Edited version of private ruling

Authorisation Number: 1011723506468

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Ruling

Subject: Home office expenses

Question

Can you claim rent for the percentage of your home office floor space?

Answer: Yes.

This ruling applies for the following periods:

Year ending 30 June 2011

Year ending 30 June 2012

Year ending 30 June 2013

Year ending 30 June 2014

Year ending 30 June 2015

The scheme commences on:

1 July 2010

Relevant facts and circumstances

You are self employed.

You have converted a room in your rented house to be your business office.

You use this office exclusively for work purposes.

Your home office contains all of your tools of trade including a computer, printer-photocopier, books, cabinet, phone and fax.

Sometimes you have clients who meet with you in your home office.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1.

Reasons for decision

Summary

It is considered that you have no alternative place of business, you require an office to complete your work duties and it is necessary for you to work from home. The floor area in your home dedicated for your business is considered to be a place of business. Consequently, you are entitled to claim a deduction for the portion of your occupancy expenses such as rent attributed to this home office on a floor area basis.

Detailed reasoning

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.

Generally, expenses associated with a taxpayer's home are private and domestic in nature and are not deductible. However, when an area of the home is considered to be a place of business, the occupancy expenses relating to this area will be deductible. Occupancy expenses include expenses such as rent.

Taxation Ruling TR 93/30 sets out when an area of the home has the character of a place of business. Paragraph 12 of the ruling provides three cases where the taxpayer has been able to claim the occupancy costs for their home office. Paragraph 12 states:

In each of these cases the taxpayer was able to show that, as a matter of fact, there was no alternative place of business, it was necessary to work from home, and that the room in question was used exclusively or almost exclusively for income producing purposes.

One of the cases referred to in paragraph 12 involved a full time professional scriptwriter who worked exclusively from home (Swinford v. Federal Commissioner of Taxation [1984] 3 NSWLR 118;15 ATR 1154;(1984) 80 FLR 1;84 ATC 4803).

In this case, the taxpayer was a self-employed radio and television serial script writer. She claimed deductions for a portion of the rent on the flat where she lived, on the basis that a room in the flat was the sole base of her writing operations. She specifically rented a flat with an extra room to be used for writing, and furnished the room with office furniture only. The only other use of the room was for storage of some clothing in a wardrobe in the room, for short periods when the taxpayer organised her investments and for taking occasional telephone calls.

On the facts, the taxpayer was not using her "home office" as a matter of convenience. It was the only place where she carried out her writing activities and was the only base of her operations. The NSW Supreme Court held that the part of the rent referable to the home office was deductible in that the expense was incurred for the purpose of earning assessable income and was not of a capital, private or domestic nature.

Your situation is similar to the case outlined above. You are self employed and you have converted a room into a home office which you use exclusively for doing your work.

It is clear you have no alternative place of business, you require an office to complete your work duties and it is necessary for you to work from home. The floor area in your home dedicated for your business is considered to be a place of business. Consequently, you are entitled to claim a deduction for the portion of your occupancy expenses such as rent attributed to this home office on a floor area basis.

Paragraph 7 of TR 93/30 considers the floor area basis as a reasonable apportionment.