Nigel is a professional percussionist and performs with a number of bands and orchestras. In order to practice, he set aside a special room in his house that is soundproof and contains a variety of electronic sound equipment. The room is used only for practice or performance related purposes. He pays council rates, interest on the house mortgage, repairs and maintenance, electricity and telephone expenses in connection with the house. He believes he should be able to claim tax deductions for all these costs together with depreciation on the room and equipment.
Explain the tax position to Nigel. In you answer you should:
i) Identify the tax issues that are raised and the relevant sections of the legislation.
ii) Identify any cases and other sources of law or information that apply.
iii) Apply the law to the facts.
iv) Express a conclusion in regard to the issues identified and indicate any other information required.