Private ruling: Home office and accommodation expenses deduction
Date of advice: 25 September 2017
Published: February 2018
Ruling period: Year ended 30 June 2017 | Year ending 30 June 2018 | Year ending 30 June 2019 | Year ending 30 June 2020
Date scheme commenced: 1 July 2016

Ruling: Q1: Are you entitled to a deduction for the occupancy expenses in relation to your home office? | A1: No | Q2: Are you entitled to a deduction for the running expenses in relation to your home office? | A2: Yes | Q3: Are you entitled to a deduction for the costs of leasing an apartment in City X? | A3: No

Relevant facts and circumstances: You are employed by a company. The Head Office of the company is currently located in City X. You reside in City A. You provided your Employment Agreement (Agreement). The Agreement states that you will predominantly be required to work at the Head Office. You will be expected to work notionally 8 business days per fortnight at the Head Office, with remaining 2 business days per fortnight from your office in City A. All economy flights and taxis for the commuting arrangement will be borne by the company, with all accommodation to be borne by you. All other travel and travel related expenses to other destinations will be borne by the company. A letter from your employer states that the company does not have a physical office located in City A. You use one room as your designated office; the room has not been used for any other purposes. You spend average Y hours per day in the home office, your work activities for a normal working day including phone calls, video conference calls and computer works. You do not use your home office to meet clients. The size of your home is approximately 1xxm 2 ; the size of your home office is 1xm 2 . Your employer does not reimburse you for any costs incurred in performing work at home. You intend to enter into a month by month lease agreement to rent a small fully furnished apartment in City X to reduce the accommodation expenses. You intend to stay in that apartment during the periods you are working in City X. You will not use that apartment for private purposes.

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 a loss and outgoing to the extent that it is incurred in gaining or producing assessable income. However, a loss or outgoing is not deductible if it is of a capital, private or domestic nature, or it is incurred in gaining or producing exempt income. Taxation Ruling TR 93/30 Income tax: deductions for home office expenses 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. 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, it is acknowledged that your situation satisfies the third requirement above, that the area in your home is used exclusively or almost exclusively for income producing purposes. However, in your role as an employee, your employer provides a place of business, i.e. an office in City X and you are required to work notionally 8 business days per fortnight at that office. The circumstances where part of a home is considered to have the character of a place of business can be contrasted with the more common case where a taxpayer maintains an office or study at home as a matter of convenience (that is, so that he or she can carry out work at home which would otherwise be done at his or her regular place of business or employment). TR 93/30 states that where a taxpayer maintains an office at home as a matter of convenience, the area of the home and the occupancy expenses incurred retain their private or domestic character ( Handley v FC of T (1981) 11 ATR 644 ; 81 ATC 4165 and Forsyth v FC of T (1981) 11 ATR 657; 81 ATC 4157). It cannot be said that a place of business exists at your home location as your employer does provide an alternate place of business, and it is your personal choice to choose to work from home for the remaining 2 business days per fortnight. Your case has no ‘absence of an alternative place for conducting income producing activities’ as was found in Case T48 , 86 ATC 389. The fact that your employer has allowed you to work from home, does not convert your home office to a place of business. Accordingly, you are not entitled to a deduction for the occupancy expenses in relation to your home office as they are private in nature. TR 93/30 states that running expenses may take on a different character where taxpayers, who have a home office, establish that they have incurred additional expenditure on the running expenses as a result of their income producing activities. In appropriate circumstances, taxpayers are entitled to a deduction for the expenditure actually incurred through their income producing activities which is additional to their private expenditure (paragraph 19). Running expenses include: ● the costs of using a room, such as electricity and gas costs for heating, cooling and lighting; ● business phone costs; ● the decline in value of plant and equipment; ● the costs of repairs to furniture and furnishings. In your case, as discussed above, the area in your home is used exclusively or almost exclusively for income producing purposes. Consequently, you are entitled to a deduction for the running expenses in relation to the home office that is actually incurred through the income producing activities. In general, accommodation expenses are considered private expenses and consequently are not deductible. Court decisions and decisions of the Administrative Appeals Tribunal/Board of Review provide an independent view and confirm this. The Federal Court decision in FC of Taxation v. Toms 89 ATC 4373; (1989) 20 ATR 466, held that expenses incurred in relation to accommodation near the work place while maintaining a family residence in another location, were not an allowable deduction as they were considered to be private expenses. Although the expenditure must be incurred in order to put one in a position to be able to derive assessable income, it does not necessarily mean that the expenditure is incurred in the course of gaining or producing that income. In your case, you intend to enter into a month by month lease agreement to rent a small fully furnished apartment in City X. As discussed above, it is your personal choice to work 8 business days per fortnight in City X, with remaining 2 business days per fortnight from your home office. It is considered that the costs of leasing an apartment are incurred to enable you to stay in the proximity of your head office and are incurred in order to put you in a position to be able to derive assessable income, they are not expenses incurred in the course of gaining or producing your assessable income. Consequently, you are not entitled to a deduction for the costs of leasing an apartment in City X under section 8-1 of the ITAA 1997.