When it comes to deducting work-related expenses such as home office and travel expenses (meals, accommodation and travel to and from work) there is a long history of well-accepted authority that we can turn to for guidance. For example, we know that:
- occupancy costs of a home office (includes rent, mortgage interest, municipal and water rates, land taxes and house insurance premiums) are not deductible unless the office has the character of a place of business - an employee taxpayer is unlikely to be using a home office as a ‘place of business’ so home-office expense deductions are invariably limited to running costs.
- meals, accommodation and travel between home and work are typically considered private and therefore not deductible.
But do these principles need a refresh, or at least some clarification, in light of the increasing prevalence of modern flexible working arrangements, the ever-shrinking nature of the technological world we live, the rise of the 24/7 economy and the decline of traditional 1:1 employment relationships? Telecommuting, portfolio careers*, freelancing and solo entrepreneurship are all arrangements that were unheard of and unforseen when the above principles were laid down by the Courts.
Consider the following, now ubiquitous, scenarios:
- An employee has a formal agreement with their employer that they will work particular day(s) of the week from home – in an AAT decision earlier this year a deduction for home office occupancy expenses was not allowed in these circumstances (Bhatti’s case).
- An employee works for a business that has no physical premises, such that the employee has no office outside their home from which to work, i.e. their home is their primary place of work - in 2002 the AAT allowed a deduction for such expenses, but only because the taxpayer used the home office in such a way that it effectively did not form part of his home (Nicoll’s case).
- A taxpayer with a portfolio career*, for whom a single day often involves serving more than one ‘master’ from any number of different locations, including their own home, sometimes concurrently. The principles allowing travel expense deductions for itinerant workers don’t really apply in such a circumstance.
- An employee whose responsibilities require her to split her time between two locations, and who typically stays overnight (more often than not for more than one night) in the second location. Would the deductibility of meals and accommodation depend on whether she rents an apartment in the second location and sets it up as a ‘home away from home’, or whether she stays in hotels? Should it?
- A solo entrepreneur who works from home in order to save costs and and has their home office set up as a dedicated space. Would we expect the deductibility of home office occupancy costs to be different if the taxpayer answers emails and makes calls from the dining room table out of necessity because their house is insufficiently large to set up a dedicated space? Is that fair?
So what can, or should, be be done about these uncertain, or in some cases apparently anomalous, results? Given the indefinite number of potential scenarios, only likely to increase in number as time goes on, this does not seem like a case for legislative amendment. However, a revisit by the Courts of what constitutes ‘private and domestic’ in this context would be most helpful. And while it is not in the Commissioner’s power to treat such expenses in any way other than consistent with existing authority, some guidance (preferably binding) that deals with these kinds of issues would be most helpful (noting that he has already gone some way down the this road by extending PS/LA 2001/6 on home office expenses to include electronic device expenses). We will keep an eye out for you!
* The Financial Times defines a ‘portfolio career’ as ‘a working life in which you have several different jobs at one time, or a series of different kinds of job’. For example, a person who runs their own business, makes themselves available for ad hoc consulting engagements, is paid to write articles for magazines and/or speak at conferences, and sits on one or more boards might be said to have a ‘portfolio career’.