Edited version of private advice

Authorisation Number: 1052169146165

Date of advice: 14 September 2023

Ruling

Subject: Deductions - occupancy expenses

Question

Can the Taxpayer claim a deduction for the occupancy expenses in relation to their home, used for their employment under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No. Taxation Ruling TR 93/30 Income tax: deductions for home office expenses considers when occupancy expenses are deductible under section 8-1 of the ITAA 1997, due to the absence of an alternative place for conducting income producing activities. Paragraph 13 lists reasons that all must exist for such a deduction to be allowable, including that your circumstances are such that there is no alternative place of business, and it was necessary to work from home.

This ruling applies for the following period:

Year ended 30 June 2023

The scheme commenced on:

1 July 2022

Relevant facts and circumstances

You are an Individual Taxpayer and an Australian resident for tax purposes.

You are employed.

You are engaged in a role which requires the daily use of a computer.

You have a health condition, and due to your health, you work from home on a fulltime basis.

You attend the office when necessary.

During the financial year you resided at Property A from the period XX XX 20XX until XX XX 20XX.

During the financial year you resided at Property B effective from XX XX 20XX.

You are currently renting and have a dedicated home office room.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Summary

You have a designated area of your home that is used in connection with your income earning activities. You do not attend the office for personal reasons; your employer provides an alternative work location and therefore, it is not necessary to work from home. Your home does not qualify as a place of business.

It is considered that these expenses are outgoings of a private nature, so therefore you are not entitled to claim a deduction for the occupancy expenses incurred under section 8-1 of the ITAA 1997.

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.

Detailed reasoning

Section 8-1 of the 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 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.

TR 93/30 discusses the deductibility of occupancy expenses, such as rent, 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. 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. You do not attend the office for personal reasons. Your employer offers 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.

It is considered that your expenses are outgoings of a private nature, you are not entitled to claim a deduction for the occupancy expenses incurred under section 8-1 of the ITAA 1997.

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.