Investors aren’t the only ones who can benefit from property ownership at tax time.
Owner-occupiers don’t generally benefit from the same tax minimisation strategies available to investors. In general, a tax deduction can only be taken for something that generates income. Since your main place of residence doesn’t usually generate income, some of the more obvious tax deductions aren’t available to owner-occupiers.
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, if you know where to look.
Home office expenses
A 2014 study by the Australian Communications and Media Authority (ACMA) found that 51% of Australians used the Internet to do work from home, and the number of Australians who choose to telecommute is growing dramatically. The NSW Government’s recent Future State NSW 2056 report predicted that teleworking will become the norm in the Australian workplace.
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.
If you work solely from home with a dedicated home office
If you’re one of the lucky few who get to report to work in your robe and pyjamas at a home office, there are a myriad of tax deductions at your disposal. As long as you have a room in your house set up as a dedicated home office, if 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 case study below.
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.
If you work solely from home but don’t have a dedicated home office
Perhaps you work from home, but feel much more comfortable on the couch than at a desk. If you don’t have a dedicated home office, you’re missing out on some valuable deductions (namely, your rent or mortgage payments). Nevertheless, there are still deductions available to teleworkers without dedicated home offices:
- Depreciation of office equipment
- Work related phone costs
- Work related Internet costs
If you don’t work solely from home but 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
Find out more about tax depreciation
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.
Amy’s tenants
Amy owns a three bedroom home for which she paid $600,000. She has a $450,000 home loan on the property. She rents out two 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
Find out more about tax depreciation
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.
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
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 decline in value. You may refer to our guide here on property repairs and improvements.
I hope this helps.
Cheers,
Liezl
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
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