The Australian Taxation Office has scored a major court win that shuts down a tax loophole feared to be worth billions of dollars to renters working from home.

In a landmark ruling on Friday, the Full Federal Court overturned an earlier tribunal decision that had allowed Melbourne ABC sports presenter Ned Hall to claim thousands of dollars in tax deductions for rent and travel.

Hall had claimed $5,878 in rent for a second bedroom in his apartment, which he used only as a home office during the 2021 income year.

He also claimed $1,148 in car expenses for travelling between his home and the ABC's Southbank studios.

The Administrative Review Tribunal had previously backed his claims.

But the Federal Court unanimously ruled the deductions were not allowed.

Justice Thawley said in his judgement the key issue was not how the room was used, but what the rent was really paid for.

'The essential character of the expenditure was rent paid to secure domestic accommodation,' he said. 

The judge added that the second bedroom 'remained part of that home', even though it was used exclusively for work.

The Court accepted that Hall had no real choice but to work from home during Victoria's Covid lockdowns. 

It noted that 'a combination of employer and Victorian Government directives meant that the respondent had no choice other than to perform the Digital Role from home'.

But the judges made it clear that being forced to work from home does not turn rent into a work expense.

'Compulsion or necessity also cannot transform what would otherwise be private or domestic expenditure into deductible expenditure,' Justice Thawley said.

In other words, rent does not lose its private nature simply because part of a home is used to earn income.

The Court also rejected the tribunal's view that the rent could be split into two parts, one private, one work-related.

'It was not possible to treat each rental payment as two distinct outgoings,' the judgment said. 

Allowing that approach would wrongly sidestep the rule that private and domestic expenses are not deductible.

The ATO also won on Hall's car expense claims.

Although he often started work at home before driving to the ABC studios, the judges ruled that the trips were still a normal commute.

'The respondent's commute … was travel 'to' perform income producing activities, not travel 'in' performing income producing activities,' the Court said.

The judges rejected the tribunal's finding that Hall was 'at work the entire time' while driving.

The ruling reinforces long-standing High Court decisions and gives the Tax Office much-needed certainty. 

After the original tribunal decision, the ATO rushed out warning advice to taxpayers as it scrambled to stop similar claims.

With this appeal win, the Court has now firmly closed the door on renters claiming household rent as a tax deduction just because their home doubled as an office.