ATO issues impact statement on WFH deductions case

The Court determined that Nathaniel Hall, who was employed as a sports presenter and producer, was not entitled to a deduction under section 8-1 of the Income Tax Assessment Act 1997 for occupancy expenses. It also concluded that he was not entitled for car expenses he had claimed.

The taxpayer had relocated to Melbourne with his wife in June 2020 and decided to rent a 2 bedroom apartment in his own name. The second bedroom was to be used as a place for him to work from home.

Hall had been advised by his manager before moving that he would need to work from home. The taxpayer worked at home for the digital part of his role due to the lockdowns and subsequent employer directions.

His usual work week was a pattern of solely performing his digital role duties at home, commencing his digital role duties at home and then travelling to Southbank Studios of a variety of the two roles depending on the sporting season.

The taxpayer asserted that he undertook his Digital Role from a laptop in the second bedroom of his rented apartment. The room was solely used for this purpose as he needed a quiet place to work from.

Hall contended that the deduction for occupancy expenses and car expenses for travel was valid because as he had no control over where he worked and could only perform part of his employee duties at the employer's premises.

In the decision by the Administrative Reviews Tribunal, the Tribunal allowed the deductions to be claimed as the respondent’s home office was the taxpayer’s “workplace for the year” and that the rent claimed was not purely private or domestic.

The Full Court rejected the Tribunal's approach, instead ruling that an expense may be connected to income-earning activities yet still be non-deductible because its essential character remains private or domestic.

In its interim decision impact statement, the ATO said that the Full Court decision supported the ATO's views in relation to the deductibility of occupancy expenses and work-related transport expenses set out in TR 93/30, TR 2021/1 and the Employees guide for work expenses.

"Generally, expenses associated with a taxpayer's home, such as rent, are of a private or domestic nature and do not qualify as deductions for taxation purposes," the Tax Office said.

"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', and the expense loses its essential character as private or domestic."

The ATO said the Full Federal Court decision confirms that the mere fact that a room in the house has been set aside during the circumstances of COVID-19 lockdowns for work purposes is not sufficient to enable a deduction for a portion of the rent.

"The positive limb and negative limbs of section 8-1 operate cumulatively, with a separate inquiry required to determine whether the outgoing is private or domestic in its essential character," it said.

The Tax Office also stressed that the cost of travel from home to a regular place of work is not deductible with some very limited exceptions.

The ATO stated that the mere fact that an employee undertakes some work duties at home does not make expenses of travel to their regular place of work deductible.

"This is because these expenses are not incurred in gaining or producing assessable income as they are a prerequisite to earning assessable income," it said.

"The Full Federal Court decision confirms that this treatment will not change even if the travel occurs during work hours. The decision also confirms that the circumstances of COVID-19 lockdowns requiring some work to be undertaken at home do not change this outcome."

The Tax office said that pending the outcome of any appeal process, it will continue to administer the law in accordance with the Full Court's decision, which it said supports the ATO's existing views.