm, was engaged as the lead consultant for day-to-day delivery of the project, including site-based responsibilities. The Company incurred expenses to lease a furnished property closer to the project site in the relevant income year for Person A to reside in during the working week to reduce travel time to the project site. The rented property is vacant on weekends. The services are provided on the project site each working day. Consulting services are not provided from the rental premises. The Company did not provide any accommodation subsidy, allowance or fringe benefit that was officially acknowledged or recorded.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1 | Income Tax Assessment Act 1997 section 85-15 | Income Tax Assessment Act 1997 subsection 87-3(1)

Reasons for decision: Summary: Section 8-1 of the ITAA 1997 allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income or are necessarily incurred in carrying on a business for the purpose of 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, or a provision of the ITAA 1997 prevents it. As a general rule, expenses associated with a taxpayer's home are of a private or domestic nature and do not qualify as deductions for taxation purposes. 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" or is considered the 'business premises.' Section 85-15 denies a deduction for an amount of rent, mortgage interest, rates or land tax for some or all of an individual's (or an associate's) residence to the extent that the amount relates to gaining or producing the individual's personal services income. However, this does not apply where the expense is incurred in relation to a business premises that are not part of the individual's residence. This means that if the business premises are located within the individuals' home, deductions for these expenses will generally be denied. The phrase 'business premises' in sub-section 87-30(1) means premises which, from a business and commercial perspective, are apt for the purpose of carrying on a business. In this case, Person A is the lead consultant for day-to-day delivery on a project and has site-based responsibilities. Person A is required to attend the project site daily to provide the consulting services. To reduce the travel distance from Person A's home to the project site, the Company incurred expenses during the relevant income year to rent a furnished residential property closer to the project site for Person A to reside in during the working week. The rental agreement was entered into under Person A's name, and Person A resided at this property Monday to Friday, returning to their usual home residence on Friday evening for the weekends. The rental premise served exclusively as accommodation and consulting services were not conducted from the residential property. The property was not used in the course of carrying out business activities. Consequently, the property was not utilised by the Company for income-generating purposes and is not considered a 'business premise'. Therefore, section 85-15 of the ITAA 1997, which restricts deductions for rent and related expenses associated with personal services income, does not apply. As the property is not considered a 'business premise', the associated rental expenses retain their private and domestic nature. In accordance with section 8-1 of the ITAA 1997, such expenses are not deductible, as they do not satisfy the positive limbs of being incurred in gaining or producing assessable income or in carrying on a business. Therefore, the expense is treated as private, and Division 7A implications must be considered.

Does IVA apply to this private ruling?: Part IVA of the Income Tax Assessment Act 1936 contains anti-avoidance rules that can apply in certain circumstances where you or another taxpayer obtains a tax benefit, imputation benefit or diverted profits tax benefit in connection with an arrangement. | If Part IVA applies, the tax benefit or imputation benefit can be cancelled (for example, by disallowing a deduction that was otherwise allowable) or you or another taxpayer could be liable to the diverted profits tax. | We have not fully considered the application of Part IVA to the arrangement you asked us to rule on, or to an associated or wider arrangement of which that arrangement is part. | If you want us to rule on whether Part IVA applies, we will need to obtain and consider all the facts about the arrangement which are relevant to determining whether Part IVA may apply. | For more information on Part IVA, go to our website ato.gov.au/gaar . | The residential property is not considered a 'business premise' and is not used for conducting business activities. Accordingly, the rental expenses are not incurred in deriving assessable income or in carrying on a business. As such, the expenses are private in nature and not deductible under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997).