04 May Planning on claiming home office expenses?
There are still a LOT of people who aren’t aware they can claim home offices expenses on their tax return. Whether you are self-employed, own a business or are an employee, if you perform some of your work from home, you may be eligible to claim related expenses against your taxable income. Understanding WHAT you can claim can help you make, avoid or delay, costly purchases so it’s handy to find out more before the end of the financial year. Here’s a quick summary of the tax rules, and what home office expenses are allowed.
WHAT CAN YOU CLAIM?
Even if the room in your home is not set aside solely for work-related purposes, you may be able to claim a deduction for the costs you incur in running your home office.
Home office expenses fall into the following categories:
- Running expenses relating to income earning activities
- Telephone expenses
- Depreciation on equipment
- Occupancy expenses where the home is a place of business
A deduction can be claimed for home office running expenses comprising of electricity, gas and depreciation of office furniture (eg. Desk, tables, chairs, cabinets, shelves, professional library) in the amount of:
- The actual expenses incurred; or
- 45 cents per hour
No deduction is allowed where no additional costs are incurred. Eg. You work in a room where others are watching TV, or the income producing use of the home is incidental, such as a fax machine which is permanently left on to receive documents.
You will need receipts for:
- Home office equipment used for work purposes
- Repairs relating specifically to the home office or furniture and equipment used for work purposes
- Cleaning expenses of home office
- Any other day-to-day running expenses for the home office
- Diary entries to record your small expenses ($10 or less) totalling no more than $200
TELEPHONE AND INTERNET EXPENSES
If work or business calls can be identified from an itemised telephone account, then the deduction can be claimed for the work or business related portion of the telephone account. A representative four-week period will be accepted as establishing a pattern of internet and telephone use for the entire year.
Telephone rental expense may be partly deductible of you are “on call” or required to contact your employer or client on a regular basis.
DEPRECIATION ON EQUIPMENT
Depreciation on home office equipment, including office furniture, carpets, computer, printer, photocopier, scanners and modems use only partly for work-related purposes can be apportioned.
The claim is based on a diary record of the income related and non-income related use covering a representative four-week period. The diary needs to show:
- The nature of each use of the equipment
- Whether that use was for an income producing or non-income producing purpose
- The period of time for which it was used
Claims for occupancy expenses are allowed only if the home is used as a place of business. Occupancy expenses include rent, mortgage interest, water rates, repairs and house insurance premiums. The claim can be made as an apportionment of total expenses incurred on a floor-area basis.
Warning: Being able to claim these expenses may affect your ‘main residence exemption’ for capital gains tax purposes if you sell your house in the future.
When is a home a place of business?
The following factors, none of which necessarily conclusive on its own, may indicate whether or not an area set aside has the characteristics of a place of business:
- The area is clearly identifiable as a place of business
- The area is not readily suitable or adaptable for use for private or domestic purposes in association with the home generally
- The area is used exclusively, or almost exclusively, for carrying on a business, or
- The area is used regularly for client or customer visits.
If you use your home to carry out income producing activities as a matter of convenience, you are not entitled to a deduction for occupancy expenses. It would be rare for an employee to be able to claim occupancy expenses.
General advice warning: The advice provided is general advice only as, in preparing it we did not take into account your investment objectives, financial situation or particular needs. Before making an investment decision on the basis of this advice, you should consider how appropriate the advice is to your particular investment needs, and objectives. You should also consider the relevant Product Disclosure Statement before making any decision relating to a financial product.