CLAIMING HOME OFFICE EXPENSES- ATO PRACTICE
18 May 2005
In May 2005, the ATO released a Practice Statement in which it sets out the ATO's attitude towards the claiming of deductions by taxpayers for home office and related expenditure. This has great relevance to individualincome tax taxpayers and may be useful in determining the reduction in value of certain fringe benefits. The gist of the statement forms the basis of this article. Taxed members can request the full statement from us.
"1. Where individual taxpayers keep a diary for the purpose of establishing a connection between the use of their home office and their work or business, the Commissioner will accept diary records covering a representative four week period as establishing a pattern of use for the entire year.
2. Individual taxpayers who claim deductions for work or business related home office running expenses comprising electricity, gas and decline in value of office furniture may claim either a deduction for the actual expenses incurred or a deduction calculated at the rate of 26 cents per hour. A deduction is allowable only where additional running costs are incurred by a taxpayer because of income producing activities. For example, if a taxpayer undertakes a work activity in a room where other family members are watching television, there may be no additional cost occasioned by that work activity. Also, the income producing use of the home office needs to be substantial and not merely incidental. For example, a deduction would not be allowed at the rate of 26 cents per hour for the home office simply because a facsimile machine is left on 24 hours a day 7 days a week to receive business documents.
3. Other home office expenses, such as telephone expenses and decline in value of computers or other equipment, will have to be calculated separately.
4. Telephone expenses
(a)
Home office telephone rental expenses may be partly deductible for taxpayers who are either 'on call' or required to contact their employer or clients on a regular basis. TR 98/14 states that the deductible portion of telephone rental expenses can be calculated using the formula:
Business calls (incoming and outgoing) / Total calls (incoming and outgoing)
(b)
A deduction is allowable for the cost of telephone calls made in the course of work or business. Work or business calls may be identified from an itemised telephone account. If such an account is not provided, records covering a representative four week period will be accepted as establishing a pattern of use for the entire year for the purpose of making a reasonable estimate of the portion of call expenses for work or business.
5. Decline in value of Computers or other equipment
If home office equipment, such as a computer, printer, photocopier etc., is used only partly for work or business purposes, then the decline in value deduction is reduced by an amount that reasonably reflects the extent that equipment was not used for income producing purposes. Taxation Ruling TR 93/30 states that the amount of decline in value claimed as a deduction should be based on an bona fide estimate of the percentage of income producing use. The Commissioner will accept an estimate of the extent of income producing use where it is based on a diary record of the income related and non-income related use of that equipment covering a representative four week period. Such a diary record would need to show the nature of each use of the equipment, whether that use was for an income producing or non-income producing purpose and the period of time for which it was used."