Federal Court of Australia

Commissioner of Taxation v Hall [2026] FCAFC 43

ORDERS

THE COURT ORDERS THAT:

1.    The appeal be allowed.

2.    The decision of the Administrative Review Tribunal made on 21 May 2025 is set aside and, in its place, the objection decision is affirmed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THAWLEY J:

INTRODUCTION

1    The respondent, Mr Hall, is a sports presenter and producer employed by the Australian Broadcasting Corporation (ABC) in Melbourne. The COVID-19 pandemic affected the working arrangements of residents of Melbourne for the whole of the 2021 income year. The respondent’s work consisted of two distinct parts. The Digital Role comprised about 75% of his work and was undertaken exclusively from the second bedroom of an apartment rented by the respondent. The respondent took the lease of the apartment in June 2020, knowing he would be required to work from home for the foreseeable future. The second bedroom was used only as a home office for performing that work. A combination of employer and Victorian Government directives meant that the respondent had no choice other than to perform the Digital Role from home. The Live Role comprised about 25% of his work and was required to be performed from the ABC’s Southbank Studios. The respondent obtained relevant permits to travel from his apartment to the Southbank Studios as required.

2    The Commissioner denied deductions claimed by the respondent in respect of a portion of rent of the apartment referable to the second bedroom used as a home office and denied deductions claimed in respect of car travel between the respondent’s home and the ABC Southbank Studios. The respondent objected under Part IVC of the Taxation Administration Act 1953 (Cth) and the Commissioner disallowed that objection. The Administrative Review Tribunal set aside the Commissioner’s objection decision and allowed the deductions: Hall v Commissioner of Taxation [2025] ARTA 600 (T).

3    This is the Commissioner’s appeal from the Tribunal’s decision, brought in the Court’s original jurisdiction under s 172 of the Administrative Review Tribunal Act 2024 (Cth) on questions of law. The questions of law concern whether:

(a)    a portion of rent paid for domestic accommodation referable to use as a home office is deductible under s 8‑1 of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997); and

(b)    car expenses for travel between a home office and a workplace, calculated by reference to s 28‑25(3)(a) of the ITAA 1997, are deductible.

HOME OFFICE (OCCUPANCY) EXPENSES

Statutory framework

4    Section 8‑1 of the ITAA 1997 provides:

8-1    General deductions

(1)    You can deduct from your assessable income any loss or outgoing to the extent that:

(a)    it is incurred in gaining or producing your assessable income; or

(b)    it is necessarily incurred in carrying on a *business for the purpose of gaining or producing your assessable income.

…

(2)    However, you cannot deduct a loss or outgoing under this section to the extent that:

(a)    it is a loss or outgoing of capital, or of a capital nature; or

(b)    it is a loss or outgoing of a private or domestic nature; or

(c)    it is incurred in relation to gaining or producing your *exempt income or your *non-assessable non-exempt income; or

(d)    a provision of this Act prevents you from deducting it.

5    The positive limb in s 8‑1(1) asks a question of connection or occasion: whether the loss or outgoing is incurred in gaining or producing assessable income; “it is both sufficient and necessary that the occasion of the loss or outgoing should be found in whatever is productive of the assessable income” – see: Ronpibon Tin NL v Commissioner of Taxation [1949] HCA 15; 78 CLR 47 at 57. Mere formal connection is not sufficient. It is necessary to look to the essential character of the expenditure, rather than the subjective purpose for which an item of expenditure has been incurred: Lunney v Commissioner of Taxation [1958] HCA 5; 100 CLR 478 at 497–9. Thus, even if a commute from home to work is undertaken for the purpose of earning income, and in that way is formally connected to income earning activity, the expenses of that commute are not, without more, incurred “in” gaining or producing assessable income. The expenses are incurred “to” gain income. The income producing activity does not give rise to the commuting expense.

6    The negative limb in s 8‑1(2) asks a distinct question of character: whether the outgoing is of a kind that Parliament has excluded from deductibility, including because it is of a private or domestic nature: John v Commissioner of Taxation [1989] HCA 5; 166 CLR 417 at 431. The essential character of the expenditure determines whether it falls within an excluded category.

7    Sections 8‑1(1) and 8‑1(2) operate cumulatively. Satisfaction of the positive limb does not exhaust the inquiry. An item of expenditure (wholly or to some extent) can simultaneously be (1) sufficiently connected to gaining income as to satisfy the positive limb; and (2) essentially private or domestic in nature and so excluded by the negative limb. Satisfaction of the positive limb in s 8-1(1) does not automatically override the operation of the negative limb in s 8-1(2). If satisfaction of the positive limb (even to some extent) were sufficient to deny private or domestic character, the negative limb would be left with little or no independent work to do. That construction was rejected in John at 431. There is no “necessary antipathy” between the two limbs, at least as concerns s 8-1(2)(b): John at 431; Commissioner of Taxation v Anstis [2010] HCA 40; 241 CLR 443 at [33].

8    The phrase “to the extent that” in s 8-1(1) means that expenditure may be apportioned as partially deductible. The same phrase in s 8-1(2) means that expenditure may be partially excluded. It follows from John that expenditure which is partially deductible under the positive limb might also be excluded to that same extent because it falls within an excluded category.

9    This structural understanding of s 8-1 explains why use, necessity or lack of choice – whilst relevant and instructive – cannot of themselves be determinative of deductibility; those factors cannot be determinative of the categorical question of whether a loss or outgoing is of a private or domestic nature.

The High Court authorities on home office expenses

10    This structural understanding of s 8-1 underlies the approach taken in Commissioner of Taxation v Faichney [1972] HCA 67; 129 CLR 38 at 43–4, Handley v Commissioner of Taxation [1981] HCA 16; 148 CLR 182 at 194 and Commissioner of Taxation v Forsyth [1981] HCA 15; 148 CLR 203 at 217, later confirmed in John at 431 and Anstis at [33].

Faichney

11    In Faichney, Mason J (sitting alone) held that no part of mortgage interest referable to a study in the taxpayer’s home was deductible because it was an outgoing “of a … private or domestic nature” within the negative limb of s 51(1) of the Income Tax Assessment Act 1936 (Cth), the predecessor of s 8-1 of the ITAA 1997: at 43–4. His Honour did not finally determine whether the interest expense satisfied the positive limb. His Honour indicated that he was “inclined to the view that it would fall outside” the positive limb but proceeded to decide the matter by reference to the negative limb: at 43.

12    The taxpayer was employed by the CSIRO as a scientist. He was not required by his employment contract to work at home: at 40. However, he could not do his job properly if he confined his work to ordinary working hours: at 41. In planning construction of his home, he decided to incorporate a study because he knew his work would involve him working at home at nights and on weekends: at 41. The study was used almost exclusively for the taxpayer to work from home: at 42.

13    The Commissioner sought to establish that the out-of-hours work undertaken by the taxpayer could be performed in his work laboratory or in the library. It was suggested that he could go home for dinner and return afterwards to work at night in his laboratory and the library. Mason J stated that the “relevance and practicality of these suggestions” were not apparent: at 41.

14    His Honour considered that “a study in a taxpayer’s home, no matter how great the extent of its dedication in point of use to the pursuit of those activities from which the taxpayer earns his income, is a part of that home” and that “[e]xpenditure incurred in the erection of the study or in its renovation is as much an outgoing of a capital, private or domestic nature as expenditure on any other part of the home”: at 43.

15    Mason J distinguished the situation where business premises are constructed. His Honour referred to expenditure incurred by a doctor in erecting a house which contained his surgery or for the purpose of renovating a house containing such a surgery: at 44. His Honour concluded that “the doctor’s surgery is not in a relevant sense part of his home; it is his place of business”. By contrast, “a study does not cease to be part of a taxpayer’s home because it is used by the taxpayer for the pursuit of activities from which he earns his income”.

16    Mason J distinguished expenditure on lighting and heating of the study, allowing it as a deduction on the basis that, to the extent incurred to provide light and heating “exclusively whilst [the taxpayer] is engaged in work from which he derives income”, it takes on an employment or business character and is not private or domestic: at 44–5. That distinction reflects the focus on the character of what the expenditure secures: the cost of maintaining the home as such remains domestic, whereas variable running costs may be characterised by reference to the activity for which they are incurred. This issue did not arise in Handley, such that there was no occasion to revisit this aspect of Faichney – see: Handley at 195–6 (Mason J) and 198 (Murphy J).

Handley

17    In Handley, delivered on the same day as Forsyth, the High Court considered a barrister’s claim to deduct a proportion of interest, rates and insurance referable to a study in the family home. The majority (Mason, Murphy and Wilson JJ; Stephen and Aickin JJ dissenting) denied deductibility.

18    Mason J, substantially agreeing with Wilson J, rejected the claim on the footing that the expenditure did not answer the description of losses or outgoings incurred in gaining or producing assessable income and, in any event, retained an excepted private or domestic character: at 194–6. His Honour emphasised that the inquiry is not resolved by “look[ing] only to the use to which the study is put, though use is obviously a matter of great importance”; it is necessary to consider “the character of what was said to have been acquired by means of the expenditure” and “its relationship to the home of which it forms part” in order to decide whether the outgoing falls within the exception: at 194. His Honour emphasised that the study was used for “professional work that can be done at home, in the evenings and at weekends”, that is, for work that can conveniently be done at home, but which could also be done in chambers. His Honour also emphasised that the study was a room in the taxpayer’s home, not separate from it in any way, having no distinctive physical characteristics, readily capable of other use for family purposes, and in fact used for non-professional purposes from time to time.

19    Mason J accepted that s 51(1) contemplated apportionment where expenditure is only in part of a private or domestic character (at 194), but held that this was not an appropriate case for apportionment because the outgoing, though referable to the study, was wholly “of the excepted kind”, that is, private or domestic: at 194.

20    Wilson J, referring to his reasons in Forsyth, held that no part of the outgoings was incurred in gaining or producing assessable income and, in any event, that the outgoings fell within the exception: at 201–2. His Honour emphasised that the “study does not cease to be part of the taxpayer’s home merely because as a matter of convenience he uses it for professional purposes for twenty hours per week” for most of the year: at 201. It was true that the taxpayer was influenced in buying the home by the fact that there was a place in it which he considered to be suitable for a study. “But it remained essentially part of his home”: at 201. The mortgage repayments could not be apportioned because they related to the building and land as a whole and would have the same character whether he worked at home or not: at 201–2.

21    Murphy J reached the same conclusion on the footing that the outgoings were “entirely of a domestic nature”: at 197–8. It was particularly important for Murphy J that the work which the barrister performed in the study was work which could be done elsewhere, namely in his city chambers. This pointed strongly to the expenditure really being “for the domestic convenience of the taxpayer”: at 197. Thus, even if the barrister’s study had been removed to a building adjacent or near to the home, it may not have been enough to change the domestic nature of the outgoings.

22    Murphy J distinguished the situation in which a barrister used part of the home for professional chambers such that it was in fact a “place of business”. His Honour considered the case before the court to be “quite different from that of a doctor, a marriage celebrant, a caterer, an author or a solicitor who uses part of his or her home as a place of business”: at 197.

Forsyth

23    In Forsyth, the taxpayer barrister sought to deduct amounts paid under a written arrangement described as a licence fee for the right to use a study and ancillary space within the family residence. The barrister had chambers in the city but would frequently work from home. The house had been purchased with the primary object of providing the barrister and his wife with a home. The Court (Mason, Murphy and Wilson JJ; Stephen and Aickin JJ dissenting) denied deductibility.

24    Mason J, stated that he generally agreed with Wilson J and that his agreement was to be read in the light of his reasons in Handley: at 206. His Honour noted that the outgoing was consideration for the acquisition of a right to use a study in the home, rather than an outgoing incurred in connection with the acquisition of the home which happens to include the study, but concluded that this and other factors were insufficient to distinguish the case from Handley: at 207.

25    Murphy J again characterised the outgoings as domestic: at 207. The “rent” for use of part of his family home as a study did not negate the domestic nature of the expenditure, but rather added colour to and emphasised the domestic nature of the outgoings: at 207.

26    Wilson J observed that the written agreement did not alter the fact that the taxpayer occupied the entire premises as a family residence: at 214. His Honour considered an important issue to be “the relationship of the study and ancillary space to the house as a whole”, stating at 215:

There would appear to be complete integration, with no suggestion of any physical exclusivity. The study is indistinguishable from other rooms in the private living area of the house, and is so placed to the taxpayer’s bedroom that he finds it convenient to keep his clothes in the study and use it as a dressing room. The ancillary space for a desk, where the taxpayer often works, is downstairs at the side of the living room. It would seem to be intimately related, in a physical sense, to the life of the family.

27    His Honour continued by stating that these matters were not decisive in themselves. His Honour then referred to the fact that the barrister had chambers in the city and there was no compulsion for him to work at home; rather, like many professional people, he found it convenient to do so; and client and solicitor visits were so infrequent as to be immaterial: at 215.

28    Having referred to those matters, Wilson J held that it was not open to treat the outgoings as satisfying either component of the positive limb in s 51(1): at 215. His Honour stated:

As I have said, in the last resort the question is one of fact and degree. Having regard to all the circumstances, I conclude that it is not open on the facts of this case to find that the outgoings in question were incurred in gaining or producing the assessable income, or were necessarily incurred in carrying on the taxpayer’s professional business. The home was not his business premises. It was not open to be described, with any show of reality, as his base, or one of his bases, of operations … The outgoings were therefore neither incidental nor relevant to the gaining of assessable income.

29    Wilson J considered that the taxpayer’s agreement with the trustees was “of or belonging to the home, house, or household” and was therefore of a domestic nature notwithstanding that it provided for certain parts of the home to be occupied for professional purposes: at 216. His Honour considered that the agreement, coupled with the physical arrangements of the house, and all the circumstances, supplied the necessary relation between the outgoings and the household to establish its domestic character.

30    His Honour then referred to the Federal Court’s decision – which held that the payments were not captured by the negative limb because they “were specifically and genuinely for the use by the taxpayer of the study and associated facilities” – and stated that the adoption of such a test quite clearly (but incorrectly) abandoned the “essential character” test in favour of the “use” criterion: at 216–7.

31    His Honour also explained that, even where outgoings can be apportioned as partially incurred in gaining or producing assessable income, it is a misconception to suppose that apportionment of this type necessarily strips the apportioned part of its domestic character; the fact that a portion is quantified by reference to income-producing use does not compel the conclusion that it is not domestic: at 217.

Summary

32    These authorities show that, where an outgoing is directed to securing or maintaining domestic accommodation, the inquiry under s 8-1(2)(b) is not necessarily answered by the extent (or even the exclusivity) of work use of a room within that accommodation, albeit use is a relevant matter. Even if work use of a room justifies the conclusion that an outgoing was incurred in gaining or producing assessable income, such that the positive limb in s 8-1(1) is satisfied, the independent question in s 8-1(2)(b) must be asked: whether, having regard to what the outgoing secures and the relationship of the space to the home as a whole, the outgoing is nevertheless of a private or domestic nature: Faichney at 43–4; Handley at 194–6; Forsyth at 215–7.

Parsons’ views

33    The decisions in Handley and Forsyth have been met with some criticism, including in Parsons RW, Income Taxation in Australia (Law Book Co, 1985) (Parsons) at [8.28] to [8.37].

34    Professor Parsons’ criticisms stem from his view that each component of the negative limb operates by way of contradistinction rather than as a true exception: at [5.7] to [5.13]. Parsons considered that once an outgoing is shown to be, to a certain extent, incurred in gaining or producing assessable income, it was artificial to treat that same outgoing, to the same extent, as retaining a private or domestic character. He considered this converted what should be a quantitative inquiry (the extent of income-producing use) into a categorical exclusion.

35    Parsons’ views in this respect have not prevailed. After publication of his seminal work, the High Court confirmed a different structural conclusion about s 51(1) in John at 431, explained earlier.

36    Starting from the position that the negative limb in s 51(1) operates by way of contradistinction rather than exception, Parsons contrasted the dissenting views in Handley and Forsyth that the expenses were plainly relevant with the majority view that they were not relevant because their “essential character” was private or domestic and were not deductible for that reason. He argued that the majority judgments deployed Lunney, the source of the “essential character” test, incorrectly: Lunney used “essential character” to assess relevance or connection under the positive limb and was not authority for denying the deductibility of an expense that was relevant on the ground that its “essential character” was private or domestic: at [8.29].

37    Parsons also contended that, for home-study overheads, a definitive denial of relevance by reliance on the word “in” in s 51(1) was not open; if otherwise relevant, interest, rent, rates, taxes and insurance relating to a home study are as much incurred “in” gaining income as the same expenses relating to factory premises: at [8.30]. Parsons accepted an “essential character” approach only if it is understood as expressing an administrative policy against deductibility: at [8.31].

38    Parsons preferred an objective use-based approach directed to whether the accommodation had been converted to “business premises”, which may be evidenced by adaptation, the nature of the work, or regular receipt of clients or customers. He adopted Stephen J’s warning in Handley that the operation of s 51(1) should not depend on “vagaries of architecture”, except insofar as architecture assists an objective inference of business premises: at [8.32] to [8.33].

39    Ultimately, while preferring the analytical approach of the dissenters in Forsyth and Handley, Parsons agreed with the majority outcomes because there was no basis in either case for an objective inference of use as business premises: at [8.37].

40    The majorities in Handley and Forsyth proceeded on the basis that character is not exhausted by use, and that an outgoing to secure domestic accommodation may retain a private or domestic character notwithstanding a real and substantial connection with income-earning activities. Parsons’ criticisms rest on the view – rejected in John and Anstis – that the negative limb in s 51(1) (now in s 8-1) operates by way of contradistinction rather than exception. The construction of ss 51(1) and 8-1 in John and Anstis is binding on this Court.

Other relevant authorities on home office expenses

41    In Swinford v Commissioner of Taxation [1984] 3 NSWLR 118, Hunt J allowed a deduction for a self-employed scriptwriter who moved from a one-bedroom unit to a two-bedroom unit specifically to have a dedicated home office: at 120.

42    When the scriptwriter wrote for the ABC, an employee from that organization attended at the taxpayer’s unit on alternative Saturday mornings for a conference when future story lines were discussed and synopses were mapped out. That conference took place in the home office: at 120G. When writing television serials, the scriptwriter attended at the office of the Grundy Organization once a fortnight to collect a synopsis of the relevant story line: at 120G.

43    In each case, the script written by the taxpayer was delivered to the producer in typed form by the taxpayer: at 121A. Neither the ABC nor the Grundy Organization provided the scriptwriter with any accommodation in which to carry out her writing activities: at 121F.

44    The Commissioner argued that, as a matter of law, deductions were not available for a proportion of rent (or interest on a mortgage) for a home office by reason of the decisions in Handley and Forsyth: at 122B. Hunt J considered that the answer to this submission depended upon what was meant by a “home office”, because a “home office” could still amount to “business premises” even when integrated with the home. His reasoning was as follows (at 122E):

The area designated as [a “home office”] … may either constitute business premises notwithstanding the physical association of that area with the taxpayer’s home, or it may be only part of the taxpayer’s home (such as a study) used for business purposes as a matter of convenience. Whilst in most cases a home office will not constitute business premises unless, like the doctor’s surgery, it is physically distinct from the area used as a home, I would not be prepared to say that a home office cannot, as a matter of law, amount to business premises.

45    Hunt J concluded that the work done by the scriptwriter was not done at her home rather than elsewhere as a matter of convenience. Hunt J later emphasised his view that the majority in Handley each agreed that the barrister’s expenditure on interest was rendered essentially private or domestic in character because his study at home was used for professional work of a type which could ordinarily be done at home, rather than in the chambers which he maintained in the city, only as a matter of convenience: at 125A.

46    Hunt J concluded that the second bedroom was the scriptwriter’s business premises: it was the only place where she carried out her writing activities and it “was the base, and the only base, of the taxpayer’s operations”, referring to Forsyth at 215: at 122G. Some might disagree with his Honour’s conclusion that the scriptwriter’s second bedroom was business premises (see Parsons at [8.35]), but debate about that can be put to one side for present purposes.

47    Two observations should be made about Swinford.

48    First, Hunt J appears to have treated satisfaction of the positive limb as necessarily supplying the answer to why the negative limb did not apply: at 125C. His Honour did not give reasons for why the negative limb did not exclude deductibility. An explanation for this may be that the conclusion that the second bedroom was business premises carried the implication that a portion of the outgoing was not private or domestic.

49    Secondly, whilst the majority justices in Handley referred to the barrister performing work at home for reasons of convenience, the decision turned on the essential character of what the outgoing secured – domestic premises – not the fact that the room was used for work purposes only as a matter of convenience rather than compulsion.

50    In Tribunal Case 70 (1987) 18 ATR 3501, the Administrative Appeals Tribunal upheld a taxation objection such that a deduction was allowed for a proportion of rent for a home office incurred by a salaried employee of the South Australian Education Department, Ms Brixius. Ms Brixius worked in a departmental office during standard hours but was required to perform additional duties after hours, including paperwork and music evaluation, which could not be performed at the office. The office closed at 6 pm and was, in any event, unsuitable for some of the work duties required to be performed, it not having a piano or being soundproof. She rented a two-bedroom unit and used one room as a study, which was fitted out with work-related equipment, including a piano, stereo and record player, and which she used predominantly for work purposes.

51    The Tribunal relied on Swinford in holding that the essential character of expenditure in respect of a home office will not always be domestic and that, while the use of a room for work will not necessarily bring to an end its domestic character, it is a relevant consideration, particularly where the taxpayer had no other place to do the work, such that the decision to work from home was not a matter of mere convenience: at [23] and [25] to [28].

52    Like the present case, the Commissioner appealed Case 70 to this Court in its original jurisdiction: Commissioner of Taxation v Brixius [1987] FCA 612; 16 FCR 359. The Court held that the Tribunal had applied the correct legal principles in relation to the positive limb and the negative limb: at 361 and 365–7. The answers depended on the particular facts. Given that the Tribunal had applied the correct legal principles, and it was not shown that the Tribunal’s conclusions were not open on the facts, the Commissioner’s appeal was not shown to have raised any question of law, necessary to engage the Court’s jurisdiction on such an appeal: at 366–7.

The Tribunal’s reasons

53    The Tribunal concluded that the respondent’s home office was his “workplace for the year” and that the rent claimed was not “purely” private or domestic. Those conclusions rested on four principal findings of fact (T[63] to [67]):

(a)    the respondent had no choice other than to perform the Digital Role from home because of directions from the Victorian Government and his employer;

(b)    relatedly, the respondent did not decide to work from home as a matter of convenience, any such choice having been taken from him by reason of the matters in (a);

(c)    the respondent rented the two-bedroom apartment knowing that he would need to work from home for the foreseeable future;

(d)    the second bedroom was used exclusively to perform the Digital Role.

54    The Tribunal focussed on what it described as “additional expenditure … for the second bedroom”, distinguishing this from a “claim for rent more generally”. The Tribunal concluded that the “additional expenditure” was not “purely of a private or domestic nature”, stating at T[65]:

Renting a two-bedroom apartment for the year when he was obliged to work from home, and using the second bedroom as his workplace, was a necessary and required element of his work in the 2021 income year. It cannot be said that the additional expenditure he made on the rent for the second bedroom, used as his workplace in the 2021 year, was purely of a private or domestic nature, rather it was for the purposes of gaining his assessable income. If the claim had been for rent more generally, or for any other space in the apartment, or if the second bedroom had been used generally by both Mr Hall and his wife as part of their joint living space, the essential nature of the expenditure may not have been related to earning his assessable income, but that is not the deduction claimed in this case.

55    The Tribunal also used the word “purely” at T[62(a)], concluding that, if the essential nature of the expenditure was “purely” private or domestic in nature, it would be precluded from deductibility under s 8-1(2)(b). As explained further below, this misstates the test.

56    There are two difficulties with the Tribunal’s reasoning.

57    First, it does not directly address the actual outgoing, which was a singular amount of rent paid for a two-bedroom apartment. The Tribunal erroneously treated a single outgoing as two outgoings: one being “additional expenditure” for the second bedroom; and the other being a separate outgoing for a one-bedroom apartment. Treating the actual outgoing as two outgoings facilitated a process of reasoning which, in substance, permitted the negative limb to be avoided in relation to one of the notional outgoings. It permitted the Tribunal to conclude that the “additional expenditure” was not “purely of a private or domestic nature, rather it was for the purposes of gaining his assessable income”.

58    Secondly, the Tribunal treated the answer to the positive limb as necessarily supplying the answer to the negative limb without undertaking the distinct inquiry required by s 8-1(2)(b). The Tribunal’s construction of s 8-1 – whilst open on the text of the provision – is precluded by the High Court’s decisions in Faichney, Handley, Forsyth, John and Anstis. As noted at [31] above, in Forsyth at 217, Wilson J stated:

I would make one further comment, dealing with the effect of the words “to the extent to which” first appearing in s 51(1) in the context where there is an outgoing which requires to be apportioned between the gaining of assessable income and otherwise. In a case where the whole of that outgoing bears some association with the home, it is in my view a misconception to think that the result of the process of apportionment is necessarily to deny a continuing domestic character to the portion of the outgoing so identified.

59    An expense which is to some extent incurred in earning income (because it is sufficiently connected to income earning activities) can still be non-deductible to that same extent if its essential character is domestic. An outgoing does not need to be “purely” private or domestic to be excluded by s 8-1(2)(b).

Mr Hall’s rent was not partially deductible

60    The appeal turns on the Tribunal’s approach to s 8-1(2)(b).

61    As noted earlier, 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 determinative inquiry remains the essential character of the expenditure, assessed by reference to what the expense secures, not how the secured room is used. Compulsion or necessity also cannot transform what would otherwise be private or domestic expenditure into deductible expenditure. In Commissioner of Taxation v Cooper [1991] FCA 190; 29 FCR 177 at 201, Hill J said:

It need only be said that the fact that a taxpayer is obliged to incur expenditure by his employer, will not convert private expenditure into deductible expenditure. An example is Blackwell v Mills [1945] 2 All ER 655, where a taxpayer was required by his employer to prepare for a final examination for a degree. The taxpayer was given, by his employer, time off and the employer paid half the fees. It was held, nevertheless, that the taxpayer was not entitled to a deduction for what was, in essence, private expenditure. Nor will the fact that it is necessary to spend money to gain money convert private expenditure into deductible expenditure, as the case of Norman v Golder (supra) demonstrates in respect of medical expenditure of a private nature.

62    Applying the law to the Tribunal’s findings of fact, the respondent’s outgoing was rent incurred to secure and maintain residential premises as a home. The second bedroom remained part of that home. It was not possible to treat each rental payment as two distinct outgoings or two different kinds of expenditure, one with respect to the second bedroom, and one with respect to the rest of the home: cf T[65]. That was inconsistent with the facts and with the application of the essential character test.

63    The Tribunal did not conclude, and it could not have concluded, that the second bedroom was the respondent’s business premises.

64    The Tribunal concluded that the second bedroom was the respondent’s “workplace for the year”, which is in some ways similar to the conclusion of Hunt J in Swinford that the self-employed scriptwriter’s second bedroom was her base of operations: T[63]. As mentioned earlier, Hunt J did not provide reasons why the negative limb did not operate to exclude the deduction. Rather, his Honour appears to have treated satisfaction of the positive limb as necessarily supplying the answer to why the negative limb did not apply, perhaps by reason of the conclusion that the second bedroom had been converted to business premises. The respondent in the present case was not self-employed, and the second bedroom was not, on any view, business premises. The respondent used the second bedroom for his work, but work use (although relevant and important) does not necessarily transform domestic expenditure into something else. In Forsyth at 216–7, Wilson J criticised the Federal Court’s approach in that case as abandoning the “essential character” test in favour of the “use” criterion.

65    The decision in Case 70, in which the Tribunal followed Swinford, lends considerable support to the respondent’s position. The respondent in the present case was also a salaried employee. He performed most of his work (the Digital Role) from home, using a second bedroom exclusively as a home office. Like Ms Brixius, he rented the apartment knowing that he would be required to work from home. His employer did not permit him to perform the Digital Role at the Southbank Studios and he could not have done so in light of government directives.

66    However, unlike the present case, the Tribunal in Case 70 was held to have correctly identified the law: Brixius at 365. It applied the law to the findings of fact made, which involved questions of degree. The Tribunal’s findings were not challenged as erroneous in law. The Federal Court only had jurisdiction to interfere if the Commissioner raised a question of law, which the Federal Court considered had not been established: at 366. The Federal Court could not engage with the merits.

67    The present appeal turns on whether the Tribunal correctly identified and applied the relevant legal principles. For the reasons given above, it did not.

68    Further, the reasoning in Case 70 appears to place determinative weight on the use of the room and the practical necessity of working from home. To the extent that the Tribunal treated those factors as sufficient to displace the private or domestic character of the rent, its reasoning is not easily reconciled with the High Court’s decisions in Faichney, Handley and Forsyth. Those authorities make clear that the essential character of an outgoing for domestic accommodation is not altered merely because the taxpayer uses part of the premises exclusively for work. Moreover, Faichney held that practical necessity to work from home was insufficient to displace the essential character of the outgoing as domestic. It is difficult to see that legal necessity to work from home (which in substance reflects the present case) could or should provide a different result. The “essential character” of the outgoing must be assessed by reference to what the expenditure secures, not merely how the secured space is used or why that space was secured.

69    Although the majority in Handley emphasised that the taxpayer’s work could have been performed elsewhere and was undertaken at home as a matter of convenience, those considerations were not treated as determinative. Rather, they illustrated that the essential character of the outgoing – interest on mortgage repayments for the family home – remained private or domestic. The essential character of the outgoing was not altered by the taxpayer’s use of the study. The essential character was determined by what the expenditure secured: a private domestic residence.

70    While the facts in Case 70 share several similarities with those in the present case, neither the reasoning in Case 70, nor in the appeal in Brixius, provides a proper basis for departing from the principles established by the High Court. The Tribunal in the present case erred in law by failing to apply those principles and by treating the use of, and necessity to use, the second bedroom as determinative of the essential character of the rent.

71    The respondent’s rent was paid to secure domestic accommodation. The reason the respondent chose a two-bedroom apartment was that he knew he would be required to perform the major component of his work (the Digital Role) from home. The respondent was compelled to work from home to perform the Digital Role. His use of the second bedroom was not merely for his personal convenience. The second bedroom was not business premises, but it was the location from which he performed the main role of his income earning activity as an employee.

72    On these facts, the rent for the whole apartment was, to an extent, an outgoing incurred in gaining assessable income, satisfying s 8-1(1)(a). Section 8-1(2)(b) required that a second question be addressed: whether the outgoing – even to the extent that it satisfied the positive limb – was excluded because it was private or domestic in nature. The circumstances referred to, which demonstrate why s 8-1(1)(a) was satisfied, explain why the two-bedroom apartment was chosen, but they do not of themselves determine what the expenditure was for. There is no “necessary antipathy” between the two limbs.

73    The essential character of the expenditure was rent paid to secure domestic accommodation. While the prevailing conditions required the respondent to work from home, this necessity did not alter the essential character of the expense. Working from home was not a matter of choice or convenience. The expenditure was still rent for domestic accommodation in its essential character. The High Court has rejected the “use” test as supplanting the “essential character” test: Forsyth at 216–7. The High Court has rejected a construction of s 8-1(1) which would see satisfaction of the positive limb as antithetical to application of the negative limb. A “use” test (favoured in other jurisdictions) could have prevailed over an “essential character” test. The High Court could have adopted a different construction of the relationship between the two limbs in s 8-1. Neither of those things has happened. They can only be altered by the High Court revisiting the relevant conclusions in Faichney, Handley, Forsyth, John and Anstis.

74    Neither party suggested that the Tribunal had omitted to make findings of fact which it should have made. Consistently with Faichney, Handley and Forsyth, the proportion of rent claimed retained the character of an outgoing of a private or domestic nature excluded by s 8-1(2)(b) despite the necessity for the respondent to work from home, and despite the fact that the second bedroom was used exclusively for work.

75    For these reasons, the Tribunal erred in allowing a deduction for the occupancy expenses.

CAR EXPENSES

The statutory framework

76    Section 8-1, the general deduction provision, has been set out at [4] above. Section 8-5(3) provides that an amount that can be deducted under a provision outside of Div 8 is called a “specific deduction” (see also s 12-5).

77    Section 8-10, headed “No double deductions”, provides that “[i]f 2 or more provisions … allow you deductions in respect of the same amount … you can deduct only under the provision that is most appropriate”.

78    Part 2-5 of the ITAA 1997 is entitled “Rules about deductibility of particular kinds of amounts”. It includes “Division 25 – Some amounts you can deduct” and “Division 28 – Car expenses”.

79    Section 25-1, which contains the “Guide to Division 25”, includes: “Remember that the general rules about deductions in Division 8 (which is about general deductions) apply to this Division”. Section 25‑100 of the ITAA 1997 relevantly provides:

When a deduction is allowed

(1)    If you are an individual, you can deduct a *transport expense to the extent that it is incurred in your *travel between workplaces.

Travel between workplaces

(2)    Your travel between workplaces is travel directly between 2 places, to the extent that:

(a)    while you were at the first place, you were:

(i)    engaged in activities to gain or produce your assessable income; or

(ii)    engaged in activities in the course of carrying on a *business for the purpose of gaining or producing your assessable income; and

(b)    the purpose of your travel to the second place was to:

(i)    engage in activities to gain or produce your assessable income; or

(ii)    engage in activities in the course of carrying on a business for the purpose of gaining or producing your assessable income;

and you engaged in those activities while you were at the second place.

(3)    Travel between 2 places is not travel between workplaces if one of the places you are travelling between is a place at which you reside.

…

80    Section 25‑100 was enacted by the Tax Laws Amendment (2004 Measures No 1) Act 2004 (Cth) in part as a response to the High Court’s decision in Commissioner of Taxation v Payne [2001] HCA 3; 202 CLR 93. In that case, the High Court held that travel between two unrelated income‑earning activities was not incurred “in the course of” deriving income from either activity and was therefore not deductible: Payne at [14].

81    By s 25-100, Parliament restored deductibility for travel directly between two places of income‑earning activity, but drew an express boundary: home‑to‑work travel could not be deductible merely because work is also performed at a place where the taxpayer resides: s 25-100(3).

82    Section 28-12 provides:

Car expenses

(1)    If you owned or leased a *car, you can deduct for the car’s expenses an amount or amounts worked out using one of 2 methods.

…

(2)    You must use one of the 2 methods unless an exception applies. If you can’t use either of the methods, you can’t deduct anything for the *car expenses.

83    The 2 methods referred to in s 28-12 are the “cents per kilometre” method and the “log book” method. The formula for calculating the deduction using the former method, which the respondent used, is set out in s 28-25.

84    Section 28‑25 relevantly provides:

(1)    To calculate your deduction using the “cents per kilometre” method, use this formula:

…

(3)    Business kilometres are kilometres the *car travelled in the course of:

(a)    producing your assessable income; or

(b)    your *travel between workplaces.

You calculate the number of business kilometres by making a reasonable estimate.

85    The phrase “your *travel between workplaces” in s 28-25(3)(b) is defined in s 25-100(2) to which the exclusions in s 25‑100(3) and (4) apply – see: s 995-1(1). Section 25-100(4) is not presently relevant.

The respondent’s claim for a deduction

86    The respondent claimed a deduction for car expenses based on his (reasonable) estimate under s 28-25(3) of the “business kilometres” his car travelled between his home and the Southbank Studios and back.

87    It followed that the respondent needed to establish, in the terms of s 28-25(3), that the commute was either in the course of: “(a) producing [his] assessable income” or “(b) [his] travel between workplaces”. The respondent could not claim a deduction based on his “travel between workplaces” because s 25-100(3) expressly excluded from the ambit of that concept travel to or from a place at which the taxpayer resided. That was common ground before the Tribunal. That only left open a deduction for car expenses incurred “in the course of … producing [his] assessable income” within the meaning of s 28-25(3)(a).

The Tribunal’s reasoning

88    The respondent submitted that the Tribunal proceeded by reference to s 28-25(3)(a). That is the preferable reading of the Tribunal’s reasons: although the Tribunal emphasised that s 28-25(3)(b) contemplated a deduction where there was “travel between workplaces” (at T[34] to [37]), the dispositive part of its reasoning proceeded by reference to s 28-25(3)(a): T[70].

89    The Tribunal accepted the respondent’s evidence that he commenced his working day at home undertaking the Digital Role before going into the Southbank Studios: T[73]. After completing his work at the Southbank Studios, the respondent returned home. The Tribunal did not expressly make a finding that the respondent then continued to work from home by resuming his Digital Role.

90    The Tribunal found at T[76] that:

(a)    the respondent had two distinct aspects to his job, the Digital Role and the Live Role;

(b)    each of these aspects of his work could only be undertaken from the location in which he undertook them;

(c)    the respondent’s employment was not arranged as two shifts, split between the two distinct parts of his job;

(d)    on the days when the respondent closed his laptop at home, picked up his car keys and drove to the Southbank Studios, he was “at work the entire time” and his travel was therefore “on work”, as were the return journeys on those days.

91    The Tribunal found that the respondent’s estimate of the number of business kilometres was reasonable within the meaning of s 28-25(3) and therefore allowed the deduction: T[77] to [80].

Mr Hall was not entitled to a deduction for car or travel expenses

92    The respondent submitted that the source of a car expense deduction was s 28-12 and that, alternatively, he could rely on s 8-1. The Commissioner contended that s 28-12 did not provide a specific deduction to which s 8-1 did not apply: if one claimed a deduction on the cents per kilometre method provided in s 28-25(3)(a) for travel in the course of producing assessable income, the negative limb in s 8-1(2) could not be avoided by that choice of method.

93    The question whether s 28-12, with the choice of method in s 28-25(3)(a), provides a specific deduction in respect of which s 8-1 (including the private or domestic exclusion in s 8-1(2)(b)) does not apply, does not need to be resolved. The respondent’s commutes were not made in gaining or producing his assessable income. Therefore, the kilometres the respondent’s car travelled could not come within s 28-25(3)(a), s 28-12(1) could not be satisfied through s 28-25(3), and the expenses were not an outgoing which satisfied the positive limb in s 8-1(1)(a) if it applied.

94    The reasons why neither s 28-25(3)(a), nor s 8-1(1)(a) (if it applied), were satisfied are as follows.

95    The work performed by the respondent at his home (the Digital Role) was “quite distinct” (T[9]) to the work performed by him at the Southbank Studios (the Live Role). The respondent ceased income producing activities when he stopped performing work at home and commenced different income producing activities upon starting work at the Southbank Studios. The respondent was not performing either his Digital Role or his Live Role or any aspect of his employment whilst driving.

96    The respondent’s commute to the Southbank Studios was travel “to” perform income producing activities, not travel “in” performing income producing activities: Lunney at 499. His travel from the Southbank Studios to home was either: (a) if he had finished his work for the day, travel to return home after income producing activities had ceased; or (b) if he resumed his Digital Role at home, travel “to” perform different income producing activities.

97    The respondent’s journey from home to the Southbank Studios (and back) was not undertaken to complete an aspect of his employment already underway. It could not be said that “[t]he journey from home to the office [was] undertaken, not to commence duty, but to complete an aspect of the employment already under way before the journey commences”: Commissioner of Taxation v Collings (1976) 10 ALR 475 at 484–5; see also: Owen v Pook [1970] AC 244 at 256–8 and 262–3; Commissioner of Taxation v Genys [1987] FCA 520; 17 FCR 495 at 501.

98    The Tribunal’s conclusion that the respondent was “at work the entire time” when travelling between his home and the Southbank Studios (and back), and therefore “on work” whilst driving, was not open on its findings of fact, summarised at [89] above. The Tribunal’s findings of fact do not provide a foundation for a conclusion that the respondent’s travel was “in the course of … producing … assessable income” (in the language of s 28-25(3)(a)) or that the respondent’s travel expenses were “incurred in gaining or producing … assessable income” (in the language of s 8-1(1)(a)).

99    For those reasons, the Tribunal erred in law in allowing a deduction for car expenses.

CONCLUSION

100    The Tribunal erred in law in allowing deductions for: (a) the “additional rent” (in fact a portion of rent), because the claimed outgoing was of a private or domestic nature within s 8-1(2)(b); and (b) the car expenses, because those expenses were not incurred in the course of producing assessable income.

101    The Tribunal’s decision must be set aside and the objection decision affirmed. The parties agreed that there should be no order as to costs.

Associate:

Dated:    9 April 2026

REASONS FOR JUDGMENT

MCELWAINE J:

102    I agree with Thawley J.

Associate:

Dated:    9 April 2026

REASONS FOR JUDGMENT

WHEATLEY J:

103    I have had the considerable benefit of reading the reasons of Thawley J in draft. I agree with those reasons and with the orders proposed by his Honour.

104    In relation to the occupancy expenses, the observations made by Thawley J in [68]-[70] regarding Case 70, its reasoning being based on Swinford (as stated at [65]) are equally applicable to Swinford. The relevant principles, in this context, are those laid down by the High Court in Faichney, Handley and Forsyth.

105    In relation to the respondent’s car expenses claimed by way of the “cents per kilometre” method, the particular circumstances of this case do not necessitate determination of whether s 28-12 is an operative specific deduction provision (see above at [93]). The car expenses claimed were not in the course of producing his assessable income (s 28-25(3)) or incurred in gaining or producing assessable his assessable income (s 8-1), in any event, for the reasons given by Thawley J.

Associate:     

Dated:    9 April 2026