Employer Rents an Office Room in Self-Used House

This case concerns the situation where an employer does not wish to supply, or cannot afford an office for his employee, and whether and how this can be deducted from taxable income. The BFH decided this question on September 16, 2004 (re VI R 25/02).


The taxpayer is a forest ranger. He and his wife are living in their own home in a forest. His employer is the Forestry Department of Lower Saxony. The taxpayer rented out a room in his cellar to his employer to be used as an office for a flat rate of DM 90. It thus became the official office of the Forestry Department of Lower Saxony for that region.

The taxpayer wanted to deduct DM 6,011 after having deducted the rent paid by his employer from his income. The tax office, however, only accepted DM 2,400 as deductible following §4 VII 1 no. 6b EStG. At the time of the tax return, this clause allowed the employee to deduct a maximum of DM 2,400 up to if the employer did not supply a work place on his premises.

The Federal Tax Court ruled that both the employer and the Tax Office were in the wrong. The Court held that the employee was receiving income from rent and lease. The costs of supplying this office were not deductible from his income from gainful employment. Instead, they were to be treated as expenses incurred in conjunction with income from rent and lease, and thus not subject to §4 VII 1 no. 6b EStG. In this case, the costs of DM 6,100 could be deducted in full.

Notice that both were not in all cases wrong. Whether the rent was to be qualified as income from gainful employment or from rent and lease depends on who has an overriding interest in using the rented space. If the rented room is of greater interest to the employer, it will be treated as income from gainful employment, and if the employee has a greater interest then it will be treated as income from rent and lease. Since the employer did not supply his employee with an office on his own premises, renting was considered as in the employer’s prevailing interest. The opposite would have been the case if the employer could also have traveled to another branch office Forestry Department to work.

Published on the old CMS: 2007/1/31
Read on the old CMS till November 2008: 1,223 reads

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