Edited version of private advice

Authorisation Number: 1052030084667

Date of advice: 12 September 2022

Ruling

Subject: Home office expenses

Question One

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

Answer

Yes.

Question Two

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

Answer

No.

This ruling applies for the following period

Year ended 30 June 20XX

The scheme commences on:

4 January 20XX

Relevant facts and circumstances

You are employed on a full-time basis.

Your employment contract states that your employment commenced in January 20XX.

Your employment contract states that your designated work location is based at your home address.

Your contract also states that you have the option to work at one of your company's offices if you choose to do so.

Your employer does not have an office within commuting distance of your home.

You have a 3-bedroom unit and have dedicated one of these rooms to be a home office space.

Your home office occupies 20% of the living space in your home.

Your home office consists of a large desk, computer equipment, bookshelves and stationery.

Your employer does not provide a work allowance for you to work from home.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Detailed reasoning

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.

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.

Taxation Ruling TR 93/30 Income tax: deductions for home office expenses (TR 93/30), discusses the deductibility of occupancy expenses, such as a mortgage, and methods for apportioning those expenses. Where the taxpayer's circumstances are such that there is no alternative place to work and it is necessary to work from home, and the area of the home is used exclusively or almost exclusively for income producing purposes, a proportion of running costs and occupancy costs can be claimed as a deduction.

The deductible expenses in respect of a home office can be divided into two broad categories:

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

•                    Running expenses - 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.

In determining whether deductions for a home office are available, there is a distinction between situations where the home office can be characterised as a place of business and where it is not a place of business but is used in connection with work activities. In order to be eligible to claim a deduction for home office occupancy expenses, the home office must have the character a place of business. 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.

Place of business

TR 93/30 states that the absence of an alternative place for conducting income producing activities may also lead to a home being considered a place of business. These circumstances will exist only if:

•                    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 the case of an employee the requirement to work from home must arise from the activities of the employment, rather than the personal choice of the employee. For example, in cases such as Federal Commissioner of Taxation v. Charlton 84 ATC 4415 and Federal Commissioner of Taxation v. Toms 89 ATC 4373 taxpayers were not allowed deductions for accommodation expenses they incurred to be nearer their place of employment, as the expenditure arose from their choice to undertake employment some distance from their family homes, rather than anything inherent in the nature of their income producing activities.

The circumstances where part of a home is considered to have the character of a place of business can be contrasted with the more common case where a taxpayer maintains an office or study at home as a matter of convenience (that is, so that he or she can carry out work at home which would otherwise be done at his or her regular place of business or employment).

Application to your circumstances

In your case, it cannot be said that a place of business exists at your home location. Although you have not been provided with a work location, your employer does offer an alternate place of business, and it is your personal choice to choose to work from home instead of relocating or commuting to the place of work which is offered by your employer.

Although a place of business does not exist at your home location, you do have a designated area of your home that is used in connection with your income earning activities. As such, you are entitled to a deduction of your home office running expenses.

You are not however, allowed a deduction for your home office occupancy expenses under section 8-1 of the ITAA 1997 as they remain private in nature.