Edited version of private advice

NOTICE

The private ruling on which this edited version is based has been overturned on objection.

This notice must not be taken to imply anything about the correctness of other edited versions.

Edited versions cannot be relied upon as precedent or used for determining how the ATO will apply the law in other cases.

Authorisation Number: 1052357314688

Date of advice: 7 February 2025

Ruling

Subject: Work related expenses

Question 1

Are you entitled to claim a deduction for a portion of your rent for occupancy expense in relation to a home office?

Answer 1

No.

This ruling applies for the following periods:

Year ended 20XX

Year ending 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You currently work for Company A which is a company headquartered in Country X

You are the Senior Director of XXX for the company.

You do not have an office to attend and work from home full time.

You rent your apartment.

You have a dedicated home office space that measures X metres by X metres (XX Sqm).

You have a partner who resides with you on weekdays. Your partner occasionally works from your apartment. In addition to this you are required from time to time to make phone calls in the early hours due to time zones. This means you require a dedicated home office for privacy reasons.

Your work is primarily computer based and interactions with team members, internal stakeholders, and external clients are held via video conferencing platforms. You participate in these on average 4-5 hours a day.

In the last year, on X separate occasions, you had international staff visit the Australian market and internal meetings were conducted at your place of residence on those occasions.

Your home office contains a laptop, monitor, work desk, chair, keyboard, mouse, and office stationary.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

These reasons for decision accompany the Notice of private ruling for the Taxpayer.

While these reasons are not part of the private ruling, we provide them to help you to understand how we reached our 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.

Taxation Ruling TR 93/30 Income tax: deductions for home office expenses, contains the Commissioner's view on when an employee can deduct occupancy and running expenses in relation to a home office.

As a general rule, expenses associated with a taxpayers' 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.

Another exception to this general rule is where part of the home is used in connection with the taxpayer's income earning activities but does not constitute a place if business. In this case, a more limited range of deductions may be available.

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.

The following factors may indicate whether or not an area set aside as a home office has the character of 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

•                     The area is used regularly for visits of clients or customers.

The existence of any of these factors or a combination of them will not necessarily be conclusive I n ascertaining the character of an area used as a home office. Rather the decision in each case will depend on a balanced consideration of:

•                     The essential character of the area,

•                     The nature of the taxpayer's business, and

•                     Any other relevant factors.

The deductible expenses in respect of a home office can be divided into two broad categories:

•                     Occupancy expenses - expenses relating to ownership or use of a home which are not affected by a taxpayer's income earning activities. These include rent, mortgage interest, municipal and water rates, land taxes, and insurance premiums.

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

If an area of the home has the character of a place of business, some part of the expenses from both categories may be claimed as a deduction. In most cases the apportionment of expenses should be made on a floor area, and where the area of the home is a place of business for part of the year, on a time basis as well. 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 category of running expenses are allowable. The amounts available as deductions are the additional expenses incurred as a result of income producing activities.

Application to your circumstances.

The question of when an area in a home is place of business as opposed to a private study is discussed in TR 93/30. Your employer does not have any official office locations within Australia. While the absence of an alternative place for conducting income producing activities has influenced a court of tribunal to accept a taxpayer's residence as a place of business, in such cases it has been demonstrated that there was a requirement inherent in the nature of the taxpayer's activities that the taxpayer needs a place of business.

In your case, the home office does not have the character of a 'place of business'. It is not clearly identifiable as a place of business, with significant office equipment. The space and the equipment present (desk, computer, monitor, and mouse) are not notably distinguishable from that to be found in a private study.

You advise you do use the area exclusively for carrying on the activities of your employer's business. You do not however use the area for regular meetings with clients or customers. Your regular interactions with clients and internal stakeholders are held via video conferencing platforms. On X separate occasions you have hosted international clients in your home for meetings. There is, however, no additional furniture within your office that would indicate these meetings were held in this space, and the limited floor space would be prohibitive as well.

While the home office does not have the essential character of a place of business, the office is used in connection with your income earning activities. As such, you are entitled to a deduction for your home office running expenses. Running expenses are the increased costs of using the home's facilities for work-related activities.

Further information about claiming deductions for running expenses for an area of a home that is used in connection with income earning activities, including how to calculate your claim, is available here or search for 'QC 72158' on ato.gov.au.

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