Australian workers who are trying to claim tax deductions for expenses related to working from home may now find it more challenging to do so. This is following a recent ruling by the Federal Court, which rejected a claim made by a Melbourne man who sought to deduct part of his rent and transport costs during the pandemic.
On Friday, the Australian Tax Office (ATO) successfully contested the case against an ABC sports presenter who claimed tax deductions for rental expenses and car costs while working from home in Melbourne due to COVID lockdowns. The court’s decision overturned a previous ruling by the Administrative Review Tribunal, which had allowed the presenter, Ned Hall, to claim $5,878 in rental deductions for using a second bedroom as a home office during the lockdowns, as well as transport costs to his workplace.
Lizzie Morton, a tax expert from Curtin Law School, highlighted that the court’s judgment emphasized the importance of distinguishing between expenses directly linked to income-generating activities and those with a private or domestic character. While the connection between the expense and work was established, the “essential character” of the expense remained private.
“Rent for a home is fundamentally private in nature,” she said, even if part of the home was used for work during the pandemic. The court found that partial use for work did not change the fundamental nature of the expense. Morton also noted that travel from home to work is considered private under current law, regardless of whether one task was done at home and another at the workplace.
“Driving to and from work is generally private in nature according to the law,” she explained. “It didn’t matter that the first task could only be done at home. There are many cases where employees, especially knowledge workers, have struggled to justify such claims.”
However, there are exceptions. For instance, if a worker like a musician needs to transport bulky equipment that cannot be carried on public transport or stored elsewhere, or if someone travels between two workplaces for different jobs, such expenses may be eligible for deductions.
Dale Boccabella, an associate professor at UNSW, pointed out that since Hall was renting a domestic dwelling not used as a business location and was not self-employed, the rent was not eligible for a tax deduction. He also suggested that the Federal Court’s decision might raise the bar for claiming occupancy expenses like rent.
Morton and Boccabella both mentioned that the case could potentially be appealed to the High Court. “This is a test case, so it has test-case funding, meaning the taxpayer is supported in their legal costs,” Morton said. “This often happens in areas of law where there is some uncertainty, and it warrants careful examination in the courts to develop precedent.”
