Deductions for home-based business expenses

What is a home-based business?

A home-based business is one where an area of your home is set aside and used exclusively as a place of business.

The types of expenses you can claim depend on how you operate your business out of your home and the business structure. You can only claim deductions for the business portion of your expenses.

If you do not have an area set aside and used exclusively as a place of business but you do some work from home, you may still be able to claim a deduction for some of your expenses relating to the area you use.

Be aware that running a home-based business may have capital gains tax (CGT) implications when you sell your home.

Remember, if your business is entitled to goods and services tax (GST) credits, also known as input tax credits, you can only claim a deduction for the GST exclusive amount of your expenses.

Home-based business expenses

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If you operate some or all of your business from home, you may be able to claim tax deductions for the business portion of expense, including:

• occupancy expenses (such as mortgage interest or rent, council rates, land taxes, house insurance premiums)
• running expenses (such as electricity, phone, decline in value of plant and equipment, furniture and furnishing repairs, cleaning)
• the cost of motor vehicle trips between your home and other locations, if the travel is for business purposes.

For more information, see Home-based business expenses – sole trader or partnership.

Running expenses

Running expenses relate to the use of facilities within your home.

You can claim additional running expenses you incur as a direct result of running your business from home, such as in a separate study or a desk in a lounge room, even if it doesn’t have the character of a ‘place of business’.

Calculating your claim

There are several ways to work out the business portion of your running expenses. You can use any calculation method, provided:

• it is reasonable in your circumstances
• you exclude your normal (private) living costs
• you have records to show how you calculated the business portion of the expense.

Actual cost method

• Where you can only claim the actual costs you incur due to running your business from home. To use this method, you need to keep all written evidence of your expenses, such as bills and receipts, and evidence to show how you worked out the business portion of your expenses.

Fixed rate method

• Allows you to claim a fixed rate for each hour you operate your business at home. This amount covers your deduction for energy expenses (electricity and gas), phone and internet usage, stationery, and computer consumables.
• To use this method, you must keep a record of all the hours worked from home for the entire year, using a diary, spreadsheet, or similar document. You must also keep one document or record, for example an invoice or bill, for each additional running expense you incurred during the year.
• You can also claim a deduction for any other running expenses not covered by the rate, for example, cleaning your home office.

Floor area method

• You can use the floor area method if you have an area of your home set aside as a 'place of business'. The floor area method is often the most appropriate method to work out the business portion of your running expenses. To use this method, keep your receipts, bills or other written evidence of your expenses.
• In addition, you can also claim a deduction for decline in value of the business-related portion of depreciating assets and equipment.

For more information, see Running expenses.

Depreciation (decline in value) of business assets

If you use the fixed rate method, you can separately claim a deduction for the decline in value of depreciating assets, such as laptops, mobile phones and office furniture.

If you use assets for both personal and business use, you need to apportion your business depreciation expenses from personal based on your pattern of use.

If you have an aggregated turnover of less than $10 million, you can choose to use the simplified depreciation rules. You may also be eligible for the $20,000 instant asset write-off in the 2023–24, 2024–25 and 2025–26 income years. Find out more at Simpler depreciation rules for small business.

Occupancy expenses

Occupancy expenses are expenses that you pay to own or rent your home.

You can only claim occupancy expenses if the area of your house set aside for your business has the character of a ‘place of business’ (including if most of your business is conducted online).

Indicators that the area of your home that you’ve set aside is a place of business include:

• clearly identifiable as a place of business (such as a sign at the front of your house)
• not easily suitable or adaptable for private or domestic use
• used exclusively or almost exclusively for your business
• used regularly for business visits by your clients.

If you’re eligible to claim occupancy expenses, you can also claim running expenses.

You usually calculate occupancy expenses based on the proportion of the floor area of your home that is a place of business and the proportion of the year it was used for business.

If you earn personal services income (PSI), you may not be able to deduct some occupancy expenses. To find out more, see Personal services income (PSI).

For more information, see Occupancy expenses.

Records you need to keep

You need to keep complete and accurate records for at least 5 years to substantiate your claims for all of your home-based business expenses.

Type of business structure

Your business structure can affect the method you can use and the expenses you can claim, especially if your business is a company or trust.