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This edited version has been archived due to the length of time since original publication. It should not be regarded as indicative of the ATO's current views. The law may have changed since original publication, and views in the edited version may also be affected by subsequent precedents and new approaches to the application of the law.

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Edited version of your written advice

Authorisation Number: 1051266703741

Date of advice: 10 August 2017

Ruling

Subject: Expenses

Question 1

Are you entitled to claim a deduction for occupancy expenses in relation to your home office?

Answer:

No.

Question 2

Are you entitled to claim as a deduction part of your running costs for your home office?

Answer:

Yes.

Question 3

Are you entitled to deductions that relate to running a small business?

Answer:

No.

This ruling applies for the following periods:

Year ended 30 June 2017

The scheme commenced on:

1 July 2016

Relevant facts:

You are a full-time employee.

You are not a contractor or a business.

You work from a home office at your private residence as your employer does not have an office for you to work from.

Your employer has an office in Australia.

Your employment contract states that you are to work from your home.

You live in a unit and you use the spare bedroom as your home office.

You are the only occupant of the unit.

Your employer provided you with equipment to use in the home office such as laptop, phone and printer.

You do not have clients come to your home.

You meet with clients over video chat or telephone.

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.

Occupancy expense

Taxation Ruling TR 93/30 outlines the factors that indicate whether or not a home office has the character of a 'place of business’. This is likely to be the case where part of a residence is set aside exclusively for the carrying on of a business by a self-employed person, such as a doctor or dentist with a surgery or consulting rooms at home or a tradesperson with a workshop at home. Another example is where part of the home is used exclusively as the sole base of operation for an employee and no other work location is provided by the employer.

The following factors may indicate whether or not the area set aside has the character of a 'place of business’:

Taxpayers who maintain an office or study in their homes where they can do income-producing work, but which does not constitute a place of business cannot claim deductions for occupancy expenses, such as mortgage interest, rates, rent, insurance or repairs referable to their home office. However they can claim a deduction for additional running costs.

In your case, the place of business for your employer is located in Australia and you are required to work from home. As your employers have an established place of business, your home office is not a place of business and you are not entitled to claim a deduction for cost such as mortgage interest, rates, rent, insurance or repairs referable to your home office.

Running expenses

Individual taxpayers may claim eligible running expenses (heating, cooling, lighting and decline in value of office furniture) based on additional costs incurred. This is not available where the work activity is undertaken in an area where other family members are present and so there is no additional energy cost. The rate is based upon average energy costs and the value of common furniture items used in home offices.

Individual taxpayers who claim home office expenses are required to be able to substantiate that they have incurred such expenses. Such taxpayers must also be able to establish a connection between the use of their home office and their work or business.

As your contract states that you are required to work from home under your employment arrangement, therefore you are entitled to claim a deduction for running expenses.

Apportion of running expenses

As discussed above, you are able to claim expenses you have incurred to run your home office. Some of these expenses are incurred are both deductible and non-deductible, such as electricity, they must be apportioned and only the deductible portion can be claimed.

In relation to running expenses, the Commissioner will generally accept a bona fide estimate based on a reasonable percentage of the overall running expenses of the household, but may choose not to accept your basis of apportionment where that basis is not reasonable.

A common method for working out the apportionment of expenses is based on floor plan method as follows:

Floor area used for business

Total floor area X Relevant expenditure

Small business deductions

The term 'business' is defined in section 995-1 of the Income Tax Assessment Act 1997 (ITAA 1997) as 'includes any profession, trade, employment, vocation or calling but does not include occupation as an employee.'

You are an employee. You are not a business.

Therefore you are not entitled to deductions relating to being a small business.

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