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Edited version of private ruling
Authorisation Number: 1011612609792
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Ruling
Subject: home office expenses
Question
Are you entitled to a deduction for landscaping as a home office expense?
Answer:
No.
This ruling applies for the following period
Year ended 30 June 2010
The scheme commenced on
1 July 2009
Relevant facts
You are a consultant operating from your house. The basement area in your house is set up as a home office and this area has been your principal place of business for several years.
The walls and floor of the basement have deteriorated over the years from water entering the house from the outside (rain water was sucked into the soil and through the walls).
The problem increased to such an extent that almost every few months you scrubbed and repainted the walls.
In the 2009-10 income year you hired a landscaper who cleaned up the soil/dirt build up against the external wall of the home office. The cleaned area was concreted and paved with tiles with a slope away from the house to avoid any rain water getting inside.
Relevant legislative provisions
Income Tax Assessment Act 1997 Section 8-1
Income Tax Assessment Act 1997 Section 25-10
Reasons for decision
Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for 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. However, losses and outgoings are not deductible to the extent to which they are of a capital, private or domestic nature.
Section 25-10 of the ITAA 1997 allows a deduction for expenditure incurred for repairs to premises or plant that you held or used solely for the purpose of producing assessable income.
Taxation Ruling TR 93/30 looks at deductions available 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. In such cases some of the expenses incurred in respect of the home such as rent, interest, repairs, may be partly deductible.
A deduction is allowable for non-capital expenditure on repairs to premises, or part of premises, held, occupied or used by the taxpayer for the purpose of producing assessable income, or in carrying on a business for that purpose.
Where the premises are partly used for income-producing purposes and partly for other purposes, the cost of repairs is deductible only to the extent to which the premises are used for income-producing purposes.
In your case you incurred expenses in landscaping, concreting and paving the yard of your principal place of residence. The work would have remedied a defect in the structure of your home which would have increased the value of your private residence and the aesthetic appeal of the property. It is the condition of your private residence that has led to the deterioration of the walls of your basement and would have occurred irrespective of the use of the basement as your home office.
The use of your basement as a place of business does not change the private character of the expense. The link between your income earning activities and the work conducted on the exterior of your private residence is too tenuous to be considered an allowable deduction under section 8-1 or section 25-10 of the ITAA 1997.
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