• Running expenses

    Running expenses are the increased costs of using facilities within your home because of your business activities.

    To claim a deduction you will need to work out the portion of the expense that relates to business use as opposed to private use.

    There are a number of options for working out your claim for running expenses.

    On this page:

    What are running expenses?

    Running expenses include:

    • the cost of using a room, such as electricity and gas costs for heating, cooling and lighting
    • business phone and internet costs
    • the decline in value of plant and equipment, such as chairs, bookcases, computers, grinders
    • the decline in value of furniture and furnishings, such as curtains, carpets, light fittings
    • the cost of repairs to furniture and furnishings
    • cleaning costs.
    How much you can claim

    Using your floor area may be an appropriate way of working out some running expenses. For example, if the floor area of your home office is 10% of the total area of your home, you can claim 10% of heating costs.

    Where you do not have an area of your home set aside exclusively for business, you cannot claim on a floor area basis as this area is also used for non-business purposes. In this case, you must show how you arrived at the amount you are claiming. How you work out these additional costs is up to you, for example you may compare utility accounts from before and after you started business to assess increased costs. However, in all cases you should be able to provide enough information to show:

    • your claim is reasonable
    • you have excluded the private (domestic) proportion of expenses associated with normal living costs.

    We also accept the following methods for working out how much of your expenses are for business purposes.

    Keeping a diary

    You can keep a diary that shows how you use your home work area for a representative four-week period each financial year to work out a pattern of use for your home work area for the entire year. You must allow for periods such as holidays and illnesses.

    If there is no regular pattern to how you use your home work area, you must keep records of each time you use the area during the year and the purpose for which it is used.

    You must keep a diary for each financial year.

    Claiming 45 cents per hour

    Instead of recording actual expenses for heating, cooling, lighting and furniture depreciation, you can claim a deduction of 45 cents per hour based on either:

    • actual use
    • an established pattern of use.

    This rate is based on average energy costs and the value of common furniture items used in home business areas.

    You need to separately work out all other home work area expenses, such as phone expenses and depreciation on computers or other equipment.

    Where you can claim a GST credit for a depreciating asset, you must deduct the amount of the GST credit you can claim before you work out the depreciation deduction.

    See also:

    Utilities (gas, electricity)

    If the business percentage is based on anything other than the floor area (for example, on actual electricity use) you need to document your claim to show how you arrived at the amount.

    Your business use of the home work area must be substantial and not merely incidental. For example, you cannot claim electricity costs 24 hours per day simply because your fax machine is always on to receive business faxes.

    Phone

    If you use a landline phone exclusively for business you can claim a deduction for:

    • calls
    • rental costs.

    However, you cannot claim for the cost of installing a landline. The installation cost is a capital expense.

    If you use a phone for both business and private calls, you can claim a deduction for:

    • business calls
    • part of the rental costs.

    Take the following steps to work out the percentage of phone rental expenses you can claim:

    • Find the number of business calls you made and received
    • Divide it by the number of total calls made and received
    • Multiply the answer by 100.

    You can identify business calls from an itemised phone account. If you do not have an itemised account, you can keep a record for a representative four-week period to work out a pattern of business calls for the entire year, provided you have a regular pattern of use throughout the year.

    Example: Working out the percentage of your bill

    Cleo received her statement from her phone provider. It was a $200 bill. When she looked at her monthly statement Cleo determined she made 300 calls in March 2017. 160 of those calls were directly work related. So Cleo did the following sum: 160 ÷ 300 = 0.53. She then multiplied it by 100 to get a percentage, which was 53%. She now knew that 53% of her bill was work related, which meant she could claim 53% of her $200 bill ($200 × 0.53), $106.

    End of example

    See also:

    Deductions you can claim for a decline in value

    You may be able to claim a deduction for the decline in value of your depreciating assets. A depreciating asset is an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used.

    Examples of depreciating assets include:

    • computers
    • electrical tools
    • photocopiers
    • furnishings
    • carpet and curtains
    • motor vehicles.

    If you use your depreciating asset solely for business purposes, you can claim a full deduction for the decline in value. However, if you also use the depreciating asset for non-business purposes, you must reduce the deduction for decline in value by an amount that reflects this non-business use.

    You work out the amount of deductions you can claim for decline in value of your assets based on an estimate of the percentage of your business use of those assets. You can base this estimate on a diary record of your business and non-business asset use for a representative four-week period. Your diary record must show:

    • what the asset was used for
    • whether the asset was used for business or non-business purposes
    • the period the asset was used for.

    See also:

    Example: Separating business and private expenses

    Joe (sole trader)

    Joe bought a computer to use in his business. However, his son also uses the computer to play computer games.

    Joe estimates his son uses the computer 20% of the time and he uses it 80% of the time for business. This means Joe can claim 80% of the computer's decline in value as a deduction.

    Joe can also claim only 80% of the GST he paid in the price of the computer as a GST credit.

    Examples: Claiming running expenses

    Pam (company)

    Pam operates a company from home. There are three ways the company can work out its deductions.

    Option 1 – Actual running expenses

    The company has the following home office running expenses, including energy expenses worked out using electricity hourly costs per appliance. Pam works out the business related expenses based on diary entries for a representative four-week period.

    Option 1 – Running expenses

    Item

    Calculation

    Deduction for this year

    Deduction for future years (assuming similar use)

    Decline in value of desk

    Cost $1,333 over 20 years

    $66.65

    $66.65

    Decline in value of chair

    Cost $266 over 10 years

    $26.60

    $26.60

    Electricity for 100W lamp

    1c per hour for 30 hours a week for 48 weeks

    $14.40

    $14.40

    Electricity for 60W ceiling light

    0.7c per hour for 30 hours a week for 48 weeks

    $10.08

    $10.08

    Electricity for computer

    1c per hour for 30 hours a week for 48 weeks

    $14.40

    $14.40

    Electricity for heating/cooling

    9c per hour for 30 hours a week for 48 weeks

    $129.60

    $129.60

    Total deductible amount

     

    $261.73

    $261.73

    Option 2 – Estimated running expenses

    The company has the option of using a simpler method of working out its expenses, as shown below. Running expenses include the decline of value of furniture and other costs, such as electricity.

    Option 2 – Running expenses

    Item

    Calculation

    Deduction for this year

    Deduction for future years (assuming similar use)

    Running expenses

    45c per hour for 30 hours each week for 48 weeks

    $648

    $648

    Option 3 – Actual running expenses using the simplified depreciation rules

    If the company is eligible to use the simplified depreciation rules, Pam can work out the company's deductions for decline in value under option 1 in a different way. For example, because the chair cost less than $1,000 and was purchased during this year, the company can claim the full $266 in the current year. If the company had purchased the desk during this year, it could claim a deduction of 15% ($1,333 × 15% = $200).

    At the end of the year, the company will allocate the desk to a pool and can claim a deduction for it at the full rate of 30% in future years - that is, ($1,333 − $200) × 30% = $340.

    Option 3 – Running expenses

    Item

    Calculation

    Deduction for this year

    Deduction for next year

    Decline in value of desk

    Cost $1,333 × 15% (30% of balance for future years until cost deducted in full)

    $200.00

    $340.00

    Decline in value of chair

    Cost $266 (can be claimed immediately)

    $266.00

    Nil

    Electricity for 100W lamp

    1c per hour for 30 hours a week for 48 weeks

    $14.40

    $14.40

    Electricity for 60W ceiling light

    0.7c per hour for 30 hours a week for 48 weeks

    $10.08

    $10.08

    Electricity for computer

    1c per hour for 30 hours a week for 48 weeks

    $14.40

    $14.40

    Electricity for heating/cooling

    9c per hour for 30 hours a week for 48 weeks

    $129.60

    $129.60

    Total deductible amount

     

    $634.48

    $508.48

    Vinh and Barbara (partnership)

    Vinh and Barbara are carrying on a business from their living room. They do not have an area set aside exclusively for their business, so they cannot claim occupancy expenses such as their rental payments. However, they can claim running expenses associated with carrying on their home-based business, such as phone, internet, gas and electricity, and also the decline in value of their computer.

    Vinh and Barbara have a separate phone line installed for their business, so they can claim a deduction for their total phone rental and call costs, but not for the installation.

    In producing their business income, they incur additional electricity and gas costs. To work out the extra costs, they keep a diary for four weeks to work out their business use pattern for the entire year. They then use this pattern to work out the gas and electricity costs they can claim. As Vinh and Barbara use the computer solely for their business, they can fully claim the computer's decline in value. They can also claim the cost of their internet connection.

    Vinh and Barbara cannot claim gas and electricity costs for times when others are also using the living room.

    End of example
      Last modified: 21 Jun 2017QC 17502