As our globalised world becomes increasingly connected, more people are working from home. Therefore you should be able to claim a portion of the expenses incurred by working from home as a tax deduction. Just make sure you can prove your claims, because the ATO is always looking out for dodgy home office deductions.
A lot of people do some sort of work from home. It might be simply answering emails on the couch or working from home a few days a week. So, what can you claim if you’re putting in extra hours?
If you don’t have a dedicated work area but you do some work at the dining room table, you can claim some of your expenses, including the work-related portion of your phone and internet expenses and the decline in value of your computer (assuming your employer doesn't reimburse you). If you have a dedicated work area, there are a few more expenses you can claim including some of the running costs of your home such as a portion of your electricity expenses and the decline in value of office equipment.
What home office expenses can be claimed?
Home office expenses fall into the following categories:
Running expenses relating to income-earning activities
Running expenses include electricity, gas, cleaning and the depreciation of office furniture (e.g. desk, tables, chairs, cabinets, shelves, professional library). You can either claim 45 cents per hour you worked from home by tracking the amount of time you worked from home or keeping a 4-week representative logbook, or you can claim the actual amount of these expenses by working out the actual expense incurred using the following formula:
total lighting/cleaning/heating/cooling expenses for home for year x your home office floor area as percentage of your total house floor area x percentage of year home office used for work
Just like making a motor vehicle claim, diary/logbook evidence should be kept for a 12-week period to establish a pattern of working from home and justify the number of hours you are claiming. Also, you cannot claim a deduction where no additional costs are incurred e.g. you work in a room where others are watching TV. You should keep receipts of any office furniture you bought or had repaired, stationery and cleaning and other running expenses.
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. Alternatively, you can claim up to $50 for phone and internet expenses without substantiating the claim with a 4-week logbook (though the ATO may still expect you to prove your claim). Note you cannot claim a deduction for your expenses if your employer provided you with the phone/laptop/internet service.
Depreciation on equipment
Depreciation on home office equipment costing over $300 including office furniture, carpets, computer, printer, photocopier, scanners, modem etc. used partly for work or business purposes can be apportioned, unless you are claiming the 45c per hour fixed rate for running expenses. Your claim should be based on a diary record of the income related and non-income related use of the equipment over a four-week period, indicating the nature of each use of the equipment, whether that use was for an income producing or non-income producing purpose and the period for which is was used.
Occupancy expenses where the home is a place of business
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, house insurance premiums. The claim can be made as an apportionment of total expenses incurred on a floor area basis.
Note: Claiming theses expenses may affect your ‘main residence exemption’ for capital gains tax purposes if you sell your house in the future.
Working out the work-related portion of your expenses
In order to make any deduction, home office expense or otherwise, you need to be able to prove your expense claims, especially if the item you are claiming the expense on is used for both private and work purposes, like your mobile or internet expenses. In most cases, keeping a 4-week diary or logbook to track your home office hours can be used as proof for the entire year, or a 12-week diary for running expenses.
In particular, the ATO keeps an eye out for people trying to claim 100% of the mobile phone or internet expenses, because unless you run a business from your home there is little chance that you use your phone or internet solely for business purposes. Therefore it's important to keep records of your usage to keep the tax office off your back.
Check out the table below for a quick guide to when you can claim certain home office expenses. As always, if you have any questions or need help in determining what expenses you can claim, give us a call, or check out our 'What Home Office Expenses are allowed?' flyer.
Source: Australian Taxation Office