Edited version of private advice

Authorisation Number: 1051593007881

Date of advice: 24 October 2019

Ruling

Subject: Home office expenses

Question 1

Is the home office space you use in your private home to work from home, considered to have the character of a place of business?

Answer:

No.

Question 2

Are you eligible to claim a deduction for a portion of occupancy expenses in relation to this home office space?

Answer:

No.

Question 3

Are you eligible to claim a deduction for a portion of running expenses in relation to this home office space?

Answer:

Yes.

Question 4

If your home office space does not have the character of a place of business, is your entitlement to the main residence exemption from capital gains tax affected?

Answer:

No.

This ruling applies for the following period

Year ended 30 June 20XX to Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts

You are a full time permanent salaried employee of a business. Your employer had an office, from which you could work, but this has been closed from the 20XX/XX year, and they do not have a presence in your city.

All staff in your city work from their homes.

You have dedicated XX square metres out of a XXX square metre home to the home office.

There is no signage to distinguish the office.

Clients don't visit the home office.

Your employer provides a phone and computer, and you provide broadband access.

You provide your own filing cabinets for work purposes.

The home office is readily adaptable for private and domestic use.

You conduct business via videolink, as well as travelling from the office.

You do not view your home office as a place of business.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1

Income Tax Assessment Act 1997 Paragraph 118-190(1)(c)

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.

Taxation Ruling TR 93/30 is about home office expenses.It statesdeductible expenses in respect of a home office can be divided into two broad categories:

·        Occupancy expenses, that is, expenses relating to ownership or use of a home which are not affected by the taxpayer's income earning activities. These include rent, mortgage interest, municipal and water rates and house insurance premiums.

·        Running expenses, that is, expenses relating to the use of 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.

A deduction for a portion of a home's occupancy expenses is only allowable if the part of the home used for income producing activities has the character of a place of business.

The factors which delineate a place of business include:

·        there is no alternative place for conducting the income earning activities;

·        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; and

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

In your case, there is one significant factor that points towards your home office having the character of a place of business, that being you do not have any alternative place to conduct your income earning activities. However, most of the other factors support the opposite conclusion. Also, you do not view your home office as a place of business. Having regard to all your circumstances, on balance, we consider that your home office does not have the character of a place of business.

It follows you are not entitled to a deduction for a portion of your home's occupancy expenses.

However, you are entitled to a deduction for the portion of running expenses that relate to your home office. Guidance on how to calculate a deduction for running expenses can be found by searching for 'QC 31977' on our website ato.gov.au

As your home office is not considered to have the character of a place of business, your main residence exemption from capital gains tax is not affected (paragraph 118-190(1)(c) of the ITAA 1997).