Do you work entirely from a home office or do you need to do overtime from home?
Many of us need to open our home laptop to check emails or use our own phone to make a few work calls from time to time. But if taking work home is a regular occurrence for you, it’s a good idea to set up a dedicated area to work in. Not only does it help you stay focused but there’s also another bonus; you can claim tax deductions for your home office expenses.
These valuable tax deductions generally cover the costs associated with working from home or running a business from home.
UPDATE: If you worked from home in 2020, 2021 and/or 2022 please read about the temporary Shortcut Method brought in to simplify working from home tax deductions due to Covid-19.
What are home office expenses?
In general, home office expenses are split into two broad types; home office running expenses and home office occupancy expenses:
1. Home Office Running Expenses:
Home office running expenses are claimed when you sometimes work from home (including during COVID). If you permanently work from home you’ll likely use the occupancy expenses method.
These are general home office running expenses and include:
- the cost of using a room (power costs for heating, cooling and lighting)
- business related phone costs
- the decline in value of IT equipment (computer, printer, scanner etc.)
- the decline in value of furniture and furnishings (Tables, chairs, curtains/blinds, floor coverings, light fittings etc.)
- the cost of repairs to furniture and furnishing used for your work
- cleaning costs
It does not include work from home expenses like:
- Mobile phone
- Home Internet
- Home phone
- Personal Computer depreciation
- Office equipment
These items are all claimed separately on your tax return.
You can claim running expenses in two ways;
- At a rate of 52 cents per hour (known as the fixed rate method), or
- The amount of actual expense you incurred through an established pattern of use (known as the actual cost method).
You can’t claim a deduction for running expenses if there is no additional cost incurred. For example, if you conduct your work in the living room of your home where other people watch the television. That’s why it’s important to have a dedicated office or room if you wish to claim home office expenses.
52 cents per hour – Fixed Rate Method
Use this rate to work out what you can claim as running expenses on your tax return. It is a nominal rate (currently 52c per hour) set by the ATO to cover all home office expenses, rather than claiming them individually.
For example if you work for 8 hours at home, you would calculate your claim by multiplying 52c by the number or weeks worked per year. Let’s say this is 48 weeks (52 week less 4 four weeks of annual leave):
52 cents x 8 hours x 48 weeks = $199.68
That’s an extra $199.68 that you can claim on your return!
Etax Bonus: The Etax tax return does the maths for you. Just enter the number of hours you work per week and the number of weeks you worked during the year and we’ll do the rest!
Pattern of use – Actual Cost Method
If you wish to claim the actual costs incurred from working at home you need to keep a record which shows your pattern of use.
The ATO accepts a diary that notes the day and time that you used your home office for work. Your diary should be kept for at least four weeks in a financial year. You can then apportion all of your associated expenses to claim a portion of your power, heating, cooling, cleaning, furniture etc.
This method generally leads to a bigger claim than the cents per hour method but is more complicated. Chat to your tax agent to see which method is best for you.
2. Occupancy expenses:
Generally, occupancy expenses are relevant only to those using their home as a place of business.
In addition, if your employer does not provide you with a workspace and you can provide evidence that your home is your primary place of work, you can occupancy expenses as well.
To work out how much you can claim you need to work out what percentage of your entire home is taken up by your home office. So, if your home office takes up 15% of your home, you can claim 15% of your occupancy expenses.
These occupancy expenses can include:
- Mortgage interest
- House insurance
- Computer or Office Equipment
In order to claim occupancy expenses, you must be able to pass what the ATO refer to as the ‘interest deductibility test’
Put simply, if you plan to claim a deduction on the interest you pay on your mortgage, the area you declare as your home office/place of business must have the ‘character’ of a place of business. It should meet the criteria, outlined by the ATO:
- clearly identifiable as a place of business, for example, you have a sign identifying your business at the front of your house
- not readily suitable or adaptable for private or domestic purposes
- used exclusively or almost exclusively for carrying on your business
- used regularly for visits by your clients.
Other working from home expenses
If you claim work from home expenses, then there is a good chance you will also be eligible to claim further deductions that may apply to you.
Common other work from home deductions are:
- Computers, laptops and software – if not supplied by your company
- Mobile phone costs
- Home internet costs
- Furniture or furnishings in the area you use for work (this is a tricky one, it’s best to talk to a tax agent like Etax to claim this deduction!)
- Stationery and other computer consumables such as: notebooks, paper, printer ink
Please be aware that if you claim occupancy home office expenses, it will affect your ability claim a “main residence exemption” for capital gains tax purposes. This could leave you having to pay a portion of capital gains tax on your family home when you sell it.
Other posts on deductions: