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Edited version of your private ruling

Authorisation Number: 1012408612660

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Ruling

Subject: Home office expenses

What this ruling is about:

The ruling concerned the following:

Question 1

Will provisions of the Fringe Benefits Tax Assessment Act 1986 (FBTAA ) apply to the applicant in respect of a housing benefit or indeed of any other benefit/s?

Question 2

Can you apply the floor area method be used to determine the business use percentage (BUP) of the property for income tax deductions?

Question 3

Will Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) apply to cancel any benefits that might otherwise accrue to the applicant and if so, which, why, how and to what extent?

Question 4

Can you claim a deduction for expenditure incurred in improving or maintaining front and rear entrance doors, walls, doors and windows that separate business and personal areas and other common items to the extent of the BUP?

Question 5

When calculating the BUA, may the applicant partially or fully exclude any and all lawns and gardens, driveways, carports, sheds, other structures and outdoor areas, from the total floor area of the property if these are not required to any extent as a dedicated BUA?

Question 6

Further to Question 5, if it wishes, may the applicant segregate any such individually nominated areas into private use areas (PUA) and BUAs and calculate the BUP accordingly?

Question 7

In further respect of questions 5 and 6, may the applicant rely upon the formula in calculating the BUP under the floor space method?

Question 8

Without potentially increasing the applicant's taxation assessment, with regard to section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997), can concurrent operations occur at other locations may there be one or more "branches" situated in other suburbs, whereby the applicant seeks to derive assessable income at each place of business by either the director spending some time at each branch or other employees conducting operations at the branch?

Question 9

If in future and with the landlord's permission, if the applicant completes a property improvement in respect of a BUA, can this expense be claimed in terms of a depreciating capital expense?

Question 10

Providing at all times that:

Do any other considerations need to be given for the purposes of ascertaining the applicant's property based expense deductions under the ITAA 1997; specifically because from time to time, the applicant might move into or out of the subject property as a place to live?

Question 11

Providing at all times that:

Do any other considerations need to be given for the purposes of ascertaining the applicant's property based expense deductions under the ITAA 1997 specifically because from time to time, BUAs and PUAs change their characteristics sufficiently to become that of the other?

Question 12

Further to question 11, does the Commissioner have the authority under the Tax Administration Act 1953 (TAA) and or the ITAA 1997, to limit the amount of times and frequency that a PUA and a BUA might change their character and subsequent use to the other and if so, please describe its effect on this procedure?

Question 13

Can the applicant claim full depreciation expenses on the fixtures and fittings it supplies within a BUA?

Question 14

Assuming:

Then in the absence by the Commissioner of any demonstrated counter-factual evidence that a material change has occurred to the inherent facts in the description to this application, such that one or more BUAs is actually a PUA, then under the TAA, the ITAA 1997 and or the FBTAA, can the Commissioner retrospectively issue amended income tax assessments and or default FBT assessments for the relevant periods on the basis that the ruling is of no effect?

Question 15

Under the ITAA 1997, is the level of income the applicant derives from each of its businesses (or overall), a factor in determining the genuine nature of a BUA?

Question 16

If a BUA is essentially a normal space within a domestic property (for example, a bedroom, formal dining or formal lounge room ), however is fitted-out with furniture and other effects as required to fulfil its commercial function (for example, say table and chairs for client meetings, whiteboard, document storage cupboard, spare visual monitor to plug in a laptop for presentations, office desk, credenza, computer, printer, stationery etc), however where no permanent or semi-permanent physical changes are made to the space in question in terms of structural changes or built-in plant or equipment, does that dismiss that space as a BUA simply because those items can be removed if desired, to again render the space private and domestic in character?

Question 17

Does the Commissioner accept the effective nature of the joint property sharing agreement pursuant to this request for a private ruling?

Question 18

Given that any occupancy expenses clearly associated with the new tax agent business to be run from the property are deductible to the shareholder because the shareholder and not the applicant is the registered tax agent, under the ITAA 1997, must the shareholder pay some of the occupancy and running expenses to avert a disallowance of those proportionate expenses for the applicant?

The Commissioner ruled as follows:

Question 1

Will provisions of the FBTAA apply to the applicant in respect of a housing benefit or indeed of any other benefit/s?

Answer

No, provisions of the FBTAA will not apply to the applicant in respect of a housing fringe benefit based on the facts provided in your application for a private ruling. We decline to rule on whether the FBTAA will apply to the applicant in respect of any other benefits based on insufficient information.

Question 2

In respect of the BUA, can the floor area method be used to determine the BUP of the property for income tax deductions for occupancy and running expenses, depreciation expenses and other capital costs?

Answer

Occupancy expenses - Yes

Running expenses, depreciation expenses and other capital costs - No, unless this is found to approximate a reasonable representation of the additional usage for particular costs.

Question 3

Will Part IVA of the ITAA 1936 apply to cancel any benefits that might otherwise accrue to the applicant and if so, which, why, how and to what extent?

Answer

No

Question 4

As the property will be a truly dual purpose property, can business operating costs be claimed for improving or maintaining front and rear entrance doors, walls, doors and windows that separate business and personal areas and other common items, alarm systems, to the extent of the BUP?

Answer

No, costs would need to be considered individually for a reasonable business use proportion.

Question 5

When calculating the BUA, may the applicant partially or fully exclude any and all lawns and gardens, driveways, carports, sheds, other structures and outdoor areas (entertainment areas), from the total floor area of the property if these are not required to any extent as a dedicated BUA?

Answer

Yes

Question 6

Further to Question 5, if it wishes, may the applicant segregate any such individually nominated areas into PUA and BUAs and calculate the BUP accordingly?

Answer

Yes

Question 7

In further respect of questions 5 and 6, may the applicant rely upon the formula in calculating the BUP under the floor space method?

Answer

No

Question 8

Without potentially increasing the applicant's taxation assessment, with regard to section 8-1 of the ITAA 1997, can concurrent operations occur at other locations i.e. may there be one or more "branches" situated in other suburbs, whereby the applicant seeks to derive assessable income at each place of business by either the director spending some time at each branch or other employees conducting operations at the branch?

Answer

The Commissioner declines to rule, as at this stage operating from other sites is not in serious contemplation.

Question 9

If in future and with the landlord's permission, if the applicant completes a property improvement in respect of a BUA, can this expense be claimed in terms of a depreciating capital expense?

Answer

The Commissioner declines to rule, as at this stage property improvements are not in serious contemplation.

Question 10

Providing at all times that:

Do any other considerations need to be given for the purposes of ascertaining the applicant's property based expense deductions under the ITAA 1997; specifically because from time to time, the applicant might move into or out of the subject property as a place to live?

Answer

The Commissioner declines to rule on this question as at this stage the applicant moving into and out of the property is not in serious contemplation.

Question 11

Providing at all times that:

Do any other considerations need to be given for the purposes of ascertaining the applicant's property based expense deductions under the ITAA 1997 specifically because from time to time, BUAs and PUAs change their characteristics sufficiently to become that of the other?

Answer

Yes, the percentages will need to be recalculated each year where this is the case.

Question 12

Further to question 11, does the Commissioner have the authority under the TAA and or the ITAA 1997, to limit the amount of times and frequency that a PUA and a BUA might change their character and subsequent use to the other and if so, please describe its effect on this procedure?

Answer

No, however frequent changes may indicate that an area does not have the character of a place of business.

Question 13

Can the applicant claim full depreciation expenses on the fixtures and fittings it supplies within a BUA?

Answer

Yes

Question 14

Assuming:

Then in the absence by the Commissioner of any demonstrated counter-factual evidence that a material change has occurred to the inherent facts in 'the description' to this application, such that one or more BUAs is actually a PUA, then under the TAA, the ITAA 1997 and or the FBTAA, can the Commissioner retrospectively issue amended income tax assessments and or default FBT assessments for the relevant periods on the basis that the ruling is of no effect?

Answer

The Commissioner declines to rule on this question. A private ruling is only binding to the extent that scheme is implemented in the way set out in the private ruling.

Question 15

Under the ITAA 1997, is the level of income the applicant derives from each of its businesses (or overall), a factor in determining the genuine nature of a BUA?

Answer

No, however it is necessary to consider the level of assessable income produced by the business in order to determine deductibility of outgoings.

Question 16

If a BUA is essentially a normal space within a domestic property (for example, a bedroom, formal dining or formal lounge room ), however is fitted-out with furniture and other effects as required to fulfil its commercial function (for example, say table and chairs for client meetings, whiteboard, document storage cupboard, spare visual monitor to plug in a laptop for presentations, office desk, credenza, computer, printer, stationery etc), however where no permanent or semi-permanent physical changes are made to the space in question in terms of structural changes or built-in plant or equipment, does that dismiss that space as a BUA simply because those items can be removed if desired, to again render the space private and domestic in character?

Answer

The status of each area is required to be considered on a case by case basis in light of the criteria set out in Taxation Ruling 93/30 Income tax: deductions for home office expenses to determine whether the area has the character of a place of business.

Question 17

Does the Commissioner accept the effective nature of the joint property sharing agreement pursuant to this request for a private ruling?

Answer

The Commissioner declines to rule on this question on the basis that it is an agreement between the relevant parties.

Question 18

Given that any occupancy expenses clearly associated with the new tax agent business to be run from the property are deductible to the shareholder because the shareholder and not the applicant is the registered tax agent, under the ITAA 1997, must the shareholder pay some of the occupancy and running expenses to avert a disallowance of those proportionate expenses for the applicant?

Answer

The Commissioner declines to rule on this question as this question relates to a separate taxpayer that is not the applicant of this private ruling and to which this private ruling applies.

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