Edited version of your written advice

Authorisation Number: 1051332833078

Date of advice: 30 January 2018

Ruling

Subject: Work-related expenses

Question and answer

1. Are you entitled to a deduction for the travel, accommodation and meal expenses incurred travelling from A to B in the performance of your work duties?

Yes.

2. Are you entitled to a deduction for X% of the rent you pay on the property you live in?

Yes.

This ruling applies for the following period:

Year ended 30 June 2018

Year ended 30 June 2019

Year ended 30 June 2020

Year ended 30 June 2021

Year ended 30 June 2022

The scheme commenced on:

1 July 2017

Relevant facts:

You have been offered a full-time job.

It is a requirement of your employment contract that you work from home as your employer does not have an office in A.

A list of duties you perform in your home office were provided.

You undertake this work at home because your employer is looking at expanding its business in A and your employer does not have an office in A.

It is also a requirement that you work a few days per week in your employers B office.

You are required to pay for travel from your home to the airport, flights to B, travel from the airport to B office, accommodation and meals.

Your employer does not pay you an allowance or reimburse you for these expenses.

You are under the control and direction of your employer when you leave your home and travel to and from the B office.

Your travel to and from the B office is 100% work related and there is no private portion.

You have a room in your home which is used as an office which equates to X% of your home.

Your home office is used 100% for work relating to your employment.

Legislation

Income Tax Assessment Act 1997 Section 8-1.

Reasons for 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, or relate to the earning of exempt income.

The fact that certain expenditure, such as travelling to work, must be incurred in order to be able to derive assessable income, does not necessarily mean that the expenditure is incidental and relevant to the derivation of assessable income or that it is incurred in the course of gaining or producing assessable income. It is a prerequisite to the earning of assessable income rather than being incurred in the course of gaining that income.

The essential character of the travel to and from work is that of a private and domestic nature, related to personal and living expenses as part of the taxpayers choice of where to live, in choosing to live away from and what distance from work.

There are exceptions where travel between home and work are deductible, for example where you transport bulky tools and equipment, your home is a base of employment and you commence your duties prior to leaving home, or you regularly work at more than one site each day before returning home.

Generally accommodation expenses incurred by a person who lives away from home in order to carry out his or her own employment duties, at the place of employment, will not be deductible. Expenses of this nature are private, or incurred before or after the activity of earning assessable income.

Draft Taxation Ruling TR2017/D6 discusses employee costs of relocating for work and living away from home to work. These expenses are considered preliminary to the work and are not deductible, however, Example 10 of TR 2017/D6 looks at ongoing travel to an alternative work location. The Commissioner has concluded that in this case the travel, accommodation and meals are deductible.

Your case is comparable to the example in TR2017/D6 as you are required to work away from home and stay away overnight and travel is undertaken in the course of performing your work activities. It is a condition of your employment contract that you work from home and travel to work in B a few days per week.

Accordingly, the expenses have the character of an outgoing incurred in gaining assessable income and are deductible under section 8-1 of the ITAA 1997.

Home Office

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.

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

Normally, expenses associated with a persons’ home are private or domestic in nature, and therefore do not qualify as an allowable deduction (Handley v. Federal Commissioner of Taxation (1981) 148 CLR 182; 81 ATC 4165; (1981) 11 ATR 644; and FC of T v. Forsyth 81 ATC 4157; (1981) 11 ATR 657). 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' such as rent, mortgage interest, municipal and water rates and house insurance premiums, and 'running expenses' such as electricity charges for heating and lighting (Taxation Ruling TR 93/30).

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. Paragraph 4 of TR 93/30 states that an area is likely to be a place of business where a part of the residence is set aside exclusively for the carrying on of a business by a self-employed person. Another example is where part of the home is used as a taxpayer's sole base of operations for income producing activities, that is, where no other work location is provided to an employee by an employer (Case T48 86 ATC 389; (1986) 29 CTBR (NS) Case 47).

In your case, the latter of the examples apply. Your employer has not provided you with a work location so you, therefore, use a room of your home as an office. You use this office exclusively for work related to your employment. Furthermore, the nature of your work requires that you maintain an office in your home.

Based on the above, it is considered that your home office is a place of business. As a result, you are entitled to claim deductions for both running expenses and occupancy expenses. Occupancy expenses would generally be apportioned on a floor area basis and you have advised that % of your home is used as an office for work, therefore, you can claim a deduction for % of the rent you pay to live there.