Edited version of private advice

Authorisation Number: 1052256351350

Date of advice: 30 May 2024

Ruling

Subject: Deductions - occupancy expenses

Question

Are you eligible to claim a deduction for occupancy expenses in relation to your home office space under section 8-1 of the Income Tax Assessment Act 1997?

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 20YY

Year ended 30 June 20YY

Year ended 30 June 20YY

The scheme commences on:

1 July 20YY

Relevant facts and circumstances

You were employed by employer A as position A.

You rented a home that had X bedrooms. The second bedroom was used exclusively as a home office.

From DD MM 20YY to DD MM 20YY, you were not able to work from the office due to COVID-19 government mandated lockdowns. The dates of these lockdowns were:

•         DD MM 20YY to DD MM 20YY. A total of XX calendar days.

•         DD MM 20YY to DD MM 20YY. A total of XX calendar days.

•         DD MM 20YY to DD MM 20YY. A total of XX calendar days.

•         DD MM 20YY to DD MM 20YY. A total of XX calendar days.

•         DD MM 20YY to DD MM 20YY. A total of XX calendar days.

You were considered an essential worker. Your job was desk-based and could therefore be performed at home.

Your employer instructed you to work from home in between lockdowns as a safety precaution.

You worked exclusively from home between the period DD MM 20YY to DD MM 20YY.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1.

Reasons for decision

Summary

Occupancy expenses will not become deductible merely because you are required to temporarily work from home due to COVID-19. The occupancy expenses you incurred are private and domestic in nature. Therefore, you are not entitled to claim a deduction for home office occupancy expenses under section 8-1 of the ITAA 1997.

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.

Paragraph 13 of Taxation Ruling TR 2020/1 Income tax: employees: deductions for work expenses under section 8-1 of the ITAA 1997 provides that the pivotal element of section 8-1 for work expenses is the requirement that expenses be incurred 'in gaining or producing assessable 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 (Cth) [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...

Paragraph 9 of Taxation Ruling TR 93/30 Income tax: deductions for home office expenses discusses the cases Thomas v FC of T [1972-73] ALR 368 and FC of T v Faichney [1972] HCA 67, which provide that expenses that 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. 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.

Rent, mortgage interest, property insurance and land taxes (occupancy expenses) will not become deductible merely because you are required to temporarily work from home due to COVID-19.

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 provides occupancy expenses are only deductible if part of the home has the character of a place of business.

Place of business

Whether part of an employee's or business owner's home has the character of a place of business or is a private study is covered in TR 93/30. Paragraph 5 of TR 93/30 provides the following factors may indicate whether 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; and

•         any other relevant factors.

Paragraph 12 of TR 93/30 further provides that the absence of an alternative place of work has influenced a court and tribunal to accept a part of an employee's home is a place of business. However, as per paragraph 13, 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; and

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

Application to your circumstances

During the period DD MM 20YY to DD MM 20YY, you were not able to work from the office due to COVID-19 government mandated lockdowns. Your employer instructed you to work from home in between lockdowns as a safety precaution. From DD MM 20YY to DD MM 20YY, you chose to continue working from home exclusively.

We do not consider that the home office you have, whilst an exclusive home office space, has the character of a place of business. Whilst your employer instructed you to work from home during COVID-19 and between lockdowns, they still provide you a place to work and your requirement to work from home was merely temporary. Further, it is not a requirement in the inherent nature of your income activities that you have a place of business.