Working from home can be a rewarding experience for anyone who wants to be their own boss, but with it comes a greater responsibility at tax time. It is crucial to be organised and aware of what tax deductions you are eligible to claim when lodging your return. Although this process can often be daunting for small business owners, it doesn’t need to be.
There are three categories of expenses anyone running a home office should be aware of: home running expenses, home occupancy expenses and work travel expenses. Here’s what you need to do to claim on them:
Home running expenses
If you work entirely from home you can claim on the following home office running expenses:
- the cost of using a room (power costs for heating, cooling and lighting)
- business related phone costs
- the decline in value of plant and equipment (computer, printer, scanner etc.)
- the decline in value of furniture and furnishings (Tables, chairs, curtains/blinds, floor coverings, light fittings etc.)
- the cost of repairs to furniture and furnishing used for your work
- cleaning costs
You can claim running expenses in two ways:
- The amount of actual expense incurred through an established pattern of use
- Or at a rate of 52 cents per hour.
It is important to note that you can’t claim a deduction for running expenses if there is no additional cost incurred. For example, if you conduct your work in the living room of your home where other people watch the television.
Expert tip: The best thing that you can do for yourself is to keep records of work time and purchases. Diary records noting the time that you used your home office for work is acceptable evidence for establishing a pattern of use and should be kept for at least four weeks in a financial year.
It’s also essential to keep your receipts for any business related expenses. Putting aside five minutes each week to download statements and collect your receipts saves a lot of time when it comes to tax returns. Better yet, use a record keeping app to save all of your receipts online, which can then be accessed by your tax agent when needed.
Home occupancy expenses
Home occupancy expenses are relevant only to those using their home as a place of business. A good way to work out how much you can claim is to work out what percentage of the floor area of your entire home is taken up by your home office. So, if your home office takes up 15% of your home, you can claim 15% of your occupancy expenses.
These occupancy expenses can include:
- Mortgage interest
- House insurance
However, in order to claim occupancy expenses, you must be able to pass what the ATO refer to as the ‘interest deductibility test’. Put simply, if you plan to claim a deduction on the interest you pay on your mortgage, the area you declare as your home office/place of business must have the ‘character’ of a place of business.
It should meet the criteria, outlined by the ATO:
- 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.
Expert tip: Please note that if you are able to claim occupancy home office expenses, it will affect your ability to claim a “main residence exemption” for capital gains tax purposes. This could leave you having to pay capital gains tax on your family home if you sell it.
Work travel expenses
Travel is an unavoidable part of work and can often be expensive, however small business owners are able to claim back many of these occupational travel expenses if they keep records for evidence.
If you use your car for work, such as driving to clients, you can likely claim back the personal cost of using your car. You are able to claim back 68c per work-related km and up to 5,000km per year in travel costs. You can also claim miscellaneous travel expenses such as hotel stays for work trips, car hire, flights, public transport fares and even food on business trips away from home.
Expert tip: Although by now you will have a good grasp on what to claim for work expenses, it is always helpful to have the assistance of a certified tax agent. Making use of an online tax agent like Etax can relieve pressure as it means qualified experts will cross check your claim to make sure its above board. It will also save you time as you can conveniently lodge your taxes online from any location or device.