Working from home: What deductions can you claim?

Nov 21, 2018

With an increasing number of people working from home, the latest deductions on the Australian Taxation Office (ATO) ‘hit list’ are home office expenses.

Here’s a quick guide to what you can and can’t claim if you work from home.

How do you work at home?

The tax deductions you can claim depend on how and where you work at home.

I work from home some of the time

A lot of us do some form of work at home. It might be simply answering emails on the couch or working from home a couple of days a week. If this is you, what deductions can you claim for the work you do at home?

If you don’t have a dedicated work area but you do some work on the couch or at the dining table:

– you can claim some of your expenses, such as the work-related portion of your phone and internet expenses and the decline in value of your computer (assuming, of course, that your employer doesn’t reimburse you for your phone or internet expenses and that you bought your computer for yourself)

– you need to be able to prove how you came up with your expense claim – this includes having a documented method of calculating the work-related portion of that claim if the item is used for private as well as work purposes.

If you have a dedicated work area at home:

– there are other expenses you can claim, including some of your home’s running costs, such as a portion of your electricity expenses and the decline in value of office equipment.

I run my business from home

If your home is your principal place of business, you may be able to claim expenses related to the portion of your home set aside for your business. What the ATO is looking for is an identifiable area of the home used for business.

The downside to claiming occupancy expenses such as interest on a mortgage is the impact it has on your tax-free main residence exemption for capital gains tax (CGT) purposes. In general, your home is exempt from CGT when you sell it. However, if you use your home to earn assessable income then you might only qualify for a partial exemption on the sale. If you’re claiming part of your home as a business expense, then it’s unlikely that any gain you make on your home will be completely CGT-free.

What home office expenses can you claim?

These are the types of expenses you may be able to claim if you’re working from home.

  • Running expenses

If you have a dedicated work area such as a study, the essential running costs for that area can be claimed as expenses, including electricity, office equipment, etc. Remember that any claim can only be for the work-related portion of the expense.

Running expenses can be claimed in one of these ways:

– At a fixed rate of 45 cents per hour – you’ll need to track the actual amount of time you work from home or keep a log book over four weeks that can be applied to your expenses across the year.

– As an actual expense – you’ll need to document the total expenses for lighting, cleaning, heating and cooling for your home for the year, work out the floor area of the part of your home that you use for work as a percentage of the total floor area, and then work out the percentage of the year you used that part of your home exclusively for work.

  • Occupancy expenses

Expenses such as rent, interest on your home loan, property insurance and rates can only be claimed if your home is your ‘place of business’ and no other work location has been provided to you. Generally, occupancy expenses are not a deduction available to employees.

  • Work-related phone and internet expenses

You can claim up to $50 for phone and internet expenses without substantiating the claim (but the ATO still might expect you to prove the claim), or you can work out your actual expenses.

Unless you run your business from home and you have a dedicated phone line, it’s unlikely you can claim 100% of your phone and internet expenses. If your employer provides you with a phone, you can’t claim for these expenses. If you’re a casual worker, you can’t claim a deduction for phone rental expenses.

  • Decline in value

For depreciable assets such as computers and printers, you might be able to claim decline in value if the cost of the item was over $300. Decline in value deductions could also be available for office furniture used for work purposes in a home office, but not if you’re using the fixed rate of 45 cents per hour to claim running expenses.

If you have further questions about claiming home office expenses as tax deductions, we’re happy to help – get in touch with us today.

Deductions you may be able to claimHome is principal workplace with dedicated work areaHome not principal workplace but has dedicated work areaYou work at home but no dedicated work area
Running expensesYesYesNo
Work-related phone and internet expensesYesYesYes
Decline in value of a computer (work-related portion)YesYesYes
Decline in value of office equipmentYesYesNo
Occupancy expensesYesNoNo