Deductions
Home office expenses
Home office expenses are the costs of working from home, such as electricity, internet and equipment, which can be claimed using the fixed rate method or the actual cost method.
If you work from home, you may be able to claim a deduction for part of your running costs. This applies to employees working from home, and also to business owners who work from a home office. The expenses include things such as electricity and gas for heating, cooling and lighting, phone and internet, stationery and computer consumables, and depreciation of office furniture and equipment.
There are two main methods for claiming running costs. The fixed rate method uses a set rate per hour worked from home, determined by the ATO, which covers electricity, gas, phone, internet and stationery in one amount. Under this method you need a record of the actual hours you worked from home throughout the income year, and you claim other items such as furniture depreciation separately.
The actual cost method requires you to calculate the work-related portion of each expense individually. You need bills and a reasonable basis, such as a diary of use over a representative period, for the percentage. It takes more effort but can give a higher claim where your real costs are high. You must be able to show how you worked out each figure.
A separate issue is occupancy costs, which include rent, mortgage interest, council rates and home insurance. These are generally only deductible where part of your home is set aside as a place of business, such as a room used exclusively as a shop or clinic. A study or desk area that is also used privately generally does not qualify, and claiming occupancy costs can affect the main residence exemption for CGT.
The ATO publishes the current rates and rules, and these have changed over time, so check the ATO website. You should not claim the same expense under both methods. Your employer reimbursing expenses affects your claim, and you cannot claim an expense that has been paid back to you. Records of hours and expenses should be kept for five years.
GST-registered business owners may be entitled to GST credits on the business portion of home office purchases, claimed on the BAS, and deduct the GST-exclusive amount. Employees cannot claim GST credits. This is general information only, so confirm your claim with the ATO or a registered tax professional.
Worked example
A GST-registered consultant buys a $1,320 desk including $120 GST, used only for business. She claims a $120 input tax credit on her BAS and $1,200 as the GST-exclusive cost for depreciation purposes. Separately, she works 1,000 hours from home in the year. Under the fixed rate method she multiplies those hours by the ATO's current hourly rate to claim running costs.
Practical tips
- Keep a record of hours worked from home if you use the fixed rate method, since the record is required.
- Do not claim the same expense under both methods.
- Be careful with occupancy costs like rent and mortgage interest, as they are generally allowed only for a dedicated place of business and can affect CGT.