Edited version of private advice

Authorisation Number: 1051952993357

Date oaf advice: 23 February 2022

Ruling

Subject: Deduction - rent

Question

Is a portion of your rent deductible pursuant to section 8-1 of the Income Tax Assessment Act 1997 whilst under the Government stay at home orders during the COVID-19 pandemic?

Answer

No.

This private ruling applies for the following periods:

Year ended 30 June 20xx

Year ended 30 June 20xx

The scheme commences on:

1 July 20xx

Relevant facts and circumstances

During the COVID-19 pandemic when the Australian Government issued stay at home orders, you did not have an alternative place to work, therefore, you were required to work from your home office.

Your home office is within your rented home accommodation.

Your home office is used solely for your employment activities such as online meetings with clients and colleagues and to perform your daily employment duties.

Relevant legislative provisions

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.

Additional expenses incurred while working from home due to the COVID-19 pandemic are addressed in Practical Compliance Guideline PCG 2020/3 Claiming deductions for additional running expenses incurred whilst working from home due to COVID-19.

Paragraph 5 of PCG 2020/3 states:

This Guideline does not cover occupancy expenses. Occupancy expenses relating to your home such as rent, mortgage interest, property insurance and land taxes will not become deductible only because you are required to work from home temporarily as a consequence of COVID-19. Occupancy expenses are only deductible if part of the home has the character of a place of business. Whether part of an employee's or business owner's home has the character of a place of business is covered in TR 93/30. Although entitlement to claim mortgage interest expenses may impact a taxpayer's ability to claim the full main residence exemption when they sell their home, this will not be relevant for taxpayers only working at home temporarily due to COVID-19 and not otherwise using their home to earn income.

Taxation Ruling TR 93/30 Income tax: deductions for home office expenses outlines the factors that indicate whether or not a home office has the character of a 'place of business'. This is likely to be the case where part of a residence is set aside exclusively for the carrying on of a business by a self-employed person, such as a doctor or dentist with a surgery or consulting rooms at home or a tradesperson with a workshop at home. Another example is where part of the home is used exclusively as the sole base of operation for an employee and no other work location is provided by the employer.

The following factors may indicate whether or not the area set aside has the character of a 'place of business':

•         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; or

•         The area is used regularly for visits of clients or customers.

Taxpayers who maintain an office or study in their homes where they can do income-producing work, but which does not constitute a place of business cannot claim deductions for occupancy expenses, such as mortgage interest, rates, rent, insurance or repairs referable to their home office. However, they can claim a deduction for additional running costs as explained in TR 93/30 and PCG 2020/3.

In your case, you are working from home in a dedicated home office due to the COVID-19 pandemic as an employee. Your employer has an established place of business available to yourself and colleagues. However, you're temporarily required to work from home due to the COVID-19 pandemic under the Government stay at home orders.

As your employer has an established place of business and you're only required to work from home on a temporary basis, your home office would not be considered a place of business. Therefore, you would not be entitled to claim a deduction under section 8-1 of the ITAA 1997 for costs such as mortgage interest, rates, rent, insurance or repairs referable to your home office.