Personal Income Tax

Working from Home: 5 Tips for Getting Deductions Right

The deductible expenses you can expect from working at home are grouped into “running” and “occupancy” expenses.

1.    Occupancy-related deductions

Occupancy expenses are expenses indirectly tied to your working at home – they’ll exist even if you don’t work from home.  These expenses include rent, mortgage interest where applicable, council rates, and insurance premiums.

To qualify for any occupancy expense, there has to be a specific area in your home that has the “character of a place of business”. For example, a business offering hair services should have a section in the house with the characteristics – products and equipment – of a salon.

Remote workers can mostly claim the same percentage as the percentage of the home the business space occupies in the home. So, let’s say the salon example cited above occupies 10% of the home, then the claim cannot go beyond 10% rent costs, council rates, and other occupancy expenses. There’s a “but” though – homeowners opting for deductions from occupancy expenses, especially mortgage interest, are required to account for capital gains obtainable to the business area of the home when sold. I.e. you could lose part of the main residence exemption on capital gains if you claim a portion of loan interest as an expense.


2.    Where there is no designated work area

Even if you don't have a dedicated area for their home business despite working and making money from home, youcan still apply for deductibles. John, a freelance writer can work in his bedroom today, on the porch tomorrow, and in the sitting room while watching his favorite show another day.

Despite this, John can still claim deductions on utility usage such as electricity or gas. He just has to show the said expenses and how he arrived at such amounts. There are also other expenses John can claim deductions on, such as phone costs for business purposes and depreciation on the value of “plant and equipment” (furniture, PC). Deductibles from rent, insurance premium or council rates will, however, not be applicable to John’s lack of specific business area.

3.    Business running expenses

These are direct expenses incurred because you run activities related to your business. Such expenses include phone bills, gas, electricity, and may be cleaning costs from having people around. Just to reiterate, any claim for deduction is on all expenses tied to the business, not the general home expenses.

For taxpayers to claim deductible on running expenses, they must be able to establish that these expenses were as a result of the business activities. They can claim the deduction by showing proof of the additional expenditure incurred from their income earning business.

Taxation ruling TR 93/30 is specific about what qualifies as a running expense and they include:

  • Heating, Ventilation, Air Conditioning and lighting expenses
  • Depreciation of assets

4.    Bundled plans

It is common practice for a household to subscribe to plans that offer them two or more services. These services are usually phone, internet, and sometimes cable services from the same service provider at a periodic fee usually monthly.

This bundle fee is always below the sum of the fee the taxpayers will have incurred if they subscribe to these services independently. This distinction of bundle plans affects the amount deductible from such services as they apply to the business operated from home.

It is imperative to match business-related use to their respective costs. The ATO recommends separating the bundle cost into different elements as follows:

  • an allocation from the supplier’s rundown of the comparative cost of the bundled elements
  • an allocation from the comparative costs of the bundled elements as though they were bought separately from the same supplier; or
  • if no rundown is available, then an allocation dependent on the information gotten from a similar supplier.

5.    Using the  “cents per hour” method

If keeping up with what is spent on what does your head in, then there’s respite. The ATO, through the PS LA 2001/6, offers taxpayers a “universal” way to calculate running expenses deductions. This deduction can be calculated at 45 cents – formerly 34 cents – per hour worked at home. Although a lot of the headache from tracking running expenses have been taken off the taxpayer, they are still responsible for tracking the number of hours worked.


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