A recent Administrative Review Tribunal (ART) decision on working from home costs during the 2020-21 COVID lockdowns (Hall’s case) may widen the scope for claiming additional deductions for occupancy costs such as rent, mortgage interest, home insurances and rates, but only in specific circumstances. This is on top of the hourly rate most people claim to cover additional energy, phone and internet costs.

Like many others, Mr Hall was forced to work from home in order to do his work, which involved the production of an on-line radio sports program for the ABC in Melbourne. The combination of government-imposed restrictions and the ABC’s own rules meant that during the height of the COVID lockdowns in 2020-21, the spare bedroom in a rented apartment which he used exclusively or nearly exclusively to carry out his role for the ABC was his only place of business.

Importantly, Mr Hall was not running a business from his home. He was an employee working remotely, as over a third of Australian employees still do to some extent these days. While Tribunal decisions are not legally binding, and Hall’s case only applies to the 2020-21 income year at the height of the COVID lockdowns, the decision seems well-reasoned and could arguably be applied more broadly.

While the lockdowns are thankfully well behind us now, the principle governing the Tribunal’s decision is that a proportion of a taxpayer’s rent (or mortgage interest) may be deductible where the employer does not provide a work space and the taxpayer has no alternative but to work from home. This can and does happen even today, well after the masks have been put away.

Who might qualify?

An important factor in the Hall case was that there was no element of choice involved. No workplace was legally available to Mr Hall at the ABC Studios and he had no alternative but to use his spare bedroom to produce his radio sports program. Where an employee works under flexible arrangements by choice (eg, three days from home; two days in the office) the reasoning in Hall’s case is not so easily applied since it would be open to the employee to attend the office every day. You could still make a claim, but it could be difficult to sustain.

On the other hand, where there is no longer an office to attend because the employer has chosen to cut back on rental costs, the only option for the employee is to work from home. In other situations employees might interact exclusively online with externals and other parts of the business because they don’t live in the same State as their employer’s office. Again, such an employee has no place to work from other than their home.

To be eligible for a proportional deduction for occupancy costs, the employee would need to work out of a designated area such as a spare room and use that area exclusively or nearly exclusively as their home office. Just setting up the laptop on the dining room table when the dining room is regularly used for other purposes isn’t enough.

Capital gains tax

Employees who might qualify for a proportional deduction for occupancy costs that includes mortgage interest will need to consider the potential impact on the capital gains tax (CGT) exemption on their main residence before deciding to pursue a claim. The main residence CGT exemption is reduced by the same proportion as the claim for occupancy costs, and a valuation is required at the time the home is first used partly for income-producing purposes.

So a home owner without a mortgage or with only a small mortgage may decide that claiming a proportion of occupancy costs isn’t worth compromising their main residence CGT exemption. We can help you weigh up the options. An employee who rents, as Mr Hall did, would have no such concerns.

The Commissioner is unlikely to allow occupancy claims

At the time of writing, the ATO has not responded in any way to the Tribunal’s decision in Hall. However, it is unlikely the ATO will welcome a flood of claims for a proportion of occupancy costs and will most probably disallow any claims that are identified.

In order to avoid the risk of penalties and interest, the best course would be to just claim the normal hourly rate (or actual cost method) to cover additional running costs when lodging your return. Then, after the notice of assessment has been received, lodge an objection claiming the occupancy costs. That way your rights are protected and you are not exposed to penalties or interest.

There may also be scope to revisit earlier assessments if you were locked down for a period and worked from home using a designated area exclusively or nearly exclusively for that purpose. In the case of earlier assessments it may be necessary to ask the Commissioner for extra time in which to lodge an objection.

We are here to help you

We should have a discussion about this issue if:

• your employer requires you to regularly work from home;
• no office space is available for you in which to perform your duties;
• you work from home using a designated space such as a spare room which is used exclusively or nearly exclusively for that purpose; and
• you rent your home or if you are a home owner and you have a substantial mortgage.