I work from home, can I claim a tax deduction?
With many people putting in extra hours in the evening and at weekends, and many employers moving to flexible working arrangements where an office space isn’t always provided, it’s becoming increasingly common for people to work at least partly from home.
What can be claimed if I do work from home?
The main tax deductions available for those people who have a home office is often divided in to two categories, which are:
1) Occupancy expenses – expenses that typically relate to the ownership of the home and are not affected by your income earning activities
2) Running expenses – expenses which relate to the use of facilities in the home.
Specific consideration needs to be given to each particular circumstance. Are you running a business from home? Or are you a salaried employee who simply has a home office?
As a general rule:
If you are running a home business - you may potentially be able to deduct both occupancy and running costs,
If you simply have a home office - you can only claim running costs.
What are the indicators you are running a home business?
The following are common indicators that you are running a business at home:
Your space is clearly identifiable as a place of business
Your space is not readily suitable or adaptable for use for private and domestic purposes
You use the space (almost) exclusively for carrying on a business
You regularly have visits from clients/customers to your space
Remember, whether you are running a home business is a question of fact, not election!
What occupancy expenses are deductible?
Although not exhaustive, typical occupancy expenses usually claimed include:
Mortgage interest
Home insurance premiums
Rates and Water expenses
As a general rule, the most appropriate method to determine the deductible amount is to apportion the total expense incurred on a floor area basis. If an area of the home is a place of business for only part of the year it is usually more appropriate for expenses to be apportioned based on floor area as well as a time basis.
Interest deductions are usually based on a % of floor area that is used for income producing purposes and if applicable the time in the period of ownership of the main residence that the income producing activities were run for.
Warning!
The biggest danger in claiming occupancy costs is the capital gains tax that may be payable on a portion of the gain following the sale of the property, regardless of whether the property would normally be subject to the main residence exemption
What running expenses are deductible?
Running expenses are available when your home does not qualify as a place of business, but it is used in connection with income producing activities.
A deduction is only available to the extent that the expenditure actually incurred as part of your income earning activities is additional to their private expenditure.
Although not exhaustive, typical running expenses usually claimed include:
Electricity and gas
Business phone and internet costs
The decline in value of plant and equipment such as chairs, bookcases, computers
The decline in value of furniture and furnishings such as curtains, carpets, light fittings
Cleanings costs
These rules can be complicated, so it’s always a good idea to speak to your accountant before you make a claim!