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Ruling

Subject: Home office expenses

Question 1

Are you entitled to a deduction for home office occupancy expenses?

Answer

No.

Question 2

Are you entitled to a deduction for home office running expenses?

Answer

Yes.

This ruling applies for the following period

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

Year ended 30 June 2015

The scheme commenced on

1 July 2009

Relevant facts

You are a professional.

You have been placed under conditions because of a medical condition that means that you are only allowed to practice for a specific number of hours per week.

You do not consult from your home.

You undertake study and professional development from your home and may sometimes access client's information from home.

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, except where the outgoings are of a capital, private or domestic nature, or relate to the earning of exempt income.

For an expense to constitute an allowable deduction, it must be shown that they were incidental or relevant to the production of the taxpayer's assessable income (Ronpibon Tin NL & Tong Kah Compound NL v. Federal Commissioner of Taxation (1949) 78 CLR 47; (1949) 4 AITR 236; (1949) 8 ATD 431.

As a general rule, any expenses incurred which relate to the use or ownership of a home will be of a private or domestic nature, and therefore not deductible under section 8-1 of the ITAA 1997.

However, a taxpayer who carries on part or all of their employment activities from home may be entitled to a deduction for part of the outgoings on the home. The deductions allowable depend on whether the home can be regarded as a place of business, or whether a room of the home is merely used as a study or home office.

The deductible expenses in respect of a home can be divided into two broad categories:

· Expenses relating to ownership or use of a home which are not affected by a taxpayers income earning activities (i.e. occupancy costs)

· Expenses relating to the use of facilities within the home (i.e. running costs)

If an area of the home has the character of a place of business, some of the expenses from both the above categories may be claimed as a deduction.

However, where an area of a home is simply used in connection with income producing activities, but does not have the character of a place of business, only running costs are allowable. The amounts allowable as deductions are the additional expenses incurred as a result of income producing activities.

Whether an area of a taxpayer's home has the character of a place of business depends upon:

· The essential character of the area;

· The nature of the taxpayer's 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;

· The area is used exclusively or almost exclusively for income producing purposes;

· The area is used regularly for visits of clients or customers;

· The taxpayer requires a place of business;

· The taxpayer does not have an alternative place of business; and

· The area is used exclusively or almost exclusively for income producing purposes.

Based on the above information and the distinctions outlined in TR 93/30, we consider that the area set aside in your home is more readily identifiable as a private study or home office used in connection with employment rather than as a place of business. 

Accordingly, as your home office does not meet the criteria for a 'place of business', you are not entitled to a deduction under section 8-1 of the ITAA 1997 for a proportion of the occupancy expenses of your home, as they are considered private and domestic in nature.

However, you are entitled to a deduction for the additional 'running expenses' of the home office.

The amount that you are entitled to claim is the difference between what was actually paid for heating/cooling, lighting, cleaning and the decline in value of any office furniture you own and use and what would have been paid had you not worked from home.

Alternatively, the Commissioner accepts a deduction calculated at the rate of 34 cents per hour for the time when you use the room exclusively for work related purposes. This rate covers home office running expenses for electricity and the decline in value of office furniture.

In order to be entitled to claim home office running expenses at a rate of 34 cents per hour, you must keep a diary for at least a four week period to establish the work related use of the home office. It is not sufficient for you to state that you use your home office exclusively for work; you need to be able to substantiate your claim.

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