Edited version of private ruling

Authorisation Number: 1011659385200

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Ruling

Subject: Home office occupancy expenses

Question

Are you entitled to a deduction for occupancy expenses for a home office?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 2010

The scheme commences on:

1 July 2009

Relevant facts and circumstances

This ruling is based on the facts stated in the description of the scheme that is set out below. If your circumstances are materially different from these facts, this ruling has no effect and you cannot rely on it. The fact sheet has more information about relying on your private ruling.

You are self-employed as a consultant to Australian and overseas clients, and a recruitment agent for businesses.

Due to the nature of the two roles, you work/are on call nearly 24 hours a day, 7 days a week, and use a home office for the majority of the time.

For the business consultant role you do not see clients at your home office, as they are located some distance from your residence including overseas. Therefore you correspond with these clients via phone and e-mail.

For the recruitment role you rarely meet clients at your residence, as you prefer to meet with them in an informal environment, for example over lunch or coffee, to see how they interact informally.

You have no alternative place of business and it is necessary for you to work from your home office.

You have dedicated a room in your house as a home office which is approximately 4 metres x 5 metres in size. The room is clearly identifiable as an office with an office desk, 2 work computers, a laptop, printer, office chair, telephone and book case. It also has a second desk with another computer which your child may use on weekends.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

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

Summary

Your home office is considered a place of business. Therefore you will be entitled to a deduction for a portion of your occupancy expenses.

Detailed reasoning

Section 8-1 of the ITAA 1997 allows a deduction for any loss or outgoing to the extent that it is incurred in gaining or producing your assessable income, or it is necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income. However, you cannot deduct a loss or outgoing to the extent that it is capital, or of a private or domestic nature.

For a deduction to be allowable for home office expenses, the expenses must satisfy the requirements of section 8-1 of the ITAA 1997.

Generally, expenses associated with a taxpayers home are private or domestic in nature and therefore do not qualify as allowable deductions for taxation purposes. However, where the home is used for income producing activities and has the character of a place of business, a deduction may be allowable for a portion of:

· occupancy expenses relating to ownership or use of a home. These include rent, mortgage interest, municipal and water rates and house insurance premiums, and

· running expenses relating to the use of facilities within the home. These include electricity charges for heating/cooling and lighting, cleaning costs, decline in value, and repairs to equipment (Taxation Ruling TR 93/30).

Place of business

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 or where part of the home is used as a taxpayer's sole base of operations for income producing activities (for example, where no other work location is provided to an employee by an employer).

Taxation Ruling TR 93/30 sets out the following criteria, none of which are necessarily conclusive on their own, to be considered in determining whether a home office is 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 income producing purposes

· the area is used regularly for visits of clients or customers

· it is a requirement inherent in the nature of the taxpayers activities that the taxpayer needs a place of business, and/or

· the taxpayers circumstances are such that there is not alternative place of business and it was necessary to work from home.

In your case, you are self-employed and a part of your residence is set aside and used exclusively or almost exclusively for carrying on a business and income producing purposes. It is considered that the area is not readily suitable for private or domestic use.

Additionally, your home office is used as your sole base of operations for income producing activities, and you have no alternative place of business. It is necessary for you to work from home because some of your clients live quite some distance from your residence.

Therefore, as the room you have set aside to perform your income earning activities is considered to be a place of business, you will be entitled to a deduction for a portion of your occupancy under section 8-1 of the ITAA 1997.

Apportionment - Occupancy expenses

To calculate a deduction for occupancy expenses, it is necessary to apportion expenses between private and business/employment use. In most cases apportionment of expenses should be made on floor area, and in addition, where the area of the home is a place of business for only part of the income year, a time basis.