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Edited version of private ruling
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Ruling
Subject: Motor home expenses
1. Are you entitled to a deduction for the expenses you incur in operating and maintaining a motor home for your accommodation and private business in your proposed mobile business?
No.
2. Are you entitled to a deduction for the expenses you incur in travelling in your motor home to work in various country towns to see clients?
No.
3. Are you entitled to a deduction for your motor home running costs such as electricity to the extent the costs relate to your income earning activities?
Yes.
4. Are you entitled to a deduction for the decline in value of the equipment in your proposed mobile business?
Yes.
This ruling applies for the following period
Year ending 30 June 2011
Year ending 30 June 2012
The scheme commenced on
1 July 2010
Relevant facts
You are a professional.
You intend to purchase a motor home and travel to various places where you will work while other professionals are away. Your spouse will accompany you.
When you travel to the various places you will:
· use the existing business premises and their equipment
· stay in your motor home parked in an area for a small fee.
In between these assignments you will be working in local country areas. You propose to use your motor home for your own accommodation. The motor home will also be used for income earning activities when in country areas. Your spouse will accompany you and undertake employment duties in your business.
When you travel to country towns you will:
· stay in your motor home
· see clients in the motor home
· carry special equipment
· remove the lounge in the motor home temporarily, set the equipment up when you see clients and then replace the lounge for private use.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 8-1
Reasons for decision
Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses and outgoings to the extent to which they are incurred in gaining or producing assessable income, or in carrying on a business for the purpose of gaining or producing your assessable income, except where the outgoings are of a capital, private or domestic nature or another provision of the ITAA 1997 or the ITAA 1936 prevents it.
Home office expenses
Paragraph 2 of Taxation Ruling TR 93/30 states that 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, house and contents insurance, rates and property taxes may be partly deductible.
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. This is likely to be the case where a part of a residence is set aside exclusively for the carrying on of a business by a self employed person (for example a doctor's surgery). Another example is where part of the home is used as a taxpayer's sole base of operations for income producing activities (for example where no other work location is provided to an employee by an employer). The following factors, none of which is necessarily conclusive on its own, 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
· the area is used regularly for visits of clients or customers.
The deductible expenses in respect of a home office can be divided into two broad categories:
· Expenses relating to ownership or use of a home which are not affected by the taxpayer's income earning activities (that is, occupancy expenses). These include rent, mortgage interest, municipal and water rates and house insurance premiums.
· Expenses relating to the use of facilities within the home (that is, running expenses). These include electricity charges for heating/cooling, lighting, cleaning costs, decline in value, 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, it is considered that your motor home does not have the characteristics of a place of business. Although you adjust the lounge area of your motor home to install equipment this is considered a temporary measure and the primary purpose of the motor home is to provide accommodation for you and your spouse. Using a small area of your motor home for your income earning activities does not satisfy the criteria provided in TR 93/30. It is considered that:
· the temporary equipment is set up in an area not clearly identifiable as a place of business
· while not being used for income earning activities the lounge area is readily suitable for private use as an entertainment area for example watching TV, and
· the area is not used exclusively or almost exclusively for carrying on a business.
Therefore as the area you will temporarily set aside to perform your income earning activities is not considered to be a place of business you will not be entitled to a deduction for a portion of the expenses you incur in operating and maintaining a motor home for travelling, income earning activites and accommodation purposes in your proposed mobile business.
Running costs
However, since you do perform income producing activities at your motor home you will be entitled to a deduction under section 8-1 of the ITAA 1997 for running costs such as electricity to the extent the costs incurred relate to your assessable income. The Australian Tax Office accepts a diary kept for a period of four weeks to establish a pattern of use for the whole year or the expenses can be claimed on an actual cost basis.
Equipment
You are not entitled to an outright deduction for the purchase of equipment as it is a capital expense.
However, section 40-25 of the ITAA 1997 allows a deduction for the work related portion of the decline in value of depreciating assets. Your equipment is considered to be a depreciating asset.
As you will use the equipment in the course of your income earning activities you can claim a deduction for its decline in value.
In determining the decline in value you must determine the effective life of your depreciating asset. You can either adopt the effective life determined by the Commissioner in Taxation Ruling TR 2010/2, which applies on and from 1 July 2010, or you work out your own estimate of the effective life.
Travel
Travel between home and work is generally a private expense and not incurred in earning assessable income. However expenses incurred by employees in travelling from home to work are deductible under section 8-1 of the ITAA 1997 in some limited circumstances.
A deduction is allowable for the cost of travel between home and work for an employee who is engaged in itinerant work. Taxation Ruling TR 95/34 deals with the issue of an employee carrying out itinerant work. The question of whether an employee's work is itinerant is one of fact, to be determined according to individual circumstances. It is the nature of each individual's duties and not their occupation or industry that determines if they are engaged in itinerant work. Further, itinerant work may be a permanent or temporary feature of an employee's duties.
The main features of itinerant work include the following characteristics:
· travel is a fundamental part of the employee's work
· the existence of a 'web' of work places in the employee's regular employment
· the employee continually travels from one work site to another. An employee must regularly work at more than one work site before returning to his or her usual place of residence
· the employee has a degree of uncertainty of location in his or her employment (that is, no long term plan and no regular pattern exists)
· the employee's home constitutes a base of business operations
· the employee has to carry bulky equipment from home to different work sites.
Travel is a fundamental part of an employee's work
For the travel to be a fundamental part of an employees work, travel must be an essential feature of an employee's duties (paragraph 22 TR 95/34). You are employed at various locations. Each location is a different employer.
Web of work places
A web of work places exists when an employee earns the income by performing his or her duties at several work sites before returning home. In FC of T v. Wiener 78 ATC 4006; (1978) 8 ATR 335 (Weiner's Case), the taxpayer was required to teach at four to five schools each day. Her duties for the day involved travelling between the schools to instruct pupils at different schools. This constituted a web of work places because the travel was a fundamental part of her work. Travelling between schools was part of her duties for the day.
This situation is contrasted with Case U97 87 ATC 584; AAT Case 68 (1987) 18 ATR 3491 (Case U97), where the taxpayer was not considered to be an itinerant worker. His work required him to travel to one outer station for a number of days then another outer station for another period. It was decided that there is not the web of work places to be regarded as itinerant.
The degree and uncertainty of the employment did not have a large impact in the Courts' considerations in both Federal Commissioner of Taxation v. Genys (1987) 17 FCR 495; 87 ATC 4875; (1987) 19 ATR 356 (Genys' Case) and Wiener's Case.
In your case, you are employed in one location for a period of time before moving to the next employer. You also travel to various country areas to see clients. Your home for the duration of your travel is where the motor home is parked and travel between places is not a fundamental part of your duties.
Home constitutes a base of operations
Whether an employee's home constitutes a base of business operations depends on the nature and the extent of the activities undertaken by the employee at home. An employee's home may constitute a base of business operations if the work is commenced at or before the time of leaving home to travel to work and the responsibility for completing the work is not discharged until the taxpayer attends the worksite (FC of T v. Collings 76 ATC 4254: (1976) 6 ATR 476).
In Genys' Case, the taxpayer was contacted by telephone by a nursing agency when work was available. The taxpayer in this case believed her home constituted an income producing operation because she received instructions about her next work location over the telephone which was the only method of contacting her. The Court held that the mere receipt of telephone calls from an employer or employment agency was not sufficient to allow the home to be classed as a base of operations.
In your case, you are employed to work at various places and your duties start when you arrive at the work place. You also see clients in your motor home where you and your spouse reside.
Your employment does not fit the characteristics of itinerancy. Therefore, the cost of travel between places to see clients is considered to be private travel and therefore, not deductible.
Bulky equipment
Although you intend to carry equipment in the motor home, the primary purpose of travelling in the motor home is to provide accommodation for yourself and your spouse, and the transport of the equipment is incidental to this purpose. Therefore, the cost of travel is considered private and not deductible.
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