Three Tax Cases That Could Affect Your Next Tax Return

Tax law is constantly evolving, and recent court decisions continue to shape how the Australian Taxation Office interprets and administers the law.

In this edition, Robert Veitch examines three significant Federal Court decisions handed down during 2026. These cases consider the deductibility of home office expenses, travel allowance claims and the taxation treatment of land development activities.

While each case turns on its own facts, the outcomes provide valuable insight into how the courts are currently approaching some common and often contentious tax issues.

As always, the specific circumstances of each taxpayer remain critical, and professional advice should be sought before applying these decisions to your own situation.

1. Home Office Rent and Travel Expenses

Commissioner of Taxation v Hall (2026) FCAFC 43

Mr Hall was an ABC sports presenter and producer who because of the Covid-19 pandemic was required to work partly from home and partly from the ABC Southbank Studios. Mr Hall rented a two bedroom apartment knowing that 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 he had no choice other than perform part of his duties from home. The other part being a live role meant he had to travel to the ABC studios. The Commissioner of Taxation denied the taxpayer’s claim for a deduction relating to a portion of his rent relating to the second bedroom and denied deductions claimed for travel between the taxpayer’s apartment and the ABC studios.

At first instance the Administrative Review Tribunal concluded that the taxpayer’s home office was his workplace for the year and that his rent was not purely private or domestic.

The tribunal based its reasoning on four principal findings:

• The taxpayer had no choice other than perform part of his work from home
• The taxpayer did not decide to work from home as a matter of choice
• The taxpayer rented a two bedroom apartment knowing that he would need to work from home for the foreseeable future
• The second bedroom was used exclusively for his work.

The Court found that there were two difficulties with the Tribunals reasoning :

1 .     The Tribunal didn’t directly address the actual outgoing, which was a singular amount of rent paid for a two bedroom apartment. The Tribunal erroneously treated a singular outgoing as two outgoings. The one being for the additional expenditure for the second bedroom and the other as a separate outgoing for a single bedroom apartment. Treating it as two payments allowed the Tribunal to treat the additional payment as not being of a purely private nature.

2.       The second was a technical argument regarding Section 8-1 of the ITAA 97, which is the general deduction section.

Essentially the Full Court made some observations:

• 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.
• The taxpayer’s outgoing was rent used to secure and maintain residential premises as a home. The second bedroom remained part of the home. Not possible to treat each rental  payment as two distinct outgoings.
• The High Court has criticized the Federal Courts abandoning the “essential character” test in favour of the use criterion.
• The authorities make clear that the essential character test of an outgoing for residential premises is not altered because the taxpayer uses part of the premises exclusively for work.
• The High Court has rejected the use test as supplanting the essential character test.

Interestingly the ATO in their Interim decision impact statement regarding this decision state “Generally expenses associated with a taxpayer’s home, such as rent, are of a private or domestic nature and do not qualify as deduction for taxation purposes. An exception to this general rule is where part of the home is used for income producing activities and has the character of a place of business and the expense loses its essential character as private or domestic.

Whilst the ATO statement is good news it does seem to run contrary to the the Court’s statement about the Tribunal treating a singular payment as being for two outgoings.

This cases has important implications for other deductions such food purchase while travelling for business and potentially other matters where an item is purchased for private purposes and then some work element is introduced.

2. Travel Allowances and Substantiation Requirements

Commissioner of Taxation v Shaw (2026) FCA 197

Mr Shaw was a long distance truck driver who was away from home for up to 6 days/nights per week and slept in his truck. He received an allowance from his employer. The taxpayer not only purchased food from food outlets along the way, but he also purchased bulk food from his local supermarkets to take in his truck. While the taxpayer claimed he spent more than his allowance he only claimed the lower amount of his daily travel allowance paid by his employer. In the year concerned this amounted to $32,782.50.

At audit the taxpayer was not able to provide written evidence of the deduction, nor how he worked out the amount of his deductions, other than he merely claimed the amount of his allowance as being fully expended. The taxpayer relied on the exception to the substantiation rules in Section 900-50 of ITAA 97 on the basis that he was in receipt of an allowance which was a reasonable allowance under the ATO tax determination.

The taxpayer was only able to present his logbooks, fatigue diary and some bank statements as evidence.

The Federal Court found that the key issue for the Tribunal was whether the amounts were incurred under Sub-section 8-1(1) while he was travelling for work. The Court stated that even if the taxpayer  was not able to rely on Section 900-50 then Section 900-200 applied to relieve him of the substantiation obligation.

Section 900-50 allows a taxpayer to deduct travel allowance expenses without getting written evidence if the Commissioner considers reasonable the total of the losses or outgoings you claim for travel covered by the allowance. Section 900-200 states that if you had a reasonable expectation that substantiation would not apply then you don’t have to follow the rule of the division.

Whilst these two sections may dispense with the need to to keep detailed records they don’t dispense with the need to prove deductibility under Section 8-1. The taxpayer needed to prove that he had in fact incurred expenses to satisfy Section 8-1. The Tribunal and subsequently the Court were satisfied that the bank statements, the log books and the taxpayer’s oral evidence were enough to satisfy the deductibility under Section 8-1 and subsequently Section 900-50 and 900-200 relieved the taxpayer of the need to substantiate the actual expenses.

3. Property Development or Capital Asset?

Commissioner of Taxation v Morton (2026) FCAFC 31

This case involved Mr Morton who was a retired farmer. He owned land in Melbourne’s western suburbs. The land was rezoned from rural to suburban. The rezoning significantly increased holding costs which made farming economically unviable. In 2012 Mr Morton entered into a development agreement with a developer to turn the farm into a housing estate. The developer under took all the planning, financing, construction and marketing for the estate. Mr Morton retained ownership of the land until the individual housing lots were sold. Mr Morton received considerable amounts of money from 2019-2021 from the sale of the lots. The ATO viewed these amounts as the proceeds from either the carrying on of a property development business or from a profit making scheme. Mr Morton objected claiming the proceeds were not from carrying on a business but rather from a capital gain from a long held asset. The single judge in the Federal Court agreed with Mr Morton’s position and ultimately the Full Federal Coust agreed with the primary judge’s findings.

In finding for Mr Morton the primary judge’s reasons for his decision were:

• Mr Morton did not acquire the land for profit making by sale
• When the rezoning occurred Mr Morton formed the view that farming would eventually become unviable, because of increased rates and land tax and other social issues with suburban living
• Although Mr Morton continued to farm the block after the rezoning announcement in 2010 and up until 2015 this did not exclude the possibility that he had embarked on a new business of property development, but it does inform the nature of his activities during this period of time.
• The means by which the property was developed were significant.
• The fact that Mr Morton was not involved in obtaining the finance required to undertake the development was a very significant that tells AGAINST the conclusion that he was carrying on a business of property development.
• The primary judge was not persuaded that the scale of the development ultimately changes the overall complexity of Mr Morton’s activities.
• The primary judge did not consider that Mr Morton’s activities were marked by repetition which is one of the “badges of trade” which can be used to discern the commencement or existence of a business.
• The primary judge was not persuaded that the agreements between Mr Morton and the developer including the agency agreement and powers of attorney altered the position.

For those reasons the primary judge concluded that Mr Morton at no stage embarked on a business of developing land and never ventured the land into a profiting-making scheme. While this case was a win for the taxpayer every potential development has to be careful analysed to ensure the correct outcome.

These cases highlight the importance of understanding not only what deductions may be available, but also the evidence required to support them and the way in which the courts analyse taxpayer activities.

While recent decisions may provide helpful guidance, the outcome in any matter will depend on the specific facts and circumstances involved. If you have questions about how these decisions may affect your situation, please contact our office.