Deductions and expenses: Home Office Expenses

Is the taxpayer's home a place of business for his part time coaching job and, if so, are the taxpayer's home office expenses, such as rates, mortgage interest and house insurance, allowable deductions pursuant to subsection 51(1) of the Income Tax Assessment Act 1936 ?

The taxpayer's home is not a place of business for his part time coaching. However, given that the taxpayer performs 'income-producing activities' in a separate room in the house, the taxpayer is entitled to deductions for the running expenses attributable to the income-producing activities performed in this room.

The taxpayer works part time as a conditioning coach with more than one sporting team, at a number of locations for training and at a number of locations for games.

All the planning, preparation and writing of the fitness programs are done from the taxpayer's home. One room is set aside as an office for the taxpayer's and coaching activities plus activities associated with the taxpayer's full-time activities.

The taxpayer spends 1-2 hours per week on coaching activities in the home office, where the taxpayer writes fitness programs, and fortnightly reports for the players and the club. The time the taxpayer spends coaching away from home per week during the competitive season is 3-4 hours training, plus 3-4 hours at a game if in town, or 6-8 hours if the game is away from town..

For a deduction to be allowable for home office expenses, the expenses must satisfy the requirements of subsection 51(1) of the Income Tax Assessment Act 1936 . Normally, expenses associated with a taxpayer's home are private or domestic in nature, and therefore not allowable as a deduction under subsection 51(1) of the Income Tax Assessment Act 1936 ( Handley v FC of T 81 ATC 4165; (1981) 11 ATR 644; and FC of T v Forsyth 81 ATC 4157; (1981) 11 ATR 657). However, where the home has the character of a 'place of business', a deduction will be allowable for a proportion of 'occupancy expenses' such as rent, interest, repairs, and house and contents insurance, and 'running expenses' such as heating, lighting, cleaning and depreciation (Taxation Ruling TR 93/30).

If the home office is used in connection with the taxpayer's 'income producing activities', but does not constitute a 'place of business', only a proportion of the running expenses are allowable.

Taxation Ruling TR 93/30 sets out the criteria to be considered in determining whether a home office is a 'place of business'. The taxpayer does not satisfy these criteria.

The area in which the taxpayer operates the home office is a room indistinguishable from the rest of the house but in which the taxpayer spends time on work and coaching activities. The coaching activities, however, are only a minor part of the taxpayer's overall income producing activities as the majority of the taxpayer's time in relation to the coaching activities is actually spent away from the home. In regard to the fitness programs, the taxpayer does not have an alternative place from which to work to prepare the programs and fortnightly assessments. It is not, however, inherent in the nature of the taxpayer's activities that the taxpayer needs a place of business, as it is only incidental to the taxpayer's activities that a place to prepare fitness programs is needed. Therefore, the taxpayer's home does not constitute a place of business.

Given, however, that the taxpayer performs 'income-producing activities' in a separate room in the house, the taxpayer is entitled to deductions for the running expenses attributable to the income-producing activities in this room.

For heating/cooling and lighting expenses, the amount that the taxpayer is entitled to claim is the difference between what was actually paid for heating/cooling and lighting and what would have been paid had the taxpayer not worked from home. The appropriate formula for calculating the additional expenses is set out in Taxation Ruling TR 93/30.

Where only 'income producing activities' are associated with a private study, and the residence is not considered to be a 'place of business', no deductions are allowable under section 72 of the Income Tax Assessment Act 1936 for rates and taxes (Taxation Ruling TR 93/30).

Similarly, mortgage interest and house insurance are not allowable deductions pursuant to subsection 51(1) of the Income Tax Assessment Act 1936 , as the taxpayer's home is not considered to be a 'place of business'.