Home workers could claim thousands as ATO scrambles to fix loophole

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Australians who work from home could be eligible for thousands of dollars in tax deductions after an ABC presenter successfully challenged a ruling from the Tax Office that rent could not be claimed as an expense by such workers.

However, the finding from the Administrative Review Tribunal has spurred a Federal Court challenge from the ATO, which is seeking to overturn the decision.

Those who work from home in a second bedroom or home office could potentially claim rental expenses.

Melbourne ABC radio presenter Ned Hall lodged a tax claim for $5878 in rental deductions to cover the occupancy of a second bedroom he used as a home office during Victoria’s lockdowns.

Court documents show that Hall’s main workplace for the entire year was the spare bedroom, which meant that in the 2021 income year, his apartment was both his home and his workplace, where he earned most of his assessable income.

Hall had claimed the deductions after setting aside the second bedroom specifically as an office, which he used 75 per cent of the time he worked, court documents show.

The claim related to a new employment opportunity for which he relocated with his wife from Sydney to Melbourne in June 2020. The couple rented a two-bedroom apartment in Armadale, about eight kilometres from the ABC studios in Southbank.

Hall’s claim stemmed from the fact the working from home arrangements were beyond his control, preventing him from attending his usual workplace in Southbank. According to court documents, he paid $36,326.23 in rent in 2021 for the apartment.

While the Tax Office initially blocked the deduction, he appealed to the Administrative Review Tribunal, which after nearly three years has upheld his claims. Hall was also granted $1148 in car-related deductions by the tribunal, which the ATO had initially suggested were not eligible.

The ruling could open the door for others to claw back tax if they work from home. The Tax Office is trying to close a loophole to stop others lodging a claim for similar deductions amid concerns that the landmark case could mean billions in similar tax claims from property owners and renters who work from home.

The ATO has published detailed advice on eligibility to claim occupancy expenses when working from home to try to stem a flood of future claims.

The case could have major ramifications for people who work from home if the Federal Court upholds the decision, UNSW Business School associate professor of taxation law Dale Boccabella says.

“The outcome of the case will be significant, not only because of the technical precedent it presents,” he says. “There’s no shortage of tax agents out there with no integrity, so there’s every chance people will start exploiting this case by making claims.”

Tax law states that the location and exclusivity of the space being claimed as a tax deduction is critical, he says. Hall could have completed his work from anywhere, meaning there was no particular reason he had to set up his spare bedroom as an office.

“The case states that his wife was a yoga instructor handling online classes in the living area,” Boccabella says. “But there’s no detail in the documentation stating why he couldn’t be working in the same space as her, which doesn’t fill me with a lot of confidence.

“He only needed a laptop and Wi-Fi to complete his job, which he could have done from anywhere.”

The case comes as Victorian Premier Jacinta Allan pushes ahead to enshrine the right to work from home in law. Under the proposed laws, if a worker can reasonably do their job from home, they will have the right to do so for at least two days a week, regardless of whether they work in the private or public sector.

The decision is subject to appeal in the Federal Court of Australia and a ruling is expected to be released in coming weeks.

Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that considers their own personal circumstances before making any financial decisions.