Private ruling: home office expenses
Published: March 2012
Ruling period: Year ending 30 June 2012
Date scheme commenced: 01 July 2011

Ruling: Q1: Are you entitled to claim a deduction for the occupancy expenses of a home office used exclusively for carrying on a business? | A1: Yes

Relevant facts and circumstances: You rent a one bedroom unit. You live in this unit by yourself. You also run a business from your unit. Occasionally you have business clients come to your unit. At present you spend approximately 30 hours per week carrying out your business activities. Your home office is currently part of your bedroom. You plan to convert your lounge room into a home office that will be used exclusively for your business activities. This room is the only one in your unit that has access to the front door, kitchen, bathroom and bedroom. You have no alternative place to conduct your business.

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 or outgoing to the extent to which it is incurred in gaining or producing assessable income, except where the loss or outgoing is of a capital, private or domestic nature, or relates to the earning of exempt income. For a deduction to be allowable for home occupancy expenses, the expenses must satisfy the requirements of section 8-1 of the ITAA 1997. Generally, expenses associated with a taxpayers home are private or domestic in nature and therefore do not qualify as allowable deductions for taxation purposes. 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 rent relating to use of a home. Place of business Whether an area of the home has the character of a place of business is a question of fact which depends on the particular circumstances of each case. Taxation Ruling TR 93/30 outlines the following factors that the Commissioner believes indicate whether or not a home office 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 income producing purposes, and § the area is used regularly for visits of clients or customers. The Commissioner believes that none of these factors in themselves will necessarily be conclusive in determining the character of an area as a home office. Rather, the decision in each case will depend upon a balanced consideration of the essential character of the area, the nature of the taxpayer's business and any other relevant factors. If an area of the home has the character of a place of business, as per the criteria set out above, then a portion of the occupancy expenses may be allowable as a deduction under section 8-1 of the ITAA 1997. In your case, you are planning on converting your lounge room into a home office that will be used exclusively for your business. Although this room is the only one that has access to the front door, kitchen, bathroom and bedroom, other than using it as a walkway to access these areas, it will be used exclusively or almost exclusively for carrying on a business or income producing purposes. In addition, your home office is the sole base of operations for your income producing activities and as you are self employed you have no alternative place of business. Therefore if you convert your lounge room into a home office, that will be used exclusively or almost exclusively for your business activities, you will be entitled to a deduction for a portion of your occupancy expenses under section 8-1 of the ITAA 1997.

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