A taxpayer operated its business activities in an office in one of the front rooms of its directors' main residence, and used this room exclusively for business purposes. For the years ended 30 June 2003, 2004 and 2005, the taxpayer had claimed 50% of the property related expenses in its income tax return.

The taxpayer held a 50% interest in the property and the remaining 50% was held by both directors as tenants in common. The directors, along with their children, used the property as their main residence.

The taxpayer argued that since it had a 50% ownership interest in the property, it was entitled to 50% of the deductions. It argued that its use of the property did not fall within the category of a ‘home office', which would limit the availability of deductions to a use basis.