Home office deductions – what you can and can’t claim

Home office deductions

The way we work is changing. More and more, we value flexibility and the ability to structure our work hours around family commitments. If you’ve set up a home office, or run your business entirely from home, you need to be aware of the home office deductions you can claim and how to keep records that substantiate your claim.

Working out what you’re entitled to can be complicated. For example, if you carry out all or part of your employment activities from home, then some portion of your home office expenses can be claimed. However, if you’re using a room with a dual purpose or a room shared with others (such as a dining or lounge room), you can only claim the expenses for the hours you used the space exclusively.


What home office expenses can you claim?


Home office expenses fall into two broad categories: occupancy costs and running costs.

  • Occupancy costs can include rent, mortgage interest, rates, repairs, cleaning and house insurance premiums.
  • Running costs include:
    • Home office equipment including computers, printers and telephones. You can claim the full cost (for items up to $300) or the decline in value (for items $300 or more).
    • Work-related phone calls (including mobiles) and a portion of phone rental.
    • Heating, cooling and lighting – you can claim the proportion of utility bills that directly relates to the time you spend working in your home office.
    • Cost of repairs to your home office furniture and fittings.
    • Cleaning expenses.
    • Computer consumables, stationery, telephone and internet costs.

Home office occupancy expenses can only be claimed if your home is also your principal place of business and you’ve set aside a dedicated area for the running of your business.

If you work from home occasionally then you can’t claim occupancy expenses – even with a dedicated work at home area. You may however be entitled to claim a deduction for running costs.


Home office expenses for employees who work from home


If you only carry out some of your employment duties from home, it is likely that your home office is classified by the ATO as a ‘place of convenience’. This is because you carry out work duties that could otherwise be done at your employer’s office. This means that generally you can’t claim a deduction for occupancy expenses. You also cannot claim for work-related items where your employer has already reimbursed you.

You can only claim the work-related component of your expenses and need to exclude costs related to private use. If you are using a room with a dual purpose (for example, a dining room), or a room shared with others (a lounge room) you can only claim the expenses for the hours when you had exclusive use of the area.


Calculating running expenses


There are two methods you can use to calculate a claim:

1. Diary method/actual expenses. You’ll need to keep:

  • Receipts or other written evidence of your expenses, including receipts for depreciating assets.
  • Diary entries to record your small expenses of $10 or less (totalling no more than $200).
  • Itemised phone accounts from which you can identify work-related calls, or other records, such as diary entries (if you do not get an itemised account from your service provider).
  • A diary to work out how much of your running expenses are related to doing your work at home. The diary needs to detail the time you spend over a representative four week period in the home office compared with other users of the home office. The work-use proportion you calculate during that period can then be applied to the full tax year.

2. ATO rate per hour method:

  • Alternatively, you can claim home office expenses using a fixed rate of 52 cents per hour for each hour that you work from home. This method incorporates all the items you are able to claim, including the depreciation of office equipment. You won’t be able to make additional claims for individual items.


Calculating occupancy expenses


If you use your home as the base of your income producing operations, it may be classified as a ‘place of business’. Determining whether a home office is a place of business is based on:

  • The size of the area and whether it is a clearly separate.
  • If the area can clearly be identified as a place of business (eg. you have a sign at the front of your house identifying your business).
  • Whether the area is used exclusively for carrying on a business.
  • Whether it is used regularly for client/customer visits.

Generally, as only a portion of your home is used, the expenses need to be apportioned to eliminate the private component. This is determined by floor area, and the period of time the home was used as a ‘place of business’. For example, if you have $5,000 in total occupancy expenses, the floor area of your home office represents 20 per cent of your home, and you started your business halfway through the year, then the deductible portion would be:

$5,000 x 20% x [183 days / 365 days] = $500


Capital gains tax (CGT) implications


It is important to note that if you have used your home partly or fully as a place of business, it will be subject to CGT because the main residence exemption will not apply. You may be entitled to a partial exemption though as the period before you used your home to produce income is not taken into account. Instead, the capital gain or loss is calculated on the market value of your home at the time you first used it to produce income.

It is therefore a good idea to get a valuation of your home at the time you first use it as your place of business so that when you sell it you don’t pay more CGT than is necessary.


Further help:

Marsh & Partners can help you make the most of your home office deductions.

Our bookkeeping service makes it easy for you to stay on top of your record keeping and accounting – so while we take care of your accounts, you can focus on your business.

Contact a Marsh & Partners advisor for clarification on any information in this article. You can reach us on (07) 3023 4800 or at mail@marshpartners.com.au

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