Edited version of private advice

Authorisation Number: 1052104626093

Date of advice: 21 April 2023

Ruling

Subject: Work related deductions

Question

Are you entitled to a deduction for a percentage of the rent of the unit for the relevant period?

Answer

Yes.

Based on the information provided t the Commissioner you are entitled to a deduction for a portion of the rent you paid to rent the unit.

A taxpayer is entitled to an allowable deduction under Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997), if the loss or outgoing is incurred in producing your assessable income except where the outgoing is of a capital, private or domestic nature.

The term 'incurred in gaining or producing assessable income' means incurred 'in the course of gaining or producing assessable income'.

For an expense to be incurred in gaining or producing assessable income it is both sufficient and necessary that the occasion of the expense should be found in whatever is productive of assessable income.

Paragraphs 13 to 15 of TR 2020/1 Income tax: employees: deductions for work expenses under section 8-1 of the ITAA 1997 state:

13. The pivotal element of section 8-1 for work expenses is the requirement that expenses be incurred 'in gaining or producing assessable income'. The High Court majority in Payne said it is well established that these words are to be understood as meaning incurred 'in the course of' gaining or producing assessable income, and do not convey the meaning of outgoings incurred 'in connection with' or 'for the purpose' of deriving assessable income.

14. The majority further stated that the meaning of 'in the course of' gaining or producing income was amplified in Ronpibon Tin NL where it was held that:

... to come within the initial part of [section 8-1] it is both sufficient and necessary that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income, or if none be produced, would be expected to produce assessable income...

15. While the High Court authority indicates the nature of the connection that needs to be found between outgoings and assessable income, the sufficiency of the connection in a given case cannot simply be determined by reference to a precise formula. Section 8-1 is expressed in such terms that it is intended to cover any number of legal and factual situations. In many cases, only a proper consideration of all the relevant facts and circumstances will reveal whether the occasion of a particular outgoing is to be found in what produces assessable income.

TR 93/30 Income tax: deductions for home office expenses considers the deductibility of occupancy and running expenses incurred by taxpayers who work from home.

Generally, expenses associated with the ownership and use of a home, such as rent, are private or domestic in nature. An exception to this is where part of the home is used for income producing activities and has the character of a 'place of business'. Whether an area of a home has the character of a 'place of business' is a question of fact and depends on the particular circumstances of the case. In the case of an employee, this is likely to be the case where the home is used as the sole base of operations for their income producing activities, that is where no other work location is provided to the employee by an employer.

It is the absence of an alternative place for conducting the income producing activities that has influenced the decision to treat part of an employee's home as the sole base of operations for their income producing activities. In those circumstances, a place of business/sole base of operations will exist only if:

•         it is a requirement inherent in the nature of the employee's activities that the taxpayer needs a place of business

•         the employee's circumstances are such that there is no alternative place of business and it was necessary to work from home, and

•         the area of their home is used exclusively or almost exclusively for income producing purposes.

In your case, you were required to work from the unit as the office for your employer had not been set up.

You carried out most of your work from the unit with various duties occurring outside the unit.

The unit had a specific room that was your office for this period.

A portion of the expense you incurred on renting the property is an allowable deduction for the relevant period.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You worked for Employer Z.

You were asked to relocate to State Z to assist in facilitate the opening of an office for the firm.

Initially, Employer Z, intended to buy over several businesses, however, this fell through and Employer Z decided to open up their own business from scratch.

During the time that you were residing in State Z, it was deemed necessary that you remained there in order to attend local marketing and networking events and meet with and attend to clients.

Your spouse accompanied you to State Z.

You ended your lease on your property in State Y.

Your employer was going to reimburse your accommodation expenses but never did.

You rented a unit in State Z.

You set up a room as a home office.

A portion of the unit was used in relation to your work.

You carried out all work except for various duties.

You rented the unit for several weeks.

You ended your employment with Employer Z during the period you were in State Z.

You remain working in State Z.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

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