Other work-related expenses
Ultimately, the Tribunal also held that Mr Reid either was not entitled to, or did not correctly substantiate, his purported claims at Item D5 of his ‘I’ return for other work-related expenses.
Home office occupancy expenses (i.e., the apportioned rent)
Home office occupancy expenses include costs such as rent, mortgage interest, property insurance, land taxes and rates, appropriately apportioned (usually on an area and time basis).
First period of employment (with Amcom)
The Tribunal concluded that as Amcom had provided Mr Reid with an office in which to work (eventhough he regularly chose to work from his home office), he was not entitled to claim the purported occupancy deductions (i.e., a portion of his rent) during the 2012, 2014- and 2015-income years.
For the 2016 income year, Mr Reid worked for Amcom for approximately one month and therefore the Tribunal also held he was not entitled to any occupancy cost deductions for this period.
TAX TIP – Establishing an employee’s home office occupancy claim
Based on Taxation Ruling TR 93/30, part of a taxpayer’s home will likely be considered to have the character of a place of business in either of the following two situations:
- An area is set aside exclusively for the carrying on of a business by a self-employed person (e.g., a hairdresser converts their garage into a hair salon, or a tradesperson uses their home as a base of operations).
- An area (such as an office) 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, or a self-employed professional conduct a small private practice from home).
When considering if a taxpayer can successfully argue that they use their home as their sole base of operations (which is needed for an employee to argue they have an entitlement to home occupancy expense) they will need to be able to show as a matter of fact that:
- the nature of the taxpayer’s work activities was such that the taxpayer needed a place of business (or work);
- there was no alternative place of business or work, therefore making it necessary for the taxpayer to work from home; and
- the room at home was used exclusively/almost exclusively for income-earning purposes.
Refer also to to Ogden v FCT [2016] AATA 32 and the material contained on the ATO’s website under Individuals/Income and deductions/Deductions you can claim/Home office expenses.
Ultimately, the taxpayer could not argue that his home office was his sole base of operations (at least with respect to the period of employment relating to his first employer).
Second period of employment (with Nextgen)
During the remainder of the 2016 income year, as the taxpayer was not provided with an alternative place of work (i.e., an office) when employed by his second employer (Nextgen), and was not reimbursed for his work-related expenses, he technically had a claim to deduct part of his occupancy costs for his home office during this period.
Despite this, however, the Tribunal still did not allow him a deduction for his apportioned rent during this period as he had failed to provide a four-week diary showing his pattern of usage, nor had he provided any corroborating evidence of the rent he had paid. As a result, the taxpayer had not adequately substantiated his claims for these expenses.
Unfortunately for Mr Reid, evidence that he was unable to access diary entries for the relevant period (as the appropriate resource was still held by his previous employer) did not assist him in convincing the Tribunal to allow the occupancy deductions.
TAX TIP – Home office occupancy costs substantiation requirements
According to the ATO document entitled ‘Home office expenses’ (referred to above) taxpayers wanting to substantiate claims for home office deductions need to keep the following records:
- a four-week representative diary created to work out how much the home office (and any associated equipment) was used for employment purposes; and
- receipts or other written evidence of expenses.