Claiming working from home expenses
If you operate your business in full or in part from your home, you may be able to claim a deduction for:
- occupancy expenses such as rent, mortgage interest, rates, land taxes and house insurance premiums
- running expenses such as phone rental and business calls, internet fees, depreciation of office furniture and equipment, additional heating, cooling, lighting and cleaning expenses.
Whether you can claim both running expenses and occupancy expenses depends on whether:
- your home is your place of business and you have an area set aside exclusively for business activities
- your home is not your place of business but you have an area set aside exclusively for business activities
- you work at home but have no home work area - you work when others are not present in a living area or garage but your home is not your place of business and you don't have an area set aside primarily or exclusively for business activities.
If your home is your place of business and you have an area set aside exclusively for business activities, you may be able to claim both running and occupancy expenses.
If you carry on your business elsewhere and also do some work at home, you cannot claim occupancy expenses even if you have a home work area set aside.
The following table shows the deductions you can claim for the three ways you can work at home.
What you can claim
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How you operate your business
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Home is your place of business and you have a home work area
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Home is not your place of business but you have a home work area
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You work at home but don't have a home work area
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Running expenses
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|
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Cost of using a room
(utilities such as gas and electricity)
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Yes
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Yes
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Yes
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Business phone costs
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Yes
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Yes
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Yes
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Depreciation of office plant and equipment (for example, desks, chairs, computers)
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Yes
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Yes
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Yes
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Occupancy expenses*
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|
|
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Cost of owning or renting the house (rent, mortgage interest, insurance, rates)
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Yes
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No
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No
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* If your income includes PSI, you may not be able to claim a deduction for occupancy expenses (see PSI).
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CGT and working from home
If your home is your place of business, CGT may apply when you sell your home. For example, if you are carrying on a business at or from your home, you have a home work area and your business occupies 15% of the total area of your home, you can claim 15% of your mortgage interest, rent, council rates and insurance premiums. However, 15% of the capital gain you make when you sell your home will be subject to CGT.
This gain may be reduced by the 50% CGT discount and the small business concessions if you meet the relevant conditions. The remaining 85% of the capital gain will be exempt from CGT.
CGT may still apply, even though you haven't claimed mortgage interest as a deduction.
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For more information about CGT, refer to:
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How much can you claim?
When working out your allowable deductions, focus on:
- additional costs you incur because you conduct business activities from home
- excluding any part of an expense that is related to private use.
You need to use a reasonable method of dividing your business and private costs. For example, you might allocate heating and lighting costs based on the floor area of the business part of your home, relative to the total floor area. It is also important to keep records to support your claims, for example:
- electricity and phone bills
- rental receipts.
If you are carrying on a business at or from your home, you also need to have a reasonable estimate of your home's value at the time you started your business. You will need this to work out if you have made a capital gain or a capital loss if you sell your home.
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For more information about working from home expenses:
To help you work out your expenses for a home work area, we have developed an electronic calculator. To use the calculator, refer to Home office expenses calculator.
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Example
Alex - All Electrical (sole trader)
Alex uses his home as his base for his electrical business. He has converted his garage to a workshop but does most of his electrical work on clients' premises. He has a van that he uses to carry his tools and electrical equipment from job to job.
Alex works out that his workshop covers about 10% of the floor area of his home. On this basis, he claims deductions for 10% of the costs for gas, electricity, insurance premiums, council rates and mortgage interest.
Based on a review of his itemised home phone bills, he estimates that 10% of calls from his house are for business purposes. On this basis, he claims 10% of his total call costs and line rental fees for his home phone.
Alex also claims deductions for the decline in value of depreciating furniture he uses for the business.
Utilities, rates, insurance, interest
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$10,500
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Business floor area
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x 10%
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$1,050
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Home phone costs
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$800
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Business use of phone
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x 10%
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$80
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Decline in value of business furniture
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$100
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$100
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Total deductions
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$1,230
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Sections within Claiming deductions
Last Modified: Thursday, 8 September 2011