Edited version of private advice

Authorisation Number: 1052164954983

Date of advice: 23 October 2023

Ruling

Subject: Work related deductions

Question 1

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

Answer

No.

Question 2

Are you entitled to claim as a deduction part of your running costs for your home office?

Answer

Yes.

This ruling applies for the following period:

Year ended 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are employed as a Credit Manager/Loans Officer for an Australian bank.

You are located in regional town.

You operate from your home residence full-time.

You rent your home and you have dedicated a portion of the property to complete your employment functions.

You have set aside a portion of the property to use for your employment duties.

This area has a separate exit to the rest of the property.

You have a formal flexible work arrangement with your employer which enables you to work from home some of the time where you are sick or have an appointment to attend.

The terms of employment and the duties performed by you at your residence include:

•         Completion of loan documents for customers.

•         Interviewing customers at the residence

•         Signing of loan documents at the residence.

You conduct your work each day in a uniform with branding.

All of your documentation has branding on it and it is easily identifiable.

You don't believe that the area set aside can be used easily for private purposes as there are no TV points as they have been removed and no domestic furniture.

Your lease agreement allows you to work from home but does not allow you to conduct a business from the premises.

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.

Occupancy expense

Taxation Ruling TR 93/30 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.

You work from home for an Australian bank.

You have a formal flexible work arrangement which allows you to work from home some of the time.

Your employer encourages you to work from home if you are sick or have an appointment to attend.

You have not provided the Commissioner with any evidence that your employer requires you to work from home on a permanent fixed basis.

As your employer has an established place of business, your home office is not a place of business and you are not entitled to claim a deduction for cost such as rent and utilities referable to your home office.

Running expenses

Individual taxpayers may claim eligible running expenses (heating, cooling, lighting and decline in value of office furniture) based on additional costs incurred. This is not available where the work activity is undertaken in an area where other family members are present and so there is no additional energy cost. The rate is based upon average energy costs and the value of common furniture items used in home offices.

Individual taxpayers who claim home office expenses are required to be able to substantiate that they have incurred such expenses. Such taxpayers must also be able to establish a connection between the use of their home office and their work or business.

As you are able to work from home and have a formal flexible work agreement with your employer, you are able to claim a deduction for running expenses using the fixed rate method or actual cost method.

Apportion of running expenses

As discussed above, you are able to claim expenses you have incurred to run your home office. Some of these expenses are incurred are both deductible and non-deductible, such as electricity, they must be apportioned and only the deductible portion can be claimed.

In relation to running expenses, the Commissioner will generally accept a bona fide estimate based on a reasonable percentage of the overall running expenses of the household, but may choose not to accept your basis of apportionment where that basis is not reasonable.

A common method for working out the apportionment of expenses is based on floor plan method as follows:

Floor area used for business ÷ Total floor area × Relevant expenditure