Edited version of private advice

Authorisation Number: 1051610161508

Date of advice: 11 December 2019

Ruling

Subject: Running and occupancy costs of a home office.

Question

Are you entitled to claim a deduction for occupancy expenses in relation to your home office space?

Answer

Yes

This ruling applies for the following period:

Year ended 30 June 2020

The scheme commences on:

1 July 2019

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 employed as in administrative duties for Company A.

·        You obtained an Australian Business Number which was cancelled recently.

·        There is no signage to indicate that this is an area of business.

·        Your main residence is located in a residential property in Australia.

·        Your main residence consists of X bedrooms, Y bathrooms, a kitchen, Z lounges and a garage.

·        There is an area upstairs which has been cordoned off as an office. It contains normal office furniture.

·        The home office is used for your employment which is mainly administration duties.

·        No clients visit the home and there is accordingly no parking set aside for them.

·        You work from home X days per week to achieve a XX hour work week.

·        You have no employees who also use this home office.

Prior to your current situation above you initially worked in the home of your employer for several months. Your employer then moved interstate and offered to assist you in establishing a home office, an offer which you accepted. Your employer does not have any premises in your state where you could perform your duties and has therefore provided office furniture to assist you in establishing a home office.

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.

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, i.e., 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, i.e., 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.

As a general rule, occupancy expenses are allowable when the part of the home used for income producing activities has the character of a 'place of business'.

As outlined in paragraphs 12 and 13 of TR 93/30, where there is no alternative place for conducting income producing activities an area of a home may be regarded as a place of business.

In your case, in your role as an employee, your employer does not provide a place of business in your city. Accordingly, you work from your home as a practical place to conduct your duties as no other place of business exists in which you could perform these duties.

As outlined in paragraph 4 of TR 93/30, where an employer does not provide another work location the expenses may be deductible.

Taking into account the factors mentioned above, in your case we consider that the space you use at home for your work is the sole available location for you to perform your duties. It follows you may claim deductions for occupancy. You may claim a portion of running expenses in respect to this space.

Deductions for running expenses (including depreciation expenses)

Running expenses are the increased costs of using facilities within your home because of your work activities. Running expenses include:

·        the costs of using a room, such as electricity and gas costs for heating, cooling and lighting

·        business phone costs

·        the decline in value of plant and equipment

·        the costs of repairs to furniture and furnishings.

You are entitled to claim a deduction for the running expenses in relation to the home office that is actually incurred through the income producing activities which is additional to the private expenditure.

To calculate running expenses, the Commissioner accepts a diary kept for a period of four weeks in order to establish the pattern of use for the whole income year. Two acceptable methods taxpayers can use are:

• option one - calculating the actual running expenses and apportioning them according to the pattern of business use shown in the diary, or
• option two - claiming an amount per hour for business/employment use in respect of heating, cooling, lighting and depreciation of furniture. A diary can show the pattern of use. Note that decline in value of home office furniture is included in this calculation but you need to separately calculate some items (for example, telephone expenses, and decline in value of computers) and apportion according to the business use.

It would be necessary to look at each of these types of expenses individually to estimate the level of use for business purposes. The floor area as a method of apportionment would only be appropriate where it produced a reasonable estimate of additional use for a particular type of expense.

It follows you should apportion your running expenses for the room to exclude any hobby or private purpose.

For further guidance, you may refer to Taxation Ruling TR 93/30.