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Ruling

Subject: Home office expenses

Question 1:

Are you entitled to claim a deduction for the occupancy expenses incurred relating to an area of your home used as a home office?

Answer:

No.

Question 2:

Are you entitled to a deduction for the running expenses incurred relating to an area of your home used as a home office?

Answer:

Yes.

Question 3:

Are you entitled to a deduction for the expenses incurred in travelling between your home and your place of part-time employment?

Answer:

No.

This ruling applies for the following periods:

Year ended 30 June 2012

Year ended 30 June 2013

Year ended 30 June 2014

The scheme commences on:

1 July 2011

Relevant facts and circumstances

In your main employment, you are provided with a place to work.

You are also employed part-time by a different employer.

You are provided with facilities to undertake some of your part-time employment duties.

You are using one of the rooms of your home as an office to undertake the other duties of your part-time employment which you cannot perform at your employer's premises.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Reasons for decision

Questions 1 and 2:

Summary

You are entitled to a deduction for running expenses incurred during the time you undertake work duties in your home office. You are not entitled to a deduction for occupancy expenses as your home office is not considered to be a place of business.

Detailed reasoning

Section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) allows a deduction for all losses or 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 sets out the Commissioner's view on the deductibility of home office expenses.

As a general rule, expenses associated with a taxpayer's home are private or domestic in nature, and do not qualify as a deduction for taxation purposes. However, where the home has the character of a 'place of business', a deduction will be allowable for a proportion of 'occupancy expenses' such as rent, interest, repairs, and house and contents insurance, and 'running expenses' such as heating, lighting, cleaning and depreciation. 

If the home office is used in connection with the taxpayer's 'income producing activities', but does not constitute a 'place of business' only a proportion of the running expenses are allowable.

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 (e.g., a doctor's surgery).

The following factors, none of which is necessarily conclusive on its own, may indicate whether or not an area set aside has the character of a place of business:

· whether the area is clearly identifiable as a place of business;

· whether the area is not readily suitable or adaptable for use for private purposes;

· whether the area is used exclusively or almost exclusively for carrying on a business; or

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

The absence of an alternative place for conducting income producing activities has also been a factor that influenced a court or tribunal to accept a part of a taxpayer's residence as a place of business. Examples include:

· a self employed script writer using one room of a flat for writing purposes and for meetings with television station staff (Swinford v. FC of T (1984) 15 ATR 1154; 84 ATC 4803);

· an employee architect conducting a small private practice from home (Case F53, 74 ATC 294; Case 65, 19 CTBR(NS) 452);

· a country sales manager for an oil company whose employer did not provide him with a place to work (Case T48, 86 ATC 389; Case 47, 29 CTBR(NS) 355).

Whether a part of a home has the character of a place of business 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 such as those mentioned above. TR 93/30 states that after weighing up all these factors, the decision is ultimately whether 'the area constitutes a "place of business" in the ordinary and common sense meaning of that term'.

In your main employment you are provided with a place to work. You also work part-time for a different employer. You contend that your home office is a place of business as you are only provided with facilities by your part-time employer in relation to some of your duties.

As discussed previously, the courts have accepted that the absence of an alternative place for conducting income earning activities is a factor in considering whether a home office is a place of business. However, it is noted that in two of the cases mentioned above where this factor was determinative, the taxpayer had only one income activity which was almost entirely undertaken in the home office.

In the other case, the taxpayer was an employee architect who also ran a private practice. His private practice was almost entirely undertaken from his home office.

In your case, for your main income earning activity you are provided with a place to work. A substantial portion of your duties in your part-time employment is, or could be, undertaken at the employer's premises. Of all the tasks you undertake in order to earn income, only a minority are required to be carried out in your home office.

It is also noted that your home office is readily suitable for private purposes; it is not used regularly for work related visits; and it is not clearly identifiable as a place of business (your home office would have the appearance of a private study).

Having regard to all of the above, it is considered that while your home office is used in connection with your income earning activities, it does not have the character of a place of business.

Consequently, you are not entitled to a deduction for occupancy expenses. However, subject to substantiation requirements being met, you are entitled to a deduction for the running expenses related to your use of the room as a home office.

Question 3:

Generally the expenses of travel to and from work are not deductible. Such expenditure is not an expense incurred in gaining or producing assessable income and is a loss or outgoing of a private nature. The essential purpose of much home to work travel is not to enable a taxpayer to derive assessable income, but is a necessary consequence of living in one place and working in another. Such journeys are made on the way to work and returning from it. They are not made in the course of the employment or in the performance of work duties.

IT 2199 states that claims incurred in travelling directly between two places of employment should be allowed where the taxpayer does not live at either of the places and the travel has been undertaken for the purpose of enabling the taxpayer to engage in income producing activities. The fact that a room in the employee's home is used in association with employment conducted elsewhere will not be sufficient to establish entitlement to a deduction for travel between two places of work.

In your case the travel is more in the nature of travel between home and place of employment rather than travel between two places of employment. That is, the cost of travel between home and work is incurred to put you in a position to perform your duties, rather than in the performance of those duties.

Your expenses are therefore, considered to be private in nature and not incurred in gaining or producing your assessable income. A deduction is not allowable for your travel expenses between home and work.