Australian workers wanting to claim tax deductions for expenses related to working from home may face a higher hurdle for doing so after the Federal Court ruled against a Melbourne man who claimed part of his rent and transport expenses during the pandemic.
On Friday, the Australian Tax Office won the case against an ABC sports presenter who claimed tax deductions on his rental home and car expenses when he was forced to work from home in Melbourne due to COVID lockdowns.
The case overturned a decision by the Administrative Review Tribunal last year to allow Melbourne ABC radio presenter Ned Hall to lodge a tax claim for $5878 in rental deductions to cover the occupancy of a second bedroom he used as a home office during the lockdowns as well as transport costs to his workplace.
Curtin Law School tax expert Lizzie Morton said the judgment handed down by the Federal Court this week highlighted the need to clearly distinguish deductibility in terms of both the connection of the expense with income-earning activities – which was established – and the “essential character” of an expense being private or domestic in nature.
“Rent for the home is fundamentally private in nature,” she said, even if the home was partially used for work out of necessity during COVID lockdowns and the deduction was only for a portion of the rent. The ruling shows that usage was not enough to displace the “private or domestic character” of the home.
Morton also pointed to the finding that travel from home to and from work is “fundamentally private” and that completing one task at home then travelling to work to complete another task – as Hall claimed – did not count.
“Driving to and from work is generally private in nature according to the law,” she said. “It did not matter that the first task could only be undertaken at home. There are many cases that have gone before the courts in the past that have shown that it’s really tough for taxpayers, particularly employees, particularly knowledge workers, to really be able to justify and get a claim for that rent.”
However, Morton said there were some exceptions to that rule such as if a worker, such as a musician going from one gig to the next, has to carry lots of bulky equipment that cannot be physically carried on public transport and cannot be stored at a location or if a worker is travelling between two workplaces for two different jobs.
UNSW associate professor Dale Boccabella said the fact that Hall was paying rent for a domestic dwelling which was not his place of business, and was not self-employed, meant the rent expense was not eligible for a tax deduction.
He also said it was likely the Federal Court’s latest judgment had set the bar even higher for claiming occupancy expenses such as rent. However, Morton and Boccabella said it was possible the case would be appealed to the High Court.
“This is a test case, so it’s got test-case funding, meaning the taxpayer is supported in their legal costs,” Morton said. “This will often happen because it’s an area of law where there’s a bit of uncertainty, and such that it warrants time to be examined closely in the courts to develop precedent.”
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Millie Muroi is the economics writer at The Sydney Morning Herald and The Age. She was formerly an economics correspondent based in Canberra’s Press Gallery and the banking writer based in Sydney.Connect via X or email.