The Australian Taxation Office (ATO) has won a long-running legal battle and dealt a blow to workers hoping to claim working-from-home rental expenses as tax deductions.

The Federal Court last week sided with the ATO and ruled that an ABC worker could not claim his rent and travel expenses as tax deductions while working from home during the COVID-19 pandemic.

The ruling provides clarity for how WFH expenses incurred by contracted workers will be dealt with by the tax office – a major issue with more than a third of Australian workers still working from home at least some of the time.

ABC Sports presenter Ned Hall had claimed nearly $6,000 in rent expenses for a second bedroom in the apartment he rented, which he used as a home office, and for car travel between his home and the ABC’s Southbank office in Melbourne.

The claims were made for 2021, when the Victorian government was mandating that employees work from home.

The ATO denied the claims, but the Administrative Appeals Tribunal (AAT) early last year ruled that the deductions should be allowed.

The ATO appealed this decision to the Federal Court, and was ultimately successful in the long-running stoush.

The Federal Court’s decision can still be appealed at the High Court.

Second bedroom or office?

Hall was required to work from home three-quarters of the time in his role, and said that he took the lease on a two-bedroom apartment in mid-2020 with the knowledge that he would be working from home for the foreseeable future.

The AAT found this second bedroom was his “workplace for the year” and the rent payments were not just for private or domestic purposes.

But the Federal Court rejected this argument, instead finding that the rent paid for the whole apartment cannot be separated by individual bedrooms, and that the second bedroom cannot be considered Hall’s business premises for the purpose of making a tax deduction.

“The mere use of a room in a home for work purposes does not, of itself, transform an otherwise private or domestic expense into a deductible one,” the judgement said.

The Federal Court also ruled that Hall could not claim his travel expenses to the ABC office.

The decision is a blow to Australians still working from home, as the original AAT decision potentially could have opened the door to many claims regarding home offices.

WFH push

The ruling comes at a time when workers around the world are being urged to work from home to help ease the global fuel crisis.

The International Energy Agency earlier this month recommended those who can work from home do so to reduce fuel demands from commuting.

Working from home will be a legal right for Victorians working at medium and large businesses from September this year, and for those at small companies from July next year, under controversial state government reforms.

It appears that hybrid and WFH are here to stay, with CEOs seemingly admitting defeat with return-to-office mandates and instead acknowledging that work-from-home will continue in the future.

Numerous studies have found that working from home can improve the mental and physical health of workers, without any negative impact on productivity or efficiency.