If your home is your principal place of business, you might be able to claim a range of expenses related to the portion of your home set aside for your business.
The downside to claiming occupancy expenses, such as interest on a mortgage, is the impact it has on your tax-free main residence exemption for capital gains tax (CGT) purposes. In general, your home is exempt from CGT when you sell it. However, if you use your home to earn assessable income like the hairdresser, then you might only qualify for a partial exemption on the sale. If you are claiming part of your home as a business expense, then it is unlikely that any gain you make on your home will be fully CGT-free. You might also need to obtain a valuation of your home at the time it was first used to generate business income.
What exactly can be claimed?
- Running expenses– if you have a dedicated work area such as a study set aside for work, the essentials to keep the work area running like electricity, cleaning, office equipment etc., can be claimed as an expense. Of course, any claim can only be for the work-related portion of the expense. If your family use your home office as well or you use it for personal use, then you can only claim a portion of the expense. Running expenses can be claimed:
- at a fixed rate of 52 cents per hour– you will need to track either the actual amount of time you work from home or keep a log book over 4 weeks that can be applied to your expenses across the year.
- as an actual expense– to claim an actual expense you need to document the total expenses for lighting, cleaning, heating and cooling for your home for the year, work out the floor area of the part of your home that you use for work as a percentage of the total floor area, and then work out the percentage of the year you used that part of your home exclusively for work.
- Occupancy expenses– expenses such as rent, interest on your home loan, property insurance, land taxes and rates can only be claimed if your home is your ‘place of business’ and no other work location has been provided to you. A place of business is unsuitable for any other use other than business, like a doctor’s surgery connected to a home or a hairdressing salon in a room of the house. Occupancy expenses can be claimed by calculating your total expenses × floor area × percentage of year that part of your home was used exclusively for work. Generally, occupancy expenses are not a deduction available to employees.
- Work related phone and internet expenses– unless you run your business from home and you have a dedicated phone and internet line it’s unlikely you can claim 100% of your phone and internet expenses. If your employer provides you with a phone, you cannot make any claim for these expenses. If you are a casual worker you cannot claim a deduction for phone rental expenses. For the rest of us, you can claim up to $50 for phone and internet expenses without substantiating the claim (but the ATO still might expect you to prove the claim), or you can work out your actual expenses. Claims for actual expenses can be made by working out the work-related use of the phone and internet and then applying that percentage to the expenses.
- Decline in value – for depreciable assets such as computers and printers, you might be able to claim decline in value if the cost of the item was over $300. Decline in value deductions might also be available for office furniture used for work purposes in a home office, but not if the individual is using the fixed rate of 52 cents per hour to claim running expenses.
|Expenses||Home is principal workplace with dedicated work area||Home not principal workplace but has dedicated work area||You work at home but no dedicated work area|
|Work-related phone & internet expenses||Yes||Yes||Yes|
|Decline in value of a computer (work related portion)||Yes||Yes||Yes|
|Decline in value of office equipment||Yes||Yes||No|
Source: Australian Taxation Office
Working from home vs running a business from home.
There is a difference between people who are an employee and work from home, compared to those who are self-employed and run their business from home.
As an employee that sometimes works from home, there are some expenses you can claim. If you don’t have a dedicated work area but you do some work on the couch or at the dining room table, you can claim some of your expenses like the work-related portion of your phone and internet expenses and the decline in value of your computer. This of course assumes that your employer doesn’t reimburse you for your phone and internet expenses and you purchased your computer for yourself.
You can claim up to $50 for phone and internet expenses without substantiating the claim (although the ATO may still ask you to prove that you actually incurred the expense), or you can work out your actual expenses.
If you have a dedicated work area, there are a few more expenses you can claim including some of the running costs of your home such as a portion of your electricity expenses and the decline in value of office equipment.