Private ruling: Occupancy expenses
Date of advice: 8 June 2020
Published: July 2020
Ruling period: Year ended 30 June 2010 | Year ended 30 June 2011
Date scheme commenced: 1 July 2009

Ruling: Q1: Are you entitled to a deduction for occupancy expenses in relation to your home office? | A1: No.

Relevant facts and circumstances: You are a Telecommunications Engineer. You rent an apartment as your residence and have dedicated a room as a home office. You receive an on-call allowance from your employer to be available to primary on-call support outside standard working hours for approximately x days per year. Your home office consists of a storage cabinet, floor to ceiling book cases and a desk with external monitor. The work performed from your home consists of on-call customer support, remote restoration of telecommunication services, resolution of customer escalations, testing and design of new processes, customer equipment upgrades and repair of equipment.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1

Reasons for decision: Detailed Reasoning - Home office running and occupancy expenses: The Commissioner's view about the deductions allowable for home office expenses is in Taxation Ruling TR 93/30 Income Tax: deductions for home office expenses . 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. Another exception to this general rule is where part of the home is used in connection with the taxpayer's income earning activities but does not constitute a place of business. In this case, a more limited range of deductions may be available. 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. 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, or · 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 ascertaining the character of an area used as a home office. Rather the decision in each case will depend on whether, on a balanced consideration of: · the essential character of the area · the nature of the taxpayer's business, and · any other relevant factors. the area constitutes a 'place of business' in the ordinary and the area constitutes a 'place of business' in the ordinary and common sense meaning of that term. The deductible expenses in respect of a home office can be divided into two broad categories: · Occupancy expenses - expenses relating to ownership or use of a home which are not affected by a taxpayer's income earning activities. These include rent, mortgage interest, municipal and water rates, land taxes and house insurance premiums. · Running expenses - 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 an area of the home has the character of a place of business, some part of the expenses from both categories may be claimed as a deduction. In most cases the apportionment of expenses should be made on a floor area and, in addition, where the area of the home is a place of business for part of the year, a time basis. However, where an area of the home is simply used in connection with income producing activities, but does not have the character of a place of business, only expenses in the latter category (the running expenses) are allowable. The amounts allowable as deductions are the additional expenses incurred as a result of income producing activities. In your case, the home office does not have the character of a 'place of business'. There is no signage out the front such that the home is clearly identifiable as a place of business and the home office is not used for customer or client visits. While the home office may be used exclusively or almost exclusively for work-related purposes the home office is readily suitable or adaptable for use for private or domestic purposes in association with the home generally (and would have the appearance of a private study). The nature of your work is that all your income producing activities are undertaken at your work location, and not in the home office. Your circumstances are clearly distinguishable from situations such as a hairdresser with a home salon, a doctor with a home surgery or a tradesperson with a home workshop where income producing activities are being undertaken at home. While the home office does not have the essential character of a place of business, the office is used in connection with your income earning activities. As such, you are entitled to a deduction for your home office running expenses. Running expenses are the increased costs of using the home's facilities for work-related activities. Further information about claiming deductions for running expenses for an area of a home that is used in connection with income earning activities, including how to calculate your claim, is available here or search for 'QC 31977' on ato.gov.au