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This edited version has been archived due to the length of time since original publication.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: 1051280397514

Date of advice: 12 September 2017

Ruling

Subject: Deduction

Question

Are you entitled to a deduction for expenses directly incurred in providing care to the person you are caring for?

Answer

Yes

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

You are an independent contractor with for a disability organisation.

You are registered for GST.

You care for a disabled person in your own home.

You will be providing care for this person for X months.

You are responsible for obtaining and maintaining suitable public liability insurance, professional indemnity insurance comprehensive vehicle insurance and workers compensation insurance.

You are reimbursed for any reasonable expenses.

You are required to care for the person and take them to appointments and activities.

You wish to claim as a deduction the following:

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Income Tax Assessment Act 1997 section 85-15

Income Tax Assessment Act 1997 section 87-18

Income Tax Assessment Act 1997 section 87-20

Income Tax Assessment Act 1997 section 87-25

Income Tax Assessment Act 1997 section 87-30

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.

An expense which is incurred exclusively for the purpose of earning your income is fully deductible (Section 8-1 of ITAA 1997).

However, if the expense contains a private proportion, the expense is not fully deductible and must be apportioned.

The cost of providing food and clothes to your client is an allowable deduction under section 8-1 of ITAA 1997 as it is incurred in producing your income.

A portion of your vehicle expenses and insurance is deductable to the extent that the expense is incurred in relation to the care of the person you are caring for.

Taxation ruling TR 93/30 Income tax: deductions for home office expenses looks at what deductions are allowable when an area of the home is used for work purposes.

Paragraph 6 of TR 93/30 divides the deductible expenses in respect of a home office into 2 broad categories:

Occupancy Expenses: expenses relating to ownership or use of a home which are not affected by the taxpayer's income earning activities. These include rent, mortgage interest, repairs, municipal and water rates and house insurance premiums. However, section 85-15 of the ITAA 1997 states that you cannot deduct an amount of rent, mortgage interest, rates or land tax for your residence to the extent that the amount relates to the gaining or producing of your personal services income. The income derived under your contract with Staffing Options is personal services income as it is a reward for your personal efforts or skills, namely providing support to disabled persons. Section 85-30 of the ITAA 1997 states that, among other things, section 85-15 will not apply to any payment to the extent that it relates to income from you conducting a personal services business.

To be conducting a personal services business you need to pass one of the following tests, or hold a Personal Services Business Determination from the Commissioner stating that you are conducting a personal services business:

The Commissioner may also issue a Personal Services Business Determination if there are unusual circumstances which prevented you from meeting one of the Personal Services Business Tests in an income year. Given your circumstances, you would not meet any of the above tests and there would not appear to be any unusual circumstances that prevented you from meeting a test.

Running Expenses: expenses relating to the use of facilities within the home. These include electricity charges for heating/cooling, lighting, phone, internet, cleaning costs, depreciation, leasing charges and the cost of repairs on items of furniture and furnishings in the office.

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" (paragraph 2 of TR 93/30).

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 (paragraph 4 of TR 93/30).

In your case, you work from home caring for a person who lives with you. The only area specifically set aside for the supported person would be their own bedroom. The rest of your residence would be shared with the supported person, except for your own bedroom. Most of your home does not have the character of a "place of business" as it is simply used in connection with your income earning activities. The shared areas retain their "private" nature. Only the areas of your home which are set aside exclusively for the supported person (that is, the supported person's bedroom) would have the character of a "place of business."

Therefore, with respect to the area of your home which has the character of a "place of business" (that is, the supported person's bedroom), a proportion of the expenses from both categories (occupancy and running expenses) may be claimed as a deduction. This is determined by using the percentage of floor area method.

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 categories (ie running expenses) are allowable. The amounts allowable as deductions are the additional expenses incurred as a result of income producing activities (paragraph 7 of TR93/30).

Therefore, for areas in your home which are used by both you and the supported person, only a reasonable proportion of the running expenses may be claimed as a deduction.

Division 40 of the ITAA 1997 provides that a taxpayer may be entitled to a deduction for the decline in value of a depreciating asset that is used during the income year for a taxable purpose. Taxable purpose includes the purpose of producing assessable income under subsection 40-25(7) of the ITAA 1997.

Section 40-30 of the ITAA 1997 provides a definition of depreciating assets. They are assets that have a limited effective life and can reasonably be expected to decline in value over the time it is used.

Subsection 40-80(2) of the ITAA 1997 provides that if a depreciating asset costs less than $300 an immediate deduction may be claimed to the extent that it is used for a taxable purpose during the income year in which the deduction is available.

An immediate deduction is available if all of the following tests are met in relation to the asset:

If the requirements above are met and the bedroom furniture is less than $300 you can claim a deduction immediately if they are over $300 you will need to depreciate the items.

You are not entitled to a deduction for any other furniture in your house.

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