Edited version of private advice

Authorisation Number: 1051922400070

Date of advice: 17 November 2021

Ruling

Subject: Work-related occupancy expenses

Question

Is the Taxpayer entitled to a deduction for the work-related portion of their rent (occupancy) expenses under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

The deductibility of occupancy expenses, such as rent, and methods for apportioning those expenses is addressed in Taxation Ruling TR 93/30 Income tax: deductions for home office expenses.

Generally, expenses associated with a taxpayer's home are of a private or domestic nature and do not qualify as deductions for taxation purposes. An exception to this general rule is where part of the taxpayer's home is used as their sole base of operations for their income producing activities ("place of business"), for example, where no other work location is provided to an employee by their employer.

For a taxpayer to show that part of their home is a place of business they need to be able to show that:

•         it is a requirement inherent in the nature of the taxpayer's activities that the taxpayer needs a place of business

•         the taxpayer's circumstances are such that there is no alternative place of business and it was necessary to work from home, and

•         the area of the home is used exclusively or almost exclusively for income producing purposes.

In this case, one of the rooms in the Taxpayer's home has the character of a place of business. It is necessary for him to work from home because his employer does not provide him with an alternative place to work from and the room is used exclusively as the sole base of operations for income producing activities.

As an area of the Taxpayer's home has the character of a place of business, the work-related portion of the rent incurred is an allowable deduction under section 8-1 of the ITAA 1997.

However, as the home is used for income producing and private purposes, the rental expense needs to be apportioned. The deductible proportion of the rental expense should be calculated as a percentage of floor space of the room directly used for performing the role with the Employer compared to that of the entire dwelling.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commences on:

1 July 20XX

Relevant facts and circumstances

Taxpayer is employed by Company A (Employer) in the position A on a full-time basis.

A copy of the signed employment contract between the Taxpayer and the Employer (Employment Contract) showed key clauses.

An Employer letter provided information about location of employment and requirements to work from home office.

After the Taxpayer commenced the role with the Employer, the Taxpayer moved from the address noted in the Employment Contract to an apartment.

The Taxpayer rents an apartment at Location A.

The apartment has an extra bedroom used solely as the Taxpayer's home office to perform employment activities for the Employer. The extra bedroom is set up with a desk, a chair and a laptop which is connected to a keyboard, mouse and 2 external computer monitors.

There is an agreement between the Employer and the Taxpayer that the location of employment will now be based at the Taxpayer's home office at Location A.

The Taxpayer has incurred additional expenses performing the role from the home office.

The work portion of the occupancy expense is the part of the rent that relates to the extra bedroom that the Taxpayer uses as a home office.

The Taxpayer is not reimbursed by the Employer for any portion of his rent expenses

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 8-1