Edited version of your private ruling

Authorisation Number: 1012367999460

This edited version of your ruling will be published in the public register of private binding rulings after 28 days from the issue date of the ruling. The attached private rulings fact sheet has more information.

Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet.

Ruling

Subject: work related expenses

Question 1

Can you claim a deduction for home office occupancy expenses relating to your vehicle?

Answer

No.

Question 2

Can you claim a deduction for a portion of home office running costs relating to your vehicle?

Answer

Yes.

Question 3

Can you claim a deduction for travel expenses incurred driving the vehicle from where it was purchased to your home town?

Answer

No.

Question 4

Can you claim a deduction for travel expenses incurred when travelling between your home town and town B to attend meetings and jobs relating to your business activity?

Answer

No.

Question 5

Can you claim a deduction for travel expenses incurred between your home town and town B to service your rental property?

Answer

Yes.

Question 6

Can you claim a deduction for a portion of the decline in value of your vehicle?

Answer

Yes.

This ruling applies for the following periods:

Year ended 30 June 2012

The scheme commences on:

1 July 2011

Relevant facts and circumstances

Your main occupation is an employee.

You purchased a vehicle which you drove from the place of purchase to your home town. The vehicle has a carrying capacity of more than one tonne.

You reside in your vehicle, which is generally parked at free park locations. You also sometimes housesit for your friends and park the vehicle on their premises. As such you do not incur camping costs.

You use your vehicle as a base for performing administration tasks for your business.

You also manage your rental property from the vehicle. This involves duties such as answering emails and phone queries, and arranging cleaners and repairs to the unit.

You drive your vehicle from your home town to town B when you are required to attend to your investment property for repairs and cleaning, and when you attend paid meetings.

You have also driven your vehicle between your home town to town B transporting large items to be used in your investment property.

You do not drive your vehicle to your business activities in your home town due to the small distance between your place of residence and the job locations.

You estimate that you use approximately half of the vehicle for work purposes based on floor area. The area is also used for private purposes.

On average you use the vehicle for income earning activities approximately one hour per day.

You incur costs associated with the administration of your business in the vehicle, such as internet, phone costs and depreciation.

You also incur travel costs between your home town to town B when, and use the Log Book method for calculating travel expenses for your vehicle.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Section 40-25, and

Income Tax Assessment Act 1997 Section 40-72.

Reasons for decision

Home office expenses

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 necessarily incurred in carrying on a business for the purpose of gaining or producing assessable income except where the loss or outgoing is of capital or is of a capital, private or domestic nature.

For a deduction to be allowable for home office expenses, the expenses must satisfy the requirements of section 8-1 of the ITAA 1997. Normally, expenses associated with a taxpayer's home are private or domestic in nature and therefore not allowable as a deduction under section 8-1 of the ITAA 1997.

Generally, expenses associated with a taxpayers home are private or domestic in nature and therefore do not qualify as allowable deductions for taxation purposes. However, where the home is used for income producing activities and has the character of a place of business, a deduction may be allowable for a portion of:

· occupancy expenses relating to ownership or use of a home, such as rent, mortgage interest, repairs, and house and contents insurance, and

· running expenses relating to the use of facilities within the home. These include electricity charges for heating/cooling and lighting, cleaning costs, decline in value, internet and phone, and the cost of repairs on items of furniture and furnishings in the office.

TR 93/30 sets out the following criteria, none of which are necessarily conclusive on their own, to be considered in determining whether a home office is 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 income producing purposes

· the area is used regularly for visits of clients or customers

· it is a requirement inherent in the nature of the taxpayers activities that the taxpayer needs a place of business, and/or

· the taxpayers circumstances are such that there is no alternative place of business and it was necessary to work from home.

In your case, being self-employed it is acknowledged that there would be a necessity that you require an area to perform the administrative duties in relation to your income earning activities. However the following factors indicate that your vehicle is not a place of business:

· the area is not clearly identifiable as a place of business. That is, there is no external signage on the vehicle to indicate there is a place of business

· it is not used for visits from clients or customers

· the area used for organising your business activities is easily suitable or adaptable for use for private or domestic purposes

· the area is not used exclusively or almost exclusively for carrying on a business or income producing purposes, and

· there is no requirement inherent in the nature of your activity that you need a place of business.

In consideration of the above indicators you have not established a 'place of business', and as such you are not entitled to a deduction for occupancy expenses relating to your vehicle.

However you are entitled to a portion of running expenses you incur in relation to the income producing use of the vehicle.

In your case, you have advised that you use approximately half of the vehicle area for income producing purposes. Further you use the area for approximately one hour per day for your income earning activities.

Therefore, you are entitled to claim a deduction for a fair and reasonable apportionment of the running expenses you incur based on the percentage of the floor space used, and time spent utilising the area for income earning activities.

Vehicle travel expenses

Division 28 of the ITAA 1997 deals with the deductibility of car expenses. It sets out the rules for working out deductions for car expenses if you own or lease a 'car'.

A 'car' is defined in subsection 995-1(1) of the ITAA 1997 as a motor vehicle (including a four wheel drive vehicle) designed to carry a load of less than one tonne and fewer than nine passengers.

As your vehicle has a carrying capacity of greater than one tonne, Division 28 of the ITAA 1997 does not apply in your case.

However, a deduction can still be allowed for travel expenses under section 8-1 of the ITAA 1997 where it is incurred in the course of gaining or producing assessable income.

Travel between the place of purchase to your home town

Although you incurred expenses in transporting the vehicle from the place of purchase and your home town, and the vehicle is used in your income earning activities, the expense is not considered to be incurred in producing assessable income, but is private and domestic in nature. Therefore you cannot claim a deduction for this expense.

General travel between your home town and town B -meetings and business services

The essential purpose of the travel between your home town and town B is to put you in a position to perform duties of employment, rather than in the performance of those duties. Further, your circumstances do not fit with any of the exceptions identified in IT 2543.

As such, the travel expenses you incur while travelling between your home town and town B to attend meetings and jobs relating to business activity are not considered to be incurred in producing assessable income, but are private and domestic in nature.

Travel between your home town and town B - service your rental property

Expenses incurred in travelling between your home town and town B for the purpose of servicing your rental property are considered to be incurred in travelling in the course of producing your assessable income, and are therefore deductible under section 8-1 of the ITAA 1997.

Logbook

You advised that you keep a logbook for calculating fuel, running expenses and maintenance in relation to the vehicle.

It is considered that the use of a logbook is an appropriate method to establish the business kilometres when travelling between your home town and town B to service your rental property.

You should keep written evidence of all expenses for your vehicle, including fuel and oil costs, and other expenses relating to the income producing use of the vehicle.

To claim a deduction using the logbook method, the term business kilometres is used which is defined as kilometres that are travelled in the course of producing assessable income. Therefore any kilometre travel that is private in nature cannot be included as part of the calculation when using the logbook method.

Decline in value of vehicle

Section 40-25 of the ITAA1997 allows a deduction for the decline in value of a depreciating asset to the extent that it is used for a taxable purpose.

Subsection 40-25(2) of the ITAA 1997 states you must reduce your deduction by the part of the asset's decline in value that is attributable to your use of the asset, or your having it installed ready for use, for a purpose other than a taxable purpose.

As your vehicle is used for performing administration tasks for your business and travelling to investment property, the decline in value of the vehicle could be included in the calculations for both the home office running costs expenses and work related travel expenses. However, you are only entitled to claim the decline in value of your vehicle once under one category.

As such, we will accept a fair and reasonable estimate of the business use percentage of the decline in value, taking into account both the home office use percentage and the percentage of the total kilometres travelled for income producing purposes.

For example, if the home office use percentage of a vehicle was 20% (based on floor space and time spent on the income producing activities), and the business use percentage of the total kilometres travelled in the vehicle was 10%, we would accept a fair and reasonable estimate of the business use percentage of the total decline in value of the vehicle to be 30%.

Calculating the decline in value

The two methods available to calculate the decline in value are:

Diminishing value method (see 1a. and 1b. below), and

Prime cost method.

Once you have chosen a method for a particular asset, you cannot change to the other method for that asset.

Diminishing value method - post-9 May 2006 assets

Section 40-72 of the ITAA 1997 increases the deduction for decline in value of a depreciating asset for an income year if you started to hold the asset on or after 10 May 2006.

This method assumes that the decline in value each year is a constant proportion of the remaining value and produces a progressively smaller decline over time.

The formula for calculating the deduction for assets purchased on or after 10 May 2006:

Base Value x Days held x 200%________

365 Asset's effective life

where:

base value =

(a) for the income year you acquired the asset: its cost, or

(b) for a later year: the sum of its opening adjustable value for that year (that is, its cost less its decline in value up to that time) and any amount included in the second element of its cost for that year.

days held = the number of days you held the asset in the income year from its start time, ignoring any days in that year when you did not use the asset, or have it installed ready for use, for any purpose.

Diminishing value method - pre-9 May 2006 assets

The formula for calculating the deduction for assets purchased before 9 May 2006:

Base Value x Days held x 150%________

365 Asset's effective life

Prime cost method

This method assumes that the value of a depreciating asset decreases uniformly over its effective life. A fixed percentage is applied to the cost of the asset every year in working out the decline in value.

The formula for calculating the deduction is:

Asset's cost x Days held x 100%________

365 Asset's effective life

Effective life

Both decline in value methods are based on a depreciating asset's effective life.

For most depreciating assets, you have a choice to work out the effective life yourself or use an effective life determined by the Commissioner. The choice must be made for the year of income in which the assets start time occurs.

Taxation Ruling TR 2012/2 shows the Commissioner's determination of the effective life of a bus with a gross vehicle mass of more than 3.5 tonnes purchased on or after 1 Jan 2005, as fifteen years. Further the effective life of a minibus with a gross vehicle mass of 3.5 tonnes or less purchased on or after 1 Jan 2005 is 12 years. In making his determination the Commissioner assumes the asset is new.

If you choose to make your own estimate, you work out the effective life of a depreciating asset as at the time it is first used or installed ready for use for any purpose. The estimate should take into account:

· the physical life of the asset

· engineering information

· the manufacturers specifications

· your own past experience with similar assets

· the past experience of other users of similar assets

· the level of repairs and maintenance commonly adopted by users of the asset

· retention periods

· how you expect to use the asset

· what rate of wear and tear you would reasonably expect from that use assuming the asset is kept in reasonably good order and condition

· how long the asset could, in these circumstances, be used to produce income, and

· any proposal to scrap or abandon the asset that would otherwise cut short its use for income producing purposes.

Part year claim

Where an item has been purchased part way through the financial year, you must pro-rata the deduction based on the number of days that you hold the depreciating asset.

Copyright notice

© Australian Taxation Office for the Commonwealth of Australia

You are free to copy, adapt, modify, transmit and distribute material on this website as you wish (but not in any way that suggests the ATO or the Commonwealth endorses you or any of your services or products).