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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.
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:
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:
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.
It’s a good idea to keep a record of your home office expenses including:
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.
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.
If you run your business from home, you may claim both running and occupancy expenses.
For these running costs, you can use a floor plan to allocate the proportion of items to private and business 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.
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.
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 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:
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.
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:
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
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.
When calculating office space on a home business do you include kitchen and toilet facilities as being part of the business and include these values in the business floor space.
Hi Mike,
Thanks for your question.
Generally no, as your kitchen and toilet are typically used for personal reasons and may not have a direct link to earning your income.
Highly recommended that you speak to a financial planner or tax professional to confirm.
Cheers,
Shirley