By: Ritchie Cruz
There are two types of instances where you can claim home offices. One is of you are carrying on your employment duties from home, and the other is where you are actually running a business from home. Carrying on employment duties at home will be discussed below
Carrying on Employment duties at home
If you carry on all or part of your employment duties from home, then a portion of the home running expenses can be claimed as a tax deduction. Claimable expenses include:
- Electricity, lighting, internet, telephone and other running costs
- Home office equipment, such as computers, printers and telephones
- Depreciation on larger home office items over $300
- Consumables such as stationery, books, printer ink, etc.
How to claim Home Office Expenses
Keep receipts for equipment purchases, consumables and other items that you use directly for employment duties. For “overhead” type expenses, there are two methods for claiming this deduction:
- Diary method – You will need to keep a diary to calculate how much of your running expenses relate to doing work in your home office. The diary needs to detail the time you spend in the home office compared with other users of the home office. The result will be a percentage of time that you use for employment duties, vs other times you are in the house. The diary must be kept for a period of four weeks.
- Tax Office rate per hour method – You can use a fixed rate of 34 cents per hour (updated for 2015 tax year) for home office expenses for heating, cooling, lighting and the decline in value of furniture instead of keeping details of actual costs. You just need to keep a record of the number of hours you use the home office and multiply that by 34 cents per hour. Under this method you can also include the decline in value of office equipment (i.e. computers, faxes, etc.) but not furniture.
Home Office Expenses you can’t claim for
There are certain items you can’t claim for as an employee. These include mortgage costs, rates, strata and depreciation on the home.
Running a business from home
If you are running a business from home, as opposed to performing employment duties, then there are other deductions you may be able to claim. You can claim occupancy expenses provided you do the necessary paperwork, and also claim vehicle expenses.
Occupancy expenses include rental costs, perhaps mortgage interest if you qualify, council rates, strata and home insurance premiums.To be able to claim these costs, you have to pass what the Tax Office calls the ‘interest deductibility test’. The area you set aside for working needs to have the ‘character of a place of business’.
In order to claim this, you will need to prepare a floor space diagram and calculate the area relating to the business as a proportion of your home. For example, if a certain room in your house is used as an “office”, measure the room and divide it by the total floor space area of your house. The outcome should be a percentage that is business related.
Please note that there may be capital gains tax implications if you claim these types of expenses.
Home based businesses can generally claim a deduction for motor vehicles and travel costs where this is business related. This means that you may be able to claim the cost of going to a client’s premises, delivery runs, post office, travel to buy supplies, banking, and travelling for meetings. It is essential to document everything. If you need assistance with this, we recommend using simple small business accounting software to keep this together. It’s not as expensive as you think, and can capture tax deductions that can more than make up for the cost of the software itself. Speak to us if you would like more information on this.
