Before submitting your tax return this financial year, understand what kinds of deductions you can claim for your home office expenses.
If you’re an employee and you use a computer, phone or other electronic device for work purposes, you could be eligible to make a claim deduction.
To do this, you’ll need to demonstrate how you’ve directly used the device for work as you can only claim the work-related expense of your use. Records to illustrate how you’ve worked out your claim may include phone or internet bills.
It’s critical that you maintain your records because if your tax return is reviewed and you don’t have the corresponding records, you may be up for a penalty.
What kind of items can I claim?
You may be able to claim deductions for home office expenses including running costs and occupancy expenses, as outlined below.
If you carry out some of your work from a home office, you may be entitled to a deduction for the costs you incur while running it, such as:
Home office equipment: For equipment such as printers or telephones, you can claim for the cost (for items valued up to $300) or you can claim for the decline in value (for items costing $300 or more)
Work-related phone calls: This may include mobile calls or phone rental if you can prove that you’re on call or that you regularly make calls to your employer or clients
Heating cooling and lighting: If you can show heating, cooling or lighting expenses for the home office, you may be eligible to make a claim.
The cost of repairs: This includes the cost of repairs to any home office furniture or fittings.
Cleaning expenses: If you can show cleaning expenses directly related to the office space.
If you’re an employee, you’re generally not able to claim a deduction for occupancy expenses including mortgage interest, rent and council rates.
You may also be able to make a claim for relevant tools, equipment or assets used in your home office. That is, if you buy tools, equipment or assets to help earn you income, you could claim a deduction for some or all of the cost.
The amount you can claim will depend on the amount of time you use them for work purposes. For instance, if you bought a computer which you use half for work purposes and half for private purposes, you can claim only half the cost or decline in value.
The type of deduction you claim depends on the cost of the asset. For items that don’t form part of a set and are valued at $300 or less, or form part of a set that together costs $300 or less, you can claim an immediate deduction for their cost.
For items that cost more than $300, or that form part of a set that together cost more than $300, you can claim a deduction for their decline in value.
Examples of tools, equipment or assets that you may be able to claim for your home office:
- Computers and software programs
- Desks, chairs and lamps
- Filing cabinets
You can claim the work-related expense of repairing and insuring your equipment as well as any interest on money you borrowed to purchase these items.
Keep in mind that if you use any of the above items for both personal and work-related use, you’ll need to keep records that demonstrate how you estimated the amount of private use and work-related use.
Hang on to your dockets
It’s a good idea to keep a record of your home office expenses including:
- Receipts of expenses such as receipts for depreciating assets
- Diary entries you make to record small expenses (i.e. $10 or less) totalling no more than $200
- Itemised phone accounts that clearly identify work-related calls
- A diary that details how much you used your equipment, home office and phone for business purposes over a representative month
If you run your business from home, you can claim income tax deductions for a portion of the costs owing, maintaining and using your home for this use. However, when you sell your home you may be liable for capital gains tax.
How do I know if my home is my place of business?
Your home is considered your place of business if you run your business from home and a room is set aside exclusively for your business activity. For instance a business consultant whose main office is in their home where they have clients visit them or a doctor who has their surgery or consulting room at home, where their patients visit them.
What deductions can I claim?
If you run your business from home, you may claim both running and occupancy expenses.
Utility costs: The expenses related to running the home office utilities such as electricity and gas
Business phone costs: If you’ve used a phone for business purposes, you can claim for the rental and calls, but not the installation costs. If you used the phone for both business and personal use, you can claim a deduction for business calls
Depreciation of office plant and equipment: You can claim for the decline in value of equipment such as desks, chairs and computers
Depreciation of curtains, carpets and light fittings: You can claim for the decline in value of these materials and fixtures.
For these running costs, you can use a floor plan to allocate the proportion of items to private and business use.
What if I don’t have an allocated area of use?
If a floor plan isn’t appropriate, other methods may apply. For instance, you could compare power bills from before you began operating to after you commenced operation.
When determining these costs, remember to account for holidays and illness.
Costs associated with owning or renting house: This may include rent, mortgage interest, insurance and council rates. You can claim the portion of these costs that relate to the room that’s used as your place of business. Often this is calculated by the floor area (as a proportion of the floor area in your whole property).
Rachel and Justin have a graphic design business where they carry out their work and meet clients at their home office. In this case, Rachel and Justin can claim both running and occupancy expenses.
Ben on the other hand is an accountant and has an area set aside at home for his work, but it’s not his main place of business so he can claim a portion of his running expenses, but not occupancy expenses.
A common method to determine how much you can claim is to use the floor area you use or the proportion of the floor area relative to your entire home. Rachel and Justin have worked out that their home office is 20% of their whole home so they can claim 20% of their occupancy expenses when they lodge their tax return online.
Will I need to pay capital gains tax if I use my home for business purposes?
Generally when you sell your home, you can ignore a capital gain or loss that you make, which is known as the ‘main residence exemption.’ If your home is your place of business, you generally can’t obtain the full main residence exemption.
However, you could be eligible for a partial exemption. To work out how much capital gain is not exempt, you generally need to work out the following:
- The proportion of floor area of your home that’s set aside to produce income
- The period of time you used it for this purpose
The amount of CGT you pay is based on the proportion of the property that’s used for business. So in the example above, if Ben claims 20% occupancy expenses, then 20% of the capital gain he makes when he sells the house will be subject to CGT.
However as small business owners, Rachel & Justin may be eligible for CGT concessions that will decrease the amount of CGT they have to pay.
The Australian Taxation Office (ATO) has a ‘Home Office Expenses’ calculator designed to help you estimate the amount you can claim as a tax deduction for home office expenses for the financial year. It will also determine whether or not you’re entitled to claim occupancy expenses.
To estimate how much you can claim as a tax deduction, you’ll need receipts for the following:
- Home office equipment used for work purposes
- Repairs to the home office or furniture
- Cleaning expenses of the home office
- Other day-to-day running expenses of the home office
Using the ‘Home Office Expenses’ calculator
When claiming running expenses, you can use a fixed rate which determines the decline in value of home office furniture or costs for heating, cooling and lighting.
The fixed rate enables you to claim these expenses at 34 cents for each hour that you’re in the home office and are using it for work associated purposes. Otherwise you can use a different method for calculating your expenses, but you’ll need to maintain records that show how your claim is reasonable.
Hours of operation
You’ll need to enter the hours you were using the home office for work-related purposes during the income year (i.e. 1200 hours).
It’s important to note that if the home office is used by others at the same time, these hours do not qualify.
If part or all of the income producing activity is conducted in the home office, you may be able to make a claim for a deduction of the running of expenses.
You’ll need to estimate cleaning expenses (i.e. $150), depreciation (other than furniture - i.e. $250), leasing costs (i.e. $0), repairs to office furniture and equipment (i.e. $200) and any other expenses associated with running the home office (i.e. $350) during the financial year.
Once you’ve entered this information, the ATO will produce a home office expenses summary.
If you’re lodging your own tax return for 2018-2019, you can lodge it from the 1st July 2019 to the 31st of October 2019. When lodging your return online, you can use myTax.
Please note that to lodge your tax return online, you’ll need to create a myGov account on the ATO website.
myTax is designed for individuals with straightforward tax conditions. Available on tablets, smartphones and computers, you should use myTax if:
- You were an Australian resident for tax purposes from 1 July 2018 and 30 June 2019
- Your only income was from salary and wages, allowances, bank interest, dividends and/or government benefits
- Your only deductions are for work-related expenses, expenses related to income from interest or dividends, gifts and donations and/or the expense of managing your tax affairs
- Your only tax offsets are the senior Australians and pensioners tax offset, the zone and overseas forces tax offset and/or the private health insurance rebate
How do I lodge my tax return with myTax?
myTax pre-fills your return with information from your previous tax return and with information provided by your employer, bank, government agencies and other bodies.
This information is generally provided to the ATO by early August, so if you wait until then all you have to do is review the information, add any missing or required information and then select ‘submit.’
E-tax was the free software from ATO which allowed people to lodge their own tax on their personal computers. As of 2016, it has been retired and replaced by myTax. myTax is a browser-based online service of the ATO.
Why you can't use e-tax in 2016
How do I lodge my tax return with E-tax?
Lodging your tax return is easy when you have all the information you need to lodge. E-tax allows you to pre-fill your tax return with information held by the ATO and other organisations, and transfer details from your last year’s E-tax return.
If you’re in business as a sole trader or a partner in a partnership, you can use E-tax to prepare and lodge your individual tax return.
You can use E-tax to lodge your tax return even when you're overseas.
This article discusses the items available for a home office and how to lodge a return. Committing to a Statement of Advice (SOA) is an individual decision and users can take specialised advice from a tax agent for lodging their home office return correctly.