Court rules in favour of ATO in dispute over WFH deductions

His work consisted of two distinct parts. One of these was a digital role that was conducted exclusively in the second bedroom of an apartment he rented.

Due to employer and Victorian government directives, he had no other choice but to perform the digital role from home.

The other role was a live role, which needed to be performed from the ABC’s Southbank Studios.

The respondent obtained the lease for the apartment in June 2020 on the basis that we would be required to work from home for the foreseeable future. The second bedroom in the home was used purely as a home office for performing that work.

Hall claimed a portion of the rent for his residential property as a deduction for occupation expenses, relating to the use of his home office.

He also claimed a deduction for car expenses incurred in driving between his residence in the inner eastern suburbs of Melbourne and the ABC Studios at Southbank on days when he performed both roles.

The Commissioner of Taxation denied the deductions claimed by Hall for both the portion of rent for the home office and car travel between the respondent’s home and the ABC Southbank Studios.

In the previous decision of the Administrative Review Tribunal, the tribunal allowed the two deductions claimed by Hall and found the commissioner’s assessment excessive.

The tribunal concluded that the respondent’s home office was the taxpayer’s “workplace for the year” and that the rent claimed was not purely private or domestic.

However, in last week's decision, the Federal Court found that the tribunal had erroneously treated a single outgoing as two outgoings: one as “additional expenditure” for the second bedroom, and the other as a separate outgoing for a one-bedroom apartment. 

The court said that the mere use of a room in a home for work purposes “does not, of itself transform an otherwise private or domestic expense into a deductible one”.

“The essential character of the expenditure was rent paid to secure domestic accommodation. While the prevailing conditions required the respondent to work from home, this necessity did not alter the essential character of the expense.”

“Working from home was not a matter of choice or convenience. The expenditure was still rent for domestic accommodation in its essential character.”

The Federal Court also found that the tribunal had erred in law in allowing the deduction for car expenses, as these expenses were not incurred in the course of producing assessable income.

The court determined that the respondent’s commute to the Southbank Studios was travel “to” perform income-producing activities, not travel “in” performing income-producing activities.

“The work performed by the respondent at his home was quite distinct from the work performed by him at the Southbank Studios,” it said.

“The respondent ceased income producing activities when he stopped performing work at home and commenced different income producing activities upon starting work at the Southbank Studios. The respondent was not performing either his digital role or his live role or any aspect of his employment whilst driving."

The Federal Court set aside the tribunal’s decision, affirming the Commissioner of Taxation’s objection decision.