In a landmark decision in April 2026, the Full Federal Court in Commissioner of Taxation v Hall unanimously ruled that employees cannot claim a portion of rent as a tax deduction simply because they work from home, even if working from home is required by the employer and a room is used exclusively as a home office.
The decision overturns an Administrative Review Tribunal ruling and reinforces the distinction between private/domestic “occupancy” costs (generally non-deductible for employees) and additional “running” costs incurred while working (potentially deductible).
The taxpayer, Nathaniel Hall, was employed as a sports presenter and producer by the Australian Broadcasting Corporation (ABC) in Melbourne. His role had two components:
Due to employer directives and Victorian government pandemic lockdown requirements, Hall was required to perform the digital role from home. He entered into a lease for a two-bedroom apartment in June 2020 on the understanding he would need to work from home for the foreseeable future.
For the 2021 income year, Hall claimed two deductions that were later disputed by the Commissioner:
The Commissioner of Taxation initially disallowed both deductions. However, the Administrative Review Tribunal (ART) – formerly the AAT – allowed Hall’s claims, finding that his home office was his “workplace for the year” and that the claimed rent was not purely private or domestic in nature.
The Commissioner successfully appealed this decision to the Full Federal Court, which set aside the Tribunal’s decision and affirmed the Commissioner’s original objection.
The Court held the Tribunal erred by effectively treating one outgoing (rent) as if it could be split into two different outgoings, one for the second bedroom and another for the remainder of the apartment.
Justice Thawley (for the unanimous Court) stated:
“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 Court emphasised the essential character of the expenditure: rent is paid to secure domestic accommodation. Even if prevailing conditions require an employee to work from home, that necessity does not change the essential (private/domestic) character of rent.
Crucially, the Court treated the second bedroom as part of the home, and found it was not permissible to characterise each rental payment as partly “work-related” rent and partly “private” rent in a way that made the former deductible.
The Court also rejected Hall’s car expense claim, concluding the costs were not incurred “in the course of” producing assessable income.
The Court applied the familiar distinction between travel “to” perform income-producing activities (generally not deductible) and travel “in” performing those activities (which may be deductible). On the facts, driving from home to the Southbank Studios was travel “to” work.
The Court observed:
“The work performed by the respondent at his home was quite distinct from the work performed by him at the Southbank Studios. 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.”
For employees in hybrid, flexible, or compulsory work-from-home arrangements, the decision confirms the limits of what can be claimed as a work-related deduction.
Employees cannot convert rent (or mortgage interest) into a deductible expense by designating a room as a home office, even where the room is used exclusively for work and working from home is compulsory. The essential character of rent remains private/domestic.
The Court’s reasoning underscores that employees are generally not able to treat their home as “business premises” for the purpose of claiming occupancy costs. (Different considerations may apply for self-employed taxpayers, depending on the facts.)
| Expense type | Deductible (employees)? | Key principle |
|---|---|---|
| Rent for home office | No | Essential character remains domestic accommodation |
| Mortgage interest for home office | No | Generally not deductible for employees |
| Running expenses (electricity, heating, internet, cleaning) | Yes (subject to the usual rules) | Additional costs incurred while working |
| Office supplies and equipment | Yes | Subject to depreciation rules |
| Travel from home to regular workplace | No | Travel “to” perform work, not “in” performing work |
| Travel between two actual workplaces (after first attending a workplace) | Potentially | Requires careful analysis of the facts |
The ATO welcomed the Full Federal Court’s decision, saying it confirms long-standing principles on the deductibility of work-from-home expenses and travel to and from work. After the Tribunal’s initial decision, the ATO issued interim advice warning taxpayers against lodging similar rent-deduction claims.
Although the decision shuts down claims for rent and other occupancy costs, employees working from home may still be able to claim (subject to the usual rules and records):
The matter received test case funding (meaning the taxpayer’s legal costs were supported by the government). It therefore remains possible the decision will be appealed to the High Court. Some commentators have suggested the dispute may not be over.
Navigating the tax rules for home office deductions can be complex, but understanding the key principles around deductible expenses will help you make informed decisions and avoid common pitfalls. If you have any questions or need personalised advice, please don’t hesitate to contact your usual Exant advisor, or alternatively our Tax Partner, Jamie Towers on via the form below or on 07 3218 3900.