Working from home has become a common scenario. If you work from home part-time or full-time, there are some tax deductions that you can claim. Understanding the specific claims on your tax returns could save you a lot of money. If you have a home office or are forced to carry overtime work to your house, you are eligible for some tax deductions.
For tax purposes, the ATO categorizes home office expenses into two categories:
- Home office occupancy expenses
- Home office running expenses
Home Office Occupancy Expenses
Occupancy expenses refer to the costs that are associated with using your home as a workplace. Additionally, employees who use their homes as the primary place of work can claim the occupancy expenses.
In general, the home occupancy expenses are based on the percentage of your home being used for work. Some of the main occupancy expenses include:
- Mortgage interest
- House insurance
- Land rates
- Internet and phone
- Office equipment
Before making claims on home office occupancy expenses, you must pass the interest deductibility test, provided by the ATO.
There are specific traits that the workspace you are using needs to demonstrate so as to qualify for occupancy expense claims. Some of the requirements include:
- The area should be used regularly for business and visited by clients
- It should have a clear sign to identify it as a place of business
- The specific area should not be adaptable for domestic and private purposes
Home Office Running Expenses
If you work from home part-time, then you should claim the home office running expenses and not occupancy expenses. Some of the costs elements to claim include:
- Phone costs related to the business
- Power costs for the room
- Depreciation value of office equipment
- Depreciation value of furniture and fittings
- Cleaning costs
- Cost repairs for furniture and equipment used for work
It is important to note that through this method, you cannot make claims for:
- Home internet
- Mobile phone
- Personal computer decline value
- Office equipment
These are expenses that will be claimed on your tax return in two main ways:
- Actual amount spent
- 80 cents per hour
It is worth noting that where no extra costs are incurred, you cannot make tax deductions claims. If there are other people using electronics and gadgets in the same room you are working in, you will not qualify for home office expenses deductions.
80 Cents per Hour
Rather than claiming for individual expenses when working from home, you can use this method. In this case, you will pay a basic rate of 80 cents per hour to cover the home office expenses.
On the other hand, if you are considering claiming the actual costs of the home office expenses, you need to have a record. This should show the pattern of use and the costs will be apportioned to the specific work expenses. While this is a more complicated method, you will end up with a higher tax deduction claim.
It is important to note that occupancy expense claims affect the main residence exemption applied on capital gains tax. As such, you may end up paying part of the capital gains tax for your house when you sell it.
There are many considerations and factors that affect home office expenses. It can be confusing and as such, it is best to discuss with Accurate Business & Accounting Services tax experts so as to get the maximum deductions on your tax returns.