McAteer v FC of T
Members:RL Hamilton SC SM
Tribunal:
Administrative Appeals Tribunal, Sydney
MEDIA NEUTRAL CITATION:
[2020] AATA 1795
RL Hamilton SC (Senior Member)
1. This is a "home office" case with a slight twist. It involves a somewhat novel point, involving an employee who is required by his employment contract to be able to work from his home when rostered on duty after hours. His employer assists this by supplying certain equipment for home use, checking the safety of the home work space, and granting time off in lieu of out of hours work.
2. The Applicant's ('the taxpayer') job title in the relevant years (2017 and 2018) was "Database Team Lead, Oracle Platform Services" whose team maintained a computer system for a division of Westpac Bank ('the Bank' or 'Westpac'). He described his work as involving "data base clustering".
3. His job description requires that he be "24x7 on call support based on a roster".[1]
4. His evidence was that for one week in every four he is required to be available 24 hours a day in case he is required to attend to a problem or malfunction with the Bank's computer system. This was referred to as part of a 'Business Continuity Plan' in case of a 'disaster' and was required of the Bank by business demands, as well as by the Regulator, the Australian Prudential Regulation Authority. The taxpayer's evidence was that he was also a backup for others who were on the roster. He was provided with computers and other equipment for use at home by Westpac. In addition to employer provided equipment, he kept a number of computers in various places at his home during the years in question which he used as part of his work for Westpac.
5. The home had four levels; at the top were family bedrooms and bathrooms; in the middle were the kitchen, family room, living room, and dining room; at the bottom was a garage, and a storage space; and a "study" or "lab" half a level above the garage which was also an entry to the upper levels.
6. The parties agreed to conduct the matter on the basis that they both accepted the Commissioner's division of home
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office expenses into occupational expenses and running expenses. The taxpayer claimed deductions of both types.7. Examples of occupation expenses are: mortgage interest, insurance and council rates referable to the home office.
8. Examples of running expenses are: the cost of utilities such as electricity and gas, broadband, phone and water use and depreciation of plant and equipment referable to the home office.
9. The taxpayer claimed deductions for "occupation expenses" in respect of various areas of the home in which he claims computers have been installed at which he worked (by way of a network of a local area kind) as required under his employment contract. The Commissioner disallowed the claim for occupation expenses.
10. The Commissioner allowed certain running expenses relating to electricity, broadband et cetera in accordance with the Commissioner's Tax Ruling TR 93/30. The taxpayer had claimed greater deductions (including depreciation) in respect of certain items, but did not raise these in his objection. He raised them in his submissions and provided some details of his expenditures. The Commissioner did not take the point that they were not in the taxpayer's objection, but instead argued that they were non-deductible or were insufficiently proved. I will take this as de facto consent to the amendment of the objection, and as I can perceive no prejudice to the respondent or to the administration of justice I will permit the amendment of the objection pursuant to section 14ZZK(a) of the Taxation Administration Act 1953 (Cth) ('TAA').
11. The taxpayer made an alternative claim in submissions for occupation expenses on the basis that he was an employee of his company of which he was the sole director and shareholder ('Riyosu Pty Ltd'). The Commissioner disallowed the claim. The Commissioner also says that this alternative claim was not included in the objection and should not be entertained by the Tribunal. I agree, and am not persuaded that an amendment should be allowed. The claim was almost wholly unsupported by evidence, other than to the effect that the taxpayer estimated he spent 20 hours per week on the company's business, and that the company earned no income and incurred no expenses in the years under consideration. There was no written contract of employment, and no salary or fee paid to the Applicant. The taxpayer did not explicitly seek to support the case for an amendment. The balance of convenience is heavily against allowing an amendment, and in any case the taxpayer on this evidence would fail to satisfy the onus of proof even if I allowed the amendment.
12. The Commissioner also resisted the taxpayer's submission on the basis that such expenses are not available to be claimed by a director or a shareholder but rather should have been claimed by the company itself. I prefer to dismiss the claim in the submission on the grounds above.
13. Both parties were in agreement that the matters in issue between them were:
- • deductibility of occupation expenses, mortgage interest expenses and rates
- • deductibility of some running expenses, including depreciation of plant and equipment
- • whether there was a binding oral ruling given by phone to the taxpayer by the Australian Taxation Office ('ATO')
- • whether the taxpayer had carried his onus of proving his claim
- • whether he could claim deductions by reason of his connection with Riyosu Pty Ltd which I consider were not available in the circumstances
14. The deductibility claim is made under section 8-1 of the Income Tax Assessment Act 1997 (Cth) ('ITAA 1997'). It provides:
- (1) You can deduct from your assessable income any loss or outgoing to the extent that:
- (a) it is incurred in gaining or producing your assessable income; or
- (b) it is necessarily incurred in carrying on a * business for the purpose of gaining or producing your assessable income.
15. Section 995-1 defines "business" as follows: '"business" includes any profession,
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trade, employment, vocation or calling, but does not include occupation as an employee.'16. Section 40-80(2) of the ITAA 1997 provides an immediate deduction for assets which cost less than $300.
17. Section 14ZZK(b) of the TAA provides that the Applicant has the burden of proving that the assessment is excessive or otherwise incorrect and what the assessment should have been.
18. In the case of claims for home office deduction, the Commissioner has issued Tax Ruling TR 93/30 which provides a helpful guide to the Commissioner's approach to claims for occupancy expenses. As a general proposition, he treats occupancy expenses as deductible only where the home office can be characterised as a place of business. He also provides advice regarding potential capital gains tax implications.
The evidence for the home office claims
19. The full terms of the taxpayer's employment contract with Westpac were not in evidence, but the principal conditions were.[2]
20. The evidence, which was unchallenged, was that certain computer equipment had been supplied to the taxpayer for use in his job at his home by his employer.[3]
21. Also tendered before me was a copy of a questionnaire required to be completed for Westpac in respect of its employees working remotely from Westpac premises which deals with the occupational health and safety considerations relating to working at home.[4]
22. Also tendered were copies of records kept by the taxpayer and submitted to his employer regarding work performed at home, which could be used as a basis for seeking time off in lieu of pay for out of hours work.[5]
23. In addition there was evidence, including oral evidence, concerning the limited availability of working space at the employer's premises out of hours.[6]
24. My conclusion is that it suited the employer's business generally that rostered after hours work be conducted from the taxpayer's home.
25. Also in evidence was a floor plan[7]
26. The taxpayer withdrew a claim for occupancy expenses in respect of the use of one of the bedrooms, and conceded that his occupancy expense claim for the living room area could not be sustained.
27. So far as the study/lab and the storage space was concerned, the taxpayer tendered a recent photograph of the study/lab indicating that it was wholly dedicated to work-related computers. He gave oral evidence that the storage space contained books, manuals and records relating to his employment. He also gave evidence that the study/lab and storage space were used for the same purposes in the tax years in question.
28. This evidence was not the subject of significant challenge by the Commissioner except to obtain an admission from the taxpayer that in the years in dispute the study/lab was also used as a method of entry to the rest of the house through a front door which required passage through the study area.
29. There was a considerable amount of cross examination of the taxpayer concerning certain items of additional running expenses which were claimed to be deductible. The taxpayer readily conceded that a number of claims were primarily of advantage to the private or domestic use of the house, such as purchases from Bunnings and air-conditioning. Those claims are not sustainable on the evidence. There remained claims for computers and coffee making equipment.
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30. As to the oral ruling which the taxpayer claimed he had received from the ATO, he conceded that he had been advised that he was under audit for his home office claims shortly after 7 February 2019.
31. On 12 March 2019 he instituted a 'live chat' with an ATO officer concerning home office claims, Tax Ruling TR 93/30 and mentioned claiming occupancy expenses "like interest, rates, gas and electricity".[8]
32. The audit was completed, an amended assessment raised, and an objection lodged on 20 March 2019.
33. On 29 July 2019 the Applicant again contacted the ATO and this time requested an oral ruling. He apparently disclosed that the objection decision was pending, and provided a copy of the transcript of the live chat. He was advised that the transcript counted as an oral ruling, and that he should wait for the objection decision to be made. The objection was disallowed on 5 August 2019.
Case law
34. The test of deductibility here is to be found in the words of the first limb of section 8-1 of the ITAA 1997, as they have been interpreted by the courts.
35. The words of the first limb of the section are that a deduction is allowable "for any loss or outgoing to the extent it is incurred in gaining or producing your assessable income". They have been interpreted to mean that deductibility is to be found in asking whether the occasion for the incurring of the loss or outgoing is found in whatever is producing or likely to produce assessable income (
Day v FCT 2008 ATC 20-064 at 8850 [30]. See also
Ovens v FCT (2009) 75 ATR 479 at [41-48]; and recently
Watson as trustee for the Murrindindi Bushfire Class-Action Settlement Fund v FCT [2020] FCAFC 92 at [32-33]).
36. I accept the Commissioner's submission that the second limb of section 8-1 does not apply to employees while performing their employment as they do not carry on business and are specifically excluded from the definition of business (section 995-1 of the ITAA 1997 defines "business" as including any profession, trade, employment, vocation or calling, but does not include occupation as an employee.)
37. It is well established that the use of a home office by a person as a matter of convenience for out of hours work does not satisfy the test of deductibility for occupation expenses.
Handley v FCT 81 ATC 4165 involved a barrister in chambers working after hours.
Case R93 84 ATC 623 ('Case R93') involved a magistrate and coroner who was on call and often worked after hours in his study. The present case differs slightly as work at home was effectively required and facilitated with equipment.
38. Even if the employer, as a practical matter, does not make premises available to an employee taxpayer for after hours work, and yet expects such work to occur, it is not of itself enough to render occupation expenses of a home office deductible (
Faichney v FCT 72 ATC 4245 ('Faichney')).
39.
Swinford v FCT 84 ATC 4803 ('Swinford') is authority for the proposition that a self-employed writer (who may not be readily considered to be carrying on business) can claim occupation expenses for a part of the home used for writing where that person can establish that the home office area is dedicated to the income producing activity, although incidentally some domestic activities (e.g. bill paying) may occur there. I do not regard it as authority for a proposition that an employee can have their own place of business. The taxpayer in Swinford was an independent contractor, more analogous to a doctor who has a surgery in or attached to their home.
40. This matter differs from Swinford because the Applicant is an employee, and using part of his home for employment related activities.
FINDINGS
41. In the present case I find that it is a requirement of the taxpayer's employer
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that he be rostered on call 24 hours a day for one week in every four. He cannot practicably be located in his employer's premises throughout the roster period. It is an implicit requirement of his employment that he uses his home to some extent to keep equipment supplied by his employer so that he is able to perform his duties when called at any time during the roster period. If he did not agree to use his home to contain the equipment, presumably his employment in his role would ultimately terminate and his source of income from that employer would likely cease. The occasion of the outgoings referable to the study/lab are a result of the taxpayer holding his particular job.42. It is not a mere convenience that he work at home when he is rostered on call. It is relevant to this finding that significant equipment (for these particular circumstances) is supplied for use at home in the employer's business. At other times it is simply convenient to work from home, even though the employer's premises are not readily available out of hours (Faichney and Case R93 supra). On Fridays he works at home with the employer's approval, but this too is a convenience.
43. However, establishing that the use of the home office is not merely a convenient place for work required after hours is only the first step for a taxpayer. The employee then must establish that he or she has some part of their home dedicated to, or set aside exclusively for the home office. They must also show the home office is actually used for work purposes. The taxpayer must further establish a basis of apportionment, on both a floor area and time formula.
44. As for the occupancy expenses claim relating to unconceded areas in the middle level (the family room and dining room) he has not been able to persuade me that he has met the onus of proof of showing that this space in the middle level was dedicated exclusively to his work. Although it may have housed his computer equipment, it seems from his evidence it was also readily available for family or domestic purposes.
45. I am persuaded that his study/computer lab was set aside exclusively for work as part of the gaining or production of income from his employment. Although the photographs in evidence were taken after the relevant years, the taxpayer gave unchallenged oral evidence that the study appeared largely that way during the years in question. The area does not look conducive to other uses. I do not consider that the space lost its identity simply because it was used incidentally as part of one entrance to the home.
46. I am not satisfied on the evidence that the taxpayer has established the storage space was set aside exclusively for the storage of work-related materials. His oral evidence was unchallenged, but there was nothing else to support it. The work-related materials were unspecified, and the quantum of them was unclear. I am unpersuaded on the state of this evidence.
47. Part of the onus of proof cast upon an employee claiming such occupation expenses as home office expenses is that of apportionment of those expenses. There are at least two aspects to this. Both parties appear to be at one so far as this is concerned. In the first place an apportionment should be made on a floor area basis, indicating the floor area which is exclusively dedicated for the required income production purposes. In the present case approximately 13 percent of the house floor area is taken by the study/laboratory, but this needs double checking by the Commissioner as part of the remittal which I order.
48. Then, it is necessary to apportion again on a time basis so that it can be fairly judged how much time is used under the employer's requirement for working purposes in the dedicated home office area.
49. It seems tolerably clear by making an inference from the evidence that the employer provides a place of employment to this taxpayer during ordinary business hours five days per week. He is rostered on call at home one week in every four. Making allowance for weekday work hours and travel time it is likely that on those weeks when he is on call that he would be expected and required to be available to use his dedicated home office between the hours of 7 PM and 7 AM on weekdays and for 24 hours a day on weekends. This suggests that each four weeks he is on call to use his employer's equipment at home 108 hours out of 168
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hours in one week. Other out of hours, and regular Friday, work at home is to be treated as a matter of the taxpayer's convenience.50. It appears to me to be appropriate to remit the matter to the Commissioner to reconsider the apportionment basis of the occupation expenses claim for the study/laboratory taking account of its proportion of floor area and the time it is used for work (other than as a matter of convenience) pursuant to the employer's requirement.
51. As to the claim for additional running expenses relating to the home office, I find that the claims for outgoings made to Bunnings, and for air-conditioning were of a private or domestic nature and so not deductible (section 8-1(2) ITAA 1997).
52. Also not deductible is the taxpayer's claim for a $300 outright deduction for two computers costing in excess of that amount. Section 40-80(2) ITAA 1997 prevents such a claim if the cost of the item exceeds $300. The computers should be subject to the usual depreciation rules.
53. The other claims for deductions for running expenses relate to two rugs and coffee making machines. I find that the taxpayer has failed to prove the basis for his claims. I do note that the Commissioner indicated that he would be prepared to reconsider these claims if additional evidence was provided to him. Accordingly, it appears convenient to remit these claims to the Commissioner to be reconsidered.
54. As to the oral ruling question, despite the fact that an ATO officer advised the taxpayer that he could treat a transcript of a live chat as an oral ruling, in my view the proposition fails on a number of accounts. I note that no penalties have been applied.
55. Oral rulings are dealt with in Division 360 of Schedule 1 of the TAA. General rules relating to rulings are provided in Division 357 of that Schedule. A ruling binds the Commissioner (even if the taxpayer is not aware of it) if it applies to the taxpayer, and that taxpayer relies on it by acting in accordance with the ruling (section 357-60 TAA).
56. An application for an oral ruling must be made orally (section 360-5(2) TAA). In my view this requires the actual use of the words "oral ruling" or something so similar in the request that there is no ambiguity. This was not done in March 2019.
57. The Commissioner must give advice on a ruling application unless he considers that it relates to a 'complex matter', or 'the matter is already being, or has been, considered by the Commissioner' (section 360-5(3) TAA). The circumstances in which an oral ruling can be applied after submission of a relevant tax return is a matter for another day. It cannot be doubted that from commencement of the audit through to the determination of the objection that the matter was already being considered by the Commissioner for the Applicant. That precludes the giving of a ruling on home office expenses during that period. The Commissioner has published advice on what is a complex matter (Practice Statement Law Administration PSLA 2008/3 at para 152). This matter may meet the Commissioner's definition, but it is not necessary for me to decide.
58. The advice in an oral ruling must be given orally and must include a registration identifier for the ruling (section 360-5(4) TAA). I doubt that a live chat (which I understand is a typed conversation between parties rather than an oral discussion) would count as oral advice. It may be a method of seeking and obtaining a private ruling but this is not presently relevant. The live chat transcript did not include the obligatory registration identifier. Although a ruling is not invalidated by some defect in form or procedure (section 357-90 TAA) the circumstances here do not amount to the making of a ruling.
59. In the present case the taxpayer did not act in reliance on any "oral ruling" for a couple of reasons. Before calling the ATO he had already submitted his tax returns making his home office deduction claims. He had sought no advice from the ATO prior to submission. Therefore, there was no reliance at the point of lodgement. He was later advised he was under audit, there was then the live chat and next his objection was being considered. There was no indication of him acting in reliance on the so-called oral ruling.
60. I find the taxpayer was not entitled to rely on the live chat advice. It was not a ruling. It is regrettable that he later received incorrect
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advice from an ATO officer concerning the status of the live chat. However he was not penalized and has not acted on it, so has suffered no prejudice to his position as a result of that incorrect advice.CONCLUSION
61. The taxpayer is entitled to a deduction of a proportion of the occupancy expenses referable to the study/lab. I remit the matter to the Commissioner for proper calculation of this amount in accordance with these reasons.
62. The taxpayer is also entitled to a deduction for depreciation on two iPads over the effective life of these depreciating assets, not to an outright deduction as their cost was over $300. I remit this issue to the Commissioner for calculation.
63. I note the Commissioner's offer to consider the question of deductibility of claims for the cost of rugs and coffee machines on any additional evidence the taxpayer wishes to submit in a timely manner.
Footnotes
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