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Australian owner-occupier tax deductions

Owner-occupiers could get a number of tax deductions if they know where to look.

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Owner-occupiers don’t generally benefit from the same tax minimisation strategies available to investors. A tax deduction can generally only be taken for something that generates income. However, this doesn’t mean that owner-occupiers are left entirely out in the cold come tax time. There are still a number of deductions available.

Home office expenses

A recent study by the Australian Communications and Media Authority (ACMA) found that 61% of fully employed Australians used the Internet to work from home in the first 6 months of 2021. It is clear the number of Australians choosing to telecommute is growing dramatically.

The NSW Government’s Future State NSW 2056 report released in 2016 predicted that teleworking will become the norm in Australian workplaces. COVID-19 sped up the migration to working from home, with the Australian Government's Productivity Commission reporting that 40% of the Australian workforce now works from home – up from just 8% pre-pandemic.

If you’re one of the millions of Australians who do at least some of your work from home, you could be due some tax deductions.

Working from home during COVID-19

As you will see below, there are a number of deductions you can claim based on your specific circumstances: whether you have a dedicated home office space or not, and whether you solely work from home or enjoy a mixture of home and office working.

Due to the impacts of COVID-19, more people than ever have been working from home over the last 2 years. In response to this, the ATO announced a new way for employees to claim tax deductions.

You can now claim for the additional running expenses you incur as a result of working from home, such as:

  • Electricity expenses for heating, cooling and lighting
  • The decline in value of office furniture and furnishings as well as other items used for work (e.g. a laptop)
  • Internet expenses
  • Phone expenses

There are 3 ways you can claim these deductions:

  • Fixed rate: A fixed amount per work hour for additional running expenses, plus expenses not covered by the fixed rate
  • Actual cost method: The actual expenses you incur while working from home
  • Shortcut method: An all-inclusive rate per work hour (currently only available from 1 March 2020 – 30 June 2022)

If you work solely from home with a dedicated home office

As long as you have a room in your house set up as a dedicated home office, with no other purpose of use, and you work solely from home, you may be able to deduct:

  • Your rent or mortgage payments
  • Your home insurance
  • Depreciation of office equipment
  • Utility costs (gas and electricity)
  • Maintenance costs for your home office
  • Work-related phone costs
  • Work-related Internet costs

To figure out your phone and Internet costs, particularly if you’re on a bundled plan, you can estimate the percentage of your work-related use and divide your bill accordingly, as seen in the example below.

Example: Richard's home office

Richard works from home and has set up a dedicated home office in his spare room. Richard has a bundled home phone and Internet plan, with a bill running around $110 per month. When Richard files his taxes, he first splits his bill into phone services and Internet services.

Phone: $55 per month
Internet: $55 per month

Richard estimates 75% of his home phone usage is work related, equalling $41.25 per month, or $495 per year.

Richard estimates around 50% of his home Internet usage is work related, equalling $27.50 per month, or $330 per year.

In total, Richard deducts $825 for phone and Internet expenses.

* This is a fictional, but realistic, example.

If you work solely from home but don’t have a dedicated home office

Like a lot of Australians over the last 2 years, perhaps you've shifted some living room furniture around or cleared a corner of your bedroom in order to make space for a desk. Or perhaps you like to work at the dining room table, or on the sofa.

If you don’t have a dedicated home office, there are still deductions available to teleworkers:

  • Depreciation of office equipment
  • Work-related phone costs
  • Work-related Internet costs

If you don’t work solely from home but do have a dedicated home office

If you only work from home a few days a week (or even on an ad hoc basis), there are still plenty of deductions available to you as long as you have a dedicated home office.

  • Depreciation of office equipment
  • Utility costs (gas and electricity)
  • Maintenance costs for your home office
  • Work-related phone costs
  • Work-related Internet costs

Renting out a room

If your home has a spare room, you might choose to rent it out to a tenant to generate some extra income. This income has to be claimed at tax time, but it can also result in some handy deductions.

The ATO specifies that if part of your home is used to generate rent, you’re entitled to claim deductions for the part of your expenses that relate to the rental income. You can figure this out on the basis of your home’s floor area. According to the ATO, you should apportion expenses based on the area solely occupied by the tenant, along with “a reasonable figure” for their access to the shared living areas. This “reasonable figure” along with the area solely accessed by the tenant is generally up to 50% of the total floor area.

The ATO treats the portion of expenses relating to your rental income the same way it would for an investment rental property. In other words, you can deduct repairs and maintenance for the area solely occupied by the tenant, as well as a proportion of repairs and maintenance for any common living areas. You can also take a portion (up to 50%) of the estimated depreciation of the property and up to 50% of the interest paid on the mortgage.

Example: Amy's tenants

Amy owns a 3-bedroom home for which she paid $600,000. She has a $450,000 home loan on the property. She rents out 2 of the rooms at $150 per week each, generating an annual rental income of $15,600. Under the ATO's rules, she calculates that tenants use 50% of the total living area. At the end of the tax year, she figures out her expenses:
Depreciation: $11,000
Maintenance: $4,000
Mortgage interest: $20,000
Total expenses: $35,000

Because tenants have access to 50% of her home, she can deduct 50% of these expenses:

Total deduction: $17,500

* This is a fictional, but realistic, example.

Owner-occupiers aren't entirely left out when it comes to tax deductions. There are some handy ways to save money at tax time, but always make sure you seek qualified advice from an accountant before claiming any of these deductions.

Need tax help? Compare tax agents in the table below

1 - 6 of 6
Name Product Fee for unlimited income items (Wages) Deduction Item Fees Online tax returns
FinTax Group
$79*
$0 for up to $1000 of deductions
$65 for an investment property
Australia wide
Lodge individual & company tax returns online or in-person. Fast online form with additional options to complete tax returns for investment properties, sole trader tax and share investments.
Everest Tax & Business Advisors
$80*
Business tax: starting from $250
General deductions: $0
For motor vehicle expenses: $15
Australia wide
A boutique firm that provides personalised experiences for all customers. Ideal option for individuals and small businesses based in Perth.
One Minute Tax
$99*
$0
Australia wide
Option to pay with your tax refund for an extra fee of $20. Lodge individual & company tax returns. Fast online form & free live chat. Special offer for business owners: Register your new company for only $499 (includes $488 worth of government fees and $100 cashback into your new business bank account). Click 'Go to site' to find out more. T&Cs apply.
Taxgain
$99*
$0 for up to 2 deductions
$29 for additional deductions
Australia wide
Option to pay with your tax refund for an extra fee of $29. Online and in-person tax services for individuals, sole traders and companies.
Hotman & Brown
$99*
Business tax: starting from $179
$29 for up to 2 deductions
Additional $29 for extra deductions
N/A
Option to pay with your tax refund for an extra fee of $29. Basic tax returns over the phone Australia-wide. In-person individual and business tax returns in Melbourne.
Bennetts Tax & BAS service
$155*
finder Exclusive: $5 discount
$0 for all work related deductions
Australia wide
finder Exclusive: $5 discount when you apply for a tax return with Bennetts Tax through finder. Click 'Go to site' and complete the contact form to find out more. Income item fee includes returns on interest, dividends, Superannuation and pension. A flexible option for individuals, sole traders and companies.
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4 Responses

  1. Default Gravatar
    SusanJune 2, 2017

    Hi There,

    What is the definition of maintenance, and does that include body corporate fees, power bills, council rates and water bills? Does it also include renovating a house from a 2bdrm to a 3 bdrm and the cost of building an internal wall for the 3rd room?

    Thank you

    • Default Gravatar
      LiezlJune 3, 2017

      Hi Susan,

      Thanks for your question.

      Maintenance generally involves work to prevent deterioration or fix existing deterioration. These commonly include repainting, maintaining plumbing, oiling, brushing or cleaning something that is otherwise in good working condition. It does not include body corporate fees, council rates, electricity, and gas, although you may be entitled to have these expenses as immediate deductions.

      As for those renovation works, these fall under improvements. These are capital expenses you may be able to claim over a number of years as capital works deductions or deductions for a decline in value. You may refer to our guide about property repairs and improvements.

      I hope this helps.

      Cheers,
      Liezl

  2. Default Gravatar
    JustineMay 10, 2017

    Part of my settlement was that the vendor rent the house from me for 7mths.
    This will be my place of residence once I occupy after the 7mth wait period.
    Even though I am an owner/occupier, I have been receiving rental income for this period & would like to know what tax deductions I’m entitled to under these circumstances.

    Can I also apply, depreciation of the home & contents as technically my home is considered an “investment property” for the 7mths it’s been rented… Would this deduction be applicable under the settlement agreement?

    Regards
    Justine

    • Default Gravatar
      LiezlMay 13, 2017

      Hi Justine,

      Thanks for reaching out.

      If you own a rental property, you have to declare this income during tax time and accordingly, you’re entitled to claim deductions for the part of your expenses that relate to the rental income. You can check our guide above for sample computation of the deductions.

      Kindly note that if you co-own the property with other people, you can only claim your share of the expenses in line with your legal share of the property regardless of any written agreements. It would be best to refer this to a tax accountant or enquire with ATO. Meanwhile, you can check this ATO’s guide for rental property owners for more information.

      I hope this has helped.

      Cheers,
      Liezl

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