Edited version of private advice

Authorisation Number: 1052259192620

Date of advice: 24 June 2024

Ruling

Subject: Deductions for occupancy and running expenses

Question 1

Are you entitled to a deduction for a portion of your home office occupancy expenses under section 8-1 of Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

No.

Question 2

Are you entitled to a deduction for a portion of your home office running expenses under section 8-1 of Income Tax Assessment Act 1997 (ITAA 1997)?

Answer

Yes.

This ruling applies for the following period:

Year ending 30 June 20XX

The scheme commenced on:

XX XX 20XX

Relevant facts and circumstances

You are employed by XX on a full-time basis.

Your employer's office is located in XX.

You are not employed or contracted to any other employer.

Your home address is located at XX XX XX

Your employer does not have an office in XX.

Your employer has a distributed workforce where an employee's designated work location is based on their home address.

Your duties include interactions by phone, email, messaging through a communication platform and online meetings.

These duties are undertaken across various time zones in different jurisdictions worldwide.

You require a quiet zone as this is critical to enable concentration to undertake interactions, analysis and your writing duties.

You preform your work duties for your employer at your property located at XX XX.

XX XX was previously your rental property.

XX XX is solely used for your day-to-day work activities.

You use the XX rooms for your day-to-day work activities.

You have supplied your employment contract which states your duties and responsibilities and location of work. Your employer has a distributed workforce in which an employee's designated location is based on their home address. Your designated work location is XX XX. You may, though you are not required to, work out of your employers office.

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 (TR 93/30) sets out the Commissioner view. As a general rule, 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 home is used for income producing activities and has the character of a "place of business". In such cases some of the expenses incurred in respect of the home such as rent, interest, repairs, house and contents insurance, rates and property taxes may be partly deductible.

To claim a portion of the ownership expenses as a deduction, part of your home must become a 'place of business'.

TR 93/30 paragraph 4 states, whether an area of the home has the character of a place of business is a question of fact which depends on the particular circumstances of each case. This is likely to be the case where a part of a residence is set aside exclusively for the carrying on of a business by a self-employed person (e.g., a doctor's surgery). Another example is where part of the home is used as a taxpayer's sole base of operations for income producing activities (e.g., where no other work location is provided to an employee by an employer).

In determining if you pass the threshold question of whether you are provided with a workplace by your employer, the facts of this need to be examined. Generally, if you do not have a worksite because of your choice of where to live, you cannot claim a deduction.

Where an employee lives is by its nature a private choice and deductions are not enlivened by the private nature of such a choice.

There may be times when the terms of employment require a taxpayer to live and work in a certain area which aligns with their personal choice to live in that location. This location may not have an employer provided worksite they can work from. In some circumstances such terms of employment may be sufficient to outweigh their private choice to live somewhere.

TR 93/30 paragraph 12 and 13 states, the absence of an alternative place for conducting income producing activities has also influenced a court or tribunal to accept a part of a taxpayer's residence as a place of business.

Examples include:

•         a self-employed script writer using one room of a flat for writing purposes and for meetings with television station staff (Swinford's Case);

•         an employee architect conducting a small private practice from home (Case F53, 74 ATC 294; Case 65, 19 CTBR(NS) 452);

•         a country sales manager for an oil company whose employer did not provide him with a place to work (Case T48, 86 ATC 389; Case 47, 29 CTBR(NS) 355).

In each of these cases the taxpayer was able to show that, as a matter of fact, there was no alternative place of business, it was necessary to work from home, and that the room in question was used exclusively or almost exclusively for income producing purposes.

In circumstances such as those referred above, a place of business 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.

Your employer doesn't require you to be in XX for any reason. Your employer simply provides you with a flexible working arrangement that allows you not to have to move to XX.

The employer's policy provides flexibility to you about where you work, whether in an office, from home or a combination of the two.

Your employment agreement makes it clear that you may, but you are not required to, work out of your employers office. Therefore, you have a place to work provided by your employer and you have made a personal choice to accept employment by XX which has an office located in XX.

Question 2

Are you entitled to a deduction for a portion of your home office running expenses under section 8-1 of Income Tax Assessment Act 1997 (ITAA 1997)?

Summary

You are entitled to a deduction for a portion of your home office running expenses under section 8-1 of the ITAA 1997.

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.

To claim working from home expenses, you must:

•         be working from home to fulfil your employment duties, not just carrying out minimal tasks, such as occasionally checking emails or taking calls

•         incur additional running expenses as a result of working from home

•         have records that show you incur these expenses.

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

If your employer pays you an allowance to cover your working from home expenses, you must include it as income in your tax return.