Private ruling: Home office deductions
Date of advice: 12 October 2017
Published: March 2018
Ruling period: Year ended 30 June 2017
Date scheme commenced: 1 July 2016

Ruling: Q1: Are you entitled to a deduction for occupancy expenses in relation to your home office? | A1: Yes

Relevant facts and circumstances: You are employed by your employer. You are the only paid employee. Your employer’s only office is at your main residence; you are required to perform all your duties from your residence. Your duties include administration, stakeholder engagements, client engagements, statutory requirements, accounts and members’ requirements, and social media response. You use one separate area of your main residence as your designated office with all equipment and records. The area has not been used for any other purposes. You spend minimum 8 hours per day in the home office plus majority of weekends. You use your home office to meet clients and you do not keep a diary of visits. Electronic diary is used to plan and then deleted after events passed. You are the sole occupant of your main residence. Your employer pays you a rent allowance on a commercial basis for the use of office space. Home office expenses such as telephone, broadband, email, Internet, fax and 95% of regular Communications Provider accounts are covered by your employer.

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. Where an area of the home is simply used in connection with a taxpayer’s income producing activities but does not have the character of a place of business, then only additional running costs attributable to the income producing area of the home will be allowable. 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. Based on the distinctions outlined in TR 93/30, we consider that part of your home is a ‘place of business’ as there is no suitable alternative for you to work, it is necessary for you to work at home and that area of the home is used exclusively for income producing purposes. Subsequently, you can claim deductions under section 8-1 of the ITAA 1997 for occupancy expenses for your home office. Home office expenses need to be apportioned by floor area. Where an office is also used for a private purpose (for example storage of incidentals) you would also need to apportion the use and costs. If the office is only used for part of the year, then costs would also need to represent this. | Detailed Reasoning - Capital gains and the main residence exemption: Generally, you can ignore a capital gain or loss you make when you sell your home or main residence (under the main residence exemption). However, you don't get the full main residence exemption if your home is used for the purpose of gaining or producing assessable income during the period of ownership. For more information, please go to www.ato.gov.au and search for QC 17502.

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