Claiming Home Expenses on your Tax Return

Posted on January 21st, 2009

If you are in the position that you work from home on your business, real estate investment or for your employer, then you will be able to claim a portion of your expenses on your tax return. In order to star claiming home office expenses, you will need to have a least on room in your home being utilized as a home office.

Keep in mind that the tax office has a very distinct line between running expenses, and occupancy expenses. Generally speaking it is easier to claim running costs on your tax return, and only in limited circumstances a deduction may also be allowable to occupancy expenses like rent and mortgage interest.

For example, running expenses relate to the use of facilities’ within your home. This will include your electricity charges for the heating, cooling, lighting, cleaning, depreciation, and the cost of repairs on items or furniture or furnishings in the office.

Occupancy expenses on the other hand relate to the ownership or the use of a home that are not affected by the taxpayer’s income earning activities. For example, these include rent, mortgage interest, water, municipal and home insurance premiums.

Claiming your Home Office Expenses and Running Expenses

You are able to claim a portion of your running costs, such as gas and electricity, or the tax office gives you the option to claim a calculated deduction of .26 cents per hour. Also, you are able to claim other home office expenses, like your phone, mobile or internet bills, as well as a decline in the value of your computer, furniture or other equipment. All of these things will be calculated separately.

Example of home office claim (portion of cost)

Gas and Electric bills = $1000.00/year * 15% = $150.00 (the 15% is the ratio that was worked on the business)
Depreciation of computer 50% = $300.00 (50% of the computer is used for private use)

Example of home office claim (% of total hours)

.26 cents * 10 hours/week * 52 = $132.50
50% Depreciation on computer = $300.00 (50% of computer used for private use)

- A deduction is allowable only where additional running cost are incurred by a taxpayer because of income producing activities. Also, the income producing use of the home office needs to be substantial and not merely incidental.
- If home office equipment, such as a computer is used only party for work or business purposes then the decline in value deduction is reduced by the amount that reasonably reflects the extent that that equipment was used strictly for your income
- A deduction is allowable to the cost of the telephone calls made for your work or business purposes
- Individual taxpayers who claim home office expenses are required to be able to prove that they have incurred such expenses

Claiming home office expenses – Occupancy expenses

There are only limited circumstances in which a deduction will be allowable for occupancy expenses like rent and mortgage interest. They can only be made if you refer to your home as your “Place of business”.

What is defined as a place of business?
- The area is clearly identifiable as a place of business
- The are is not readily suitable or adaptable for any private use or domestic purposes that would generally be associated with the home
- The area is used exclusively or almost exclusively for carrying out your business.
- The area is regulary the place of visits for clients or customers

Which Expenses can be claimed?
In addition to running costs, you are able to claim
-Rent (apartment, house, condo, etc,)
- Interest on the mortgage
- Council and water rates
-Home insurance premiums

An example of the home office claim for Occupancy Expenses:

Rent = 10,000.00/year * 30% = $3000.00 (30% is the floor area used for business)

-In most cases, the apportionment of the total expense incurred on a floor area basis is the right method that is used for claiming calculations
-Where an area of the home is a place of business for only a part of the year, it could be necessary for expenses to be appointed not only on a floor area, but also on a time basis
-The ATO allows deductions for non-capital expenditures on repairs to the premises, for the purpose of producing assessable income.

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