Edited version of private advice

Authorisation Number: 1052246585215

Date of advice: 1 May 2024

Ruling

Subject:Home office occupancy expenses

Question 1

Are you entitled to claim a deduction for the work-related portion of your rent (occupancy) expenses under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) during the COVID-19 lockdown period?

Answer 1

No.

Summary

Practical Compliance Guideline PCG 2020/3 states 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.

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. As an alternative place of work existed as provided by your employer, you are not eligible to claim occupancy expenses.

Question 2

Are you entitled to claim a deduction for the work-related portion of your rent (occupancy) expenses under section 8-1 of the ITAA 1997 for the period between XX XXXX 20YY to XX XXXX 20YY?

Answer 2

No.

Summary

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. As an alternative place of work existed as provided by your employer, you are not eligible to claim occupancy expenses.

This ruling applies for the following periods:

Year ended XX XXXX 20YY

Year ended XX XXXX 20YY

The scheme commenced on:

XX XXXX 20YY

Relevant facts and circumstances

You are a professional employed by an employer.

You worked from home for your employer during the COVID-19 pandemic lockdowns and up until XX XXXX 20YY.

When you worked from home, your work duties involved providing legal services and advice to clients over the phone.

Your employer provides an alternative place to work through their offices. The offices remained open during the COVID-19 pandemic.

Your employer had a COVID-19 Vaccination Policy mandating workers to have COVID-19 vaccinations (unless an exemption applies) to attend the workplace.

On XX XXXX 20YY, you received a letter from your employer detailing that you could remain working from home until XX XXXX 20YY due to personal reasons for not complying with the vaccination requirements.

You had an exemption for COVID-19 vaccination.

On XX XXXX 20YY you received a letter from your employer noting your exemption for COVID 19 vaccination expired on XX XXXX 20YY and your employer continued to support your current working from home arrangements.

On XX XXXX 20YY, your employer announced that from XX XXXX 20YY all staff were expected to return to the office and the hybrid work model would come into effect for staff who wished to set up work from home arrangements.

On XX XXXX 20YY you attended a meeting which your employer advised you that you are required to work from home and are not permitted to attend the office. Any breach of this direction may result in a separate disciplinary action.

On XX XXXX 20YY, you received a letter from your employer detailing allegations of misconduct in connection with the employer's Vaccination Policy which included a direction to work from home as you were not permitted to attend the office.

On XX XXXX 20YY, you received a letter from your employer withdrawing the allegation of misconduct and advising that you may return to working in the office.

You have recommenced working in the office since XXXX 20YY.

You live in rented accommodation. A copy of the floor plan was provided.

All work duties were performed in an office (bedroom) that is completely dedicated for work from home employment duties.

You provided a photo showing a bedroom set up with a desk, a chair and a laptop connected to a keyboard, mouse, and external computer monitor.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

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.

The High Court majority in Commissioner of Taxation v Payne [2001] HCA 3 said it is well established that these words are to be understood as meaning incurred 'in the course of' gaining or producing assessable income, and do not convey the meaning of outgoings incurred 'in connection with' or 'for the purpose' of deriving assessable income.

The majority further stated that the meaning of 'in the course of' gaining or producing income was amplified in Ronpibon Tin NL v Commissioner of Taxation [1949] HCA 15 where it was held that:

... to come within the initial part of [section 8-1] it is both sufficient and necessary that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income, or if none be produced, would be expected to produce assessable income...

Occupancy expenses relate to the ownership or use of a home. Such expenses include rent, mortgage interest, rates and house insurance premiums. This is contrasted to running expenses which relate to the use of facilities within the home. Running expenses are additional expenses incurred because of income producing activities.

Expenses which relate to the use or ownership of a home (or to facilities in it) normally have a private or domestic character and are not allowable deductions under section 8-1; [Thomas v FC of T (1972) 3 ATR 165; 72 ATC 4094 and FC of T v Faichney (1972) 129 CLR 38; (1972) 3 ATR 435; 72 ATC 4245 (Faichney's Case)]. However, in certain circumstances, part of these expenses may be allowed as a deduction. The allowable deductions will depend on whether an area of the home has the character of a place of business or is merely a private study.

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 93/30 Income Tax: deductions for home office considers the deductibility of home office expenses. and explains when an area of the home is considered to be a private study or a place of business.

Place of Business

Paragraph 5 of TR 93/30 states:

The following factors, none of which is necessarily conclusive on its own, may indicate whether or not an 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.

Paragraphs 11 to 13 of TR 93/30 provide further explanation regarding when an area of a home is a place of business rather than a private study. Paragraph 11 lists the following factors which may indicate that a part of the home has the character of a place of business:

•         the essential character of the area

•         the nature of the taxpayer's business

•         any other relevant factors.

However, the existence of any of these factors or a combination of them will not necessarily be conclusive in ascertaining the character of an area used as a home office. Rather the decision in each case will depend on whether, on a balanced consideration of the factors, the area constitutes a 'place of business' in the ordinary and common sense meaning of that term.

For employees, the absence of an alternative place of work for conducting their income earning activities has also been considered when determining whether a part of an employee's home is a place of business. However, as per paragraph 13 of TR 93/30, an employee must be able to show: 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.

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

Application to your circumstances

Your employer has an established place of business and provides you and your colleagues with a place to work at their office. Therefore, you are unable to show that there was no alternative place to conduct your income earning activities. Although you were unable to access your employer's premises because of your personal reasons, the fact that an alternative place of work exists means you cannot claim occupancy expenses.

You were advised by your employer that you are required to work from home. You utilised your office room in the property you rent to do your income producing work as an employee. However, it is not considered a 'place of business' in accordance with the principles set out by paragraph 5 of TR 93/30.

•         The area cannot be said to be a clearly identifiable as a place of business as opposed to a private study.

•         The area is suitable or adaptable for private or domestic use in association with the home generally.

•         The area is used exclusively for work related purposes.

•         The area is not used regularly for visits from clients.

The occasion of the outgoing is not your income earning activities. Therefore, the rent expenses were not incurred in the course gaining or producing your assessable income and they are also private in nature.

Based on the above, you are not entitled to claim a deduction for occupancy expenses (rent) you incurred under section 8-1 of the ITAA 1997. However, whilst a place of business does not exist at your home location, you can claim a deduction for additional running costs as explained in TR 93/30 and PCG 2020/3.