Private ruling: Caravan used as home office
Date of advice: 15 February 2019
Published: May 2019
Ruling period: Year ending 30 June 2018
Date scheme commenced: 1 July 2017

Ruling: Q1: Are you entitled to claim a deduction for the depreciation on your caravan used as a home office? | A1: No | Q2: Are you entitled to a deduction for interest expenses incurred on the borrowed funds used to purchase the caravan? | A2: No | Q3: Are you entitled to a deduction for the insurance, registration, maintenance and repair costs for your caravan used as a home office? | A3: No

Relevant facts and circumstances: You are an employee. You are employed by Company A and Company B. Both your employer’s allow you to work from home. Clients do not attend your office at your home. You purchased a caravan under a hire purchase agreement to use as your home office. You work from the kitchen table in the caravan. You don’t use power from your home to power the caravan, the caravan has its own dedicated battery power and a gas powered fridge. The equipment you use include your laptop, VOIP phone and stationery. If your laptop needs recharging you can connect to caravans power to recharge. You incur registration, insurance and loan interest costs on the caravan. You are not paid any allowances by your employer’s.

Relevant legislative provisions: Income Tax Assessment Act 1997 Section 8-1 | Income Tax Assessment Act 1997 section 40-25

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 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. The cost of the caravan is considered to be a capital expense. As the caravan is a capital asset, the purchase cost is capital in nature and therefore no deduction is allowed under section 8-1 of the ITAA 1997 for the cost of the caravan. Section 40-25 of the ITAA 1997 allows a deduction for the decline in value (depreciation) of a depreciating asset you hold, to the extent the asset is used for a taxable purpose. Taxable purpose is defined in paragraph 40-25(7)(a) of the ITAA 1997 to mean for the purpose of producing assessable income. Where an asset is held for a non-taxable purpose, no deduction is allowed under Division 40 of the ITAA 1997. A caravan is regarded as a depreciating asset for Division 40 of the ITAA 1997 purposes. In your case you use a caravan as your home office at your main residence as you state there are no quiet and private areas of your home to work; you are not required to travel for work. Taxation Ruling TR 93/30 “ Income tax: deductions for home office expenses ” discusses the circumstances where a deduction is allowable for expenses associated with a taxpayers home. As outlined in paragraph 9, a deduction is generally not allowable for the costs associated with a person’s home as they are private in nature ( Federal Commissioner of Taxation v. Faichney (1972) 129 CLR 38; 72 ATC 4245; (1972) 3 ATR 435). An exception to this general rule is where the property is used for income producing activities and has the character of a 'place of business'. In such cases some of the expenses incurred in respect of the property may be partly deductible. 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. An apportionment of the area of the home used for business use is usually done on a floor area basis. Where a home office has the character of a place of business, a proportion of running costs and occupancy costs can be claimed as a deduction. Running costs include heating, cooling, lighting and the decline in value of office furniture. Occupancy expenses include rent, interest, rates, insurance and repairs. The following factors may indicate whether or not an 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, ● the area is used regularly for visits of clients or customers. The existence of any of these factors or a combination of them will not necessarily be conclusive in determining whether the home constitutes a place of business in the ordinary and common sense meaning of the term. The determination will depend on a balanced consideration of the essential character of the area, the nature of the taxpayer's business and any other relevant factors. It is not sufficient that a room in the home is used in association with a business. The fact that no other accommodation is available is not of itself sufficient to render a house as a place of business. Based on the distinctions outlined in TR93/30, we consider that the caravan is more readily identifiable as a private home office used in connection with employment rather than as a place of business. Whilst it is acknowledged that you work from home and conduct out of hours work from home, this does not convert your caravan to a place of business. The caravan is readily available for its purpose as a recreational vehicle. You are not self-employed and it is not a requirement of your employment that you travel for work. Therefore, you are not entitled to a deduction for the decline in value of your caravan under section 40-25 of the ITAA 1997. You are also not entitled to a deduction for your home office occupancy and running expenses under section 8-1 of the ITAA 1997 as they are considered private and domestic in nature.