Edited version of private advice

Authorisation Number: 1052307838051

Date of advice: 20 September 2024

Ruling

Subject:Deductions

Question

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

Answer

No.

This ruling applies for the following periods:

Year ended 30 June 20XX

Year ending 30 June 20XX

The scheme commenced on:

1 July 20XX

Relevant facts and circumstances

You are employed on a full-time basis by Company X.

The terms and conditions of your employment provides that:

•         Company X has a distributed workforce in which an employee's designated location is based on their home address

•         Your designated work location is your home address; and

•         You may, though you are not required to, work out of a Company X office.

You live with your parent and undertake your employment activities for Company X from their property (the Property).

You use a home office set up in a dedicated room (the Room) in the Property to undertake your employment activities in which you have a desk, computer and other items such as mouse, keyboard, three monitors, docking station and webcam.

The Room is separate from your personal bedroom in the Property.

You pay your parent a specified weekly amount solely in relation to your use of the Room, with your personal bedroom not being included in that cost.

Company X has offices located in a different state to where the Property is located.

Your employment conditions with Company X will remain the same during the ruling period.

You are not, and will not be, employed or contracted to any other employer during the ruling period.

Relevant legislative provisions

Income Tax Assessment Act 1997 section 8-1

Reasons for decision

Deductions for occupancy expenses

Under section 8-1 of the ITAA 1997 a deduction is allowed 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.

Generally, an employee working from home cannot claim occupancy expenses. To claim occupancy expenses when you work from home, you must show that it was necessary for you to work from home because your employer doesn't provide you with an alternate place to work. Whether the employee has a worksite provided is a threshold question. If they do have a worksite, then the employee cannot claim occupancy expenses.

In determining if the employee passes the threshold question of whether they are provided with a workplace by their employer, the facts of this need to be examined. Generally, if the employee does not have a worksite because of their choice of where to live, they 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.

Once the employee has passed the threshold question, they are looking at the following tests, namely that:

•         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 as opposed to being able to work from another location.

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

A place of business is not merely a place to do work. There are occasions where an employee will not require a place of business to do their employment duties even if they are not supplied a worksite by their employer.

Taxation Ruling TR 93/30 - Income tax: deductions for home office expenses contains the Commissioner's view in relation to home occupancy expenses which contains the following paragraphs:

5. 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.

11. Paragraph 5 lists some of the factors which may indicate that a part of a home has the character of a place of business. 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 essential character of the area;

•        the nature of the taxpayer's business; and

•        any other relevant factors,

the area constitutes a 'place of business' in the ordinary and common sense meaning of that term.

12. 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.

13. In circumstances such as those referred to in paragraph 12, 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.

Application to your situation

You accepted an employment offer from Company X who is based in a different state to where you live. Your employment agreement provides you with a flexible working arrangement in that you can work, whether in an office, from home or a combination of both.

The terms of your employment do not require you to be in the location where the Property is located for any reason. Company X simply provides you with a flexible working arrangement that allows you not to have to move to the state where their offices are located to work.

You have a place to work provided by Company X, but you have made a personal choice to remain living at your current location and work at the Property. Your choice does not negate that you have somewhere to work as provided by Company X. Therefore, you do not meet the threshold requirement because your employer does have a place for you to work but you choose to remain living at your current location and work from your home.

As you have not met the necessary threshold requirement to be eligible to claim any occupancy costs you cannot claim a deduction for the weekly amounts you pay your parent in relation to your occupancy expenses during the ruling period under section 8-1 of the ITAA 1997.

Note: If you had met the threshold requirement, while Company X allows you to undertake your employment activities for them from the Room, that does not convert the Room to a 'place of business'. You are an employee of Company X, and nothing was provided with the ruling on which we could conclude that you require a 'place of business' to carry out your duties for Company X, or that the Room is a 'place of business'. The Room is a home office rather than a clearly identifiable place of business, it is readily suitable or adaptable for private or domestic use and it is not used regularly to meet with clients.