What else can I claim? This is a question that we hear all too often.
Home office expenses are one of those deductions which you may be entitled to claim without even knowing it.
Do you work from home? Do you use your home computer, phone or other electronic devices which are required to be used for work purposes at home? If yes, read on…
There are a few ways in which you can calculate your home office expenses. Some costs that may be included are occupancy expenses, running expenses (fixed rate method), commissioner’s formula and your own estimate.
We have outlined below what can be claimed under each method:
There are several expenses which can be claimed as running expenses for the home office. These include the following:
- The cost of using a room, such as electricity and gas costs for heating, cooling and lighting
- Business phone costs
- The decline in value of plant and equipment, such as chairs, bookcases, computers, printers
- The decline in value of furniture and furnishings, such as curtains, carpets, light fittings
- The cost of repairs to furniture and furnishings and plant & equipment
- Cleaning costs for the area used for work purposes
Occupancy Expenses include the following:
- Mortgage Interest
- Council Rates
- Water Rates
- Land taxes
- House insurance premiums
In order to be eligible for occupancy expenses, you are required to pass the Interest deductibility test.
What is the Interest deductibility test?
To claim a deduction for part of the interest you pay on money you borrowed to buy your home, the area you have set aside must have the character of a place of business. For example, a hairdresser’s home salon, a caterer’s home kitchen or a photographer’s home studio. While this will depend on your particular circumstances, an area of your home is likely to have the character of a place of business if it is:
- Clearly identifiable as a place of business, for example, you have a sign identifying your business at the front of your house
- Not readily suitable or adaptable for private or domestic purposes
- Used exclusively or almost exclusively for carrying on your business
- Used regularly for visits by your clients.
If the interest deductibility test is satisfied, you must account for any capital gain that is derived when you sell your home.
How much can you claim?
If you cannot determine how much of the total expenses is associated with the identified home office you can determine the deduction using the floor area of the office to calculate. For example, if the floor area of the home office is a 5% of the total area of your home you can then only claim 5% of the bills in relation to that expense. For example, of a heating cost totalling $1,500, $75 relates to the home office.
To assist you in calculating your home office expense deduction, use the ATO’s Home Office Expenses Calculator.
Records you must keep
You must keep records of home expenses, such as:
- Receipts or other written evidence of your expenses, including receipts for depreciating assets you have purchased
- Diary entries you make to record your small expenses ($10 or less) totaling no more than $200, or expenses you cannot get any kind of evidence for, regardless of the amount
- Itemised phone accounts from which you can identify work-related calls, or other records, such as diary entries (if you do not get an itemised account from your phone company)
- A diary you have created to work out how much you used your equipment, home office and phone for business purposes over a representative four-week period.