Home-based business expenses

This information will help you if you are a small business owner claiming deductions for the costs of using your home as your main place of business.

For a summary of this content in poster format, see Home-based business expenses (PDF, 293KB)This link will download a file.

Key points

• The types of expenses you can claim depend on how you operate your business from your home.
• You can only claim deductions for the portion of your expenses that relate to running your business.
• You must keep records for at least 5 years to show that your business incurred the expenses and how you calculated your claim.
• If you sell your home, there may be capital gains tax (CGT) implications. If you are entitled to goods and services tax (GST) input tax credits, you must claim your deduction in your income tax return at the GST exclusive amount.
• You should keep complete and accurate records so you can choose the method that works best for your circumstances.
• If you choose to use the revised fixed rate method, you need to keep a record of all hours worked from home. For the 2022–23 income year only, if you don't have a record of all your hours for the year:
  • we will accept a representative record of your hours from 1 July 2022 to 28 February 2023
  • you will still need a record of the total number of actual hours (from 1 March to 30 June 2023).
   

Business structure

Your business structure affects your entitlements and obligations when claiming deductions for your home-based business expenses.

Sole traders and partnerships

If you operate your business as a sole trader or partnership, you can claim a deduction for the costs of running your business from home.

There are 2 types of expenses for your home-based business – running expenses and occupancy expenses. Whether you can claim running expenses only, or both running and occupancy expenses, depends on whether you have an area of your home set aside as a ‘place of business’.

Running expenses

Running expenses are the increased costs from using your home’s facilities for your business, for example:

• the costs of using a room (such as heating, cooling and lighting)
• cleaning costs
• landline phone and internet costs
• decline in value (depreciation) and cost of repairs to  
  • equipment such as computers, tools and machinery
  • furniture such as chairs, desks and bookcases
  • furnishings such as curtains, carpet and light fittings (you can only claim furnishings if you have a dedicated or separate room).
   

You can claim running expenses if you run 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

To calculate the running expenses of your home-based business, you can use one of the methods described below or any other method as long as:

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

You can claim some expenses based on your ‘pattern of use’, which you can work out by keeping a diary for a representative 4-week period each financial year. If you can’t show a regular pattern, you need to keep detailed records for the whole period.

Actual cost method, fixed rate method and floor area method

• Actual cost method, where you can only claim based on receipts or other written evidence.
• 67 cents an hour fixed rate: You can use a fixed rate of 67 cents an hour for each hour that you operate your business from home – based on either your actual use or pattern of use. This covers electricity, gas, stationary, computer consumables, internet and phones.
• You can use the floor area method if you have an area of your home set aside as a 'place of business'. In addition to the floor area method, you can also claim a deduction for decline in value of the business-related portion of depreciating assets and equipment.

Heating, cooling and lighting

• If you are using the actual cost method and have an area set aside for your business, it may be appropriate to split your heating, cooling and electricity bills based on the proportion of the floor area of your home that you use for your business and proportion of the year that you used it for business.
• If you are using the 67 cents an hour fixed rate method, you don't need to calculate heating, cooling and lighting amounts as they are already included in the rate.

Home phone and internet

• If you are using the actual cost method    
  • for home (landline) phones, you can claim your business calls and a portion of the line rental costs
  • for internet expenses, you can claim the proportion of time or data you used your internet for business use
  • you can calculate the business portion of your home phone and internet using an itemised account or pattern of use.
   

Note: You can't claim the cost of assets, such as phones, modems and routers, because they are capital costs (not running expenses), but you can claim a depreciation deduction for them.

Depreciation (decline in value) of business assets

• You can choose to use the simplified depreciation rules (such as temporary full expensing) if you have an aggregated turnover of less than $10 million. Find out more at Simpler depreciation for small business.
• If you use the 67 cents an hour 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 separate your business deprecation expenses from personal based on your pattern of use.

For more information, visit Running Expenses.

Occupancy expenses

Occupancy expenses are expenses that you pay to own or rent your home, for example:

• mortgage interest or rent
• council rates
• land taxes
• house and contents insurance.

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.

For more information, visit Occupancy Expenses.

Trusts and companies

If you operate your home-based business as a trust or company, there should be a genuine, market-rate rental contract (or similar agreement) with the owner of the property and the company or trust that operates your business. This will determine which expenses the company or trust pays for and can claim as a deduction. Generally, the agreement would cover running and occupancy expenses.

If there isn’t a genuine rental contract, there may be tax implications for you (as an individual) and the company or trust that operates your business, for providing benefits to you. For more information, see Division 7A.

If you are an employee of the company or trust that operates your business, and it pays for or reimburses you for some of the costs of running your business from home, you cannot claim a deduction for the expenses in your individual income tax return. Your company or trust that operates your business may be subject to fringe benefit tax (FBT) if it pays or reimburses you for the expenses.

Certain exemptions and concessions may reduce any FBT liability. You may need to keep additional records. For more information, see Fringe benefits tax (FBT).

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

Capital gains tax (CGT)

If you were entitled to claim occupancy expenses or you own your home and receive rental income from your business, there may be CGT implications when you sell your home. The main residence exemption may not apply for the proportion of your home and the periods that you used it for your business.

For more information, see Home-based business and CGT implications.

Records you need to keep

You need to keep records to substantiate your claims for all of your home-based business expenses. This includes written evidence, tax invoices or receipts for:

• purchase and repairs of equipment, furniture and furnishings used for your business
• utility bills and cleaning expenses
• mortgage interest, rent, insurance and council rates (if you claim occupancy expenses)
• rental contract between homeowner and business (if you claim occupancy expenses)
• how you separate your business and private use (for example, a diary over a representative 4-week period or records of how you calculated the percentage of your floor plan dedicated to your business).

 

If you’re a sole trader, you can use the myDeductions tool in the ATO app to record your business expenses. For more information, see myDeductions.

This is a general summary only. For more information, go to Home-based business or speak to a registered tax professional.