What tax deductions can you claim working from home?

The value of deductions for ‘other work-related expenses’ has increased dramatically over the last few years. Some of these increases have been attributed to an increasing number of people working from home. Advances in technology and a culture shift towards more flexible working environments means that many more people work some days from home; more hours from home after a day at the office; or run their businesses entirely from home. Although this is great news for most of us, it certainly challenges the ATO to determine which claims, or at least which portion of the claims are legitimate. It is a major red flag when a claim is made for the entirety of an expense such as phone or internet services when in fact, because of the individual’s circumstances, they are obviously mostly for personal use. So, if you want to make a legitimate claim for your working-from-home expenses, there are a few things to keep in mind.

What defines ‘working from home’?

Primarily, it is important to differentiate between the varying degrees of ‘working from home’. It can range from checking your emails after dinner through working an entire day from home all the way to running your own business from home. If you have a dedicated home office, you are able to claim more than if you just work from the couch or at the dining room table. A home office allows you to claim that portion of your household’s running expenses, such as electricity. It also enables you to claim the decline in value of your office equipment. However, if you work at home just on your laptop wherever you are comfortable, you can only claim a portion of your phone and internet expenses. An unsubstantiated claim of up to $50 is allowed or it is possible to calculate the exact expense incurred.

If you run your business entirely from your home, you will be able to claim a wider range of expenses proportional to the amount of your home which is dedicated to your business. The legitimacy of these claims is assessed by having an identifiable portion of the home which is dedicated to the business and not used for any other purpose. In this case, expenses such as the electricity, internet, water and even interest on the mortgage can be claimed. Unfortunately, there is a disadvantage to making this claim if you are a homeowner – it will impact your Capital Gains Tax exemption as your home will no longer be considered your main residence and you may only be eligible for a partial exemption of your CGT upon the sale of your house. There may also be other hurdles, such as having to obtain a valuation of when your home was first used to generate business income so it’s important to get professional tax advice.

How do I calculate my expenses?

In order for your claim to be valid, it is a requirement that a specific, consistent method is used to obtain the amount or percentage you are claiming. Regarding phone and internet usage, because bills are itemised, it can be as simple as identifying and adding the time or cost of work-related calls or the times at which the internet was being used and attributing these amounts to the claim. Similarly, the use of a log book for a short period of time (e.g. four weeks) to obtain information which can then be applied across the whole year is another reliable method to ascertain the portion of the expense which can be claimed.

What expenses can I claim?

There are specific expenses that can be claimed when you work from home. These include running expenses; occupancy expenses; work-related phone and internet expenses and the decline in value of your home-office equipment and furniture.

Running expenses

There are two ways to claim running expenses. Either at a fixed rate of 45 cents per hour, in which case you will need to account for the amount of time you worked from home either by log book and then applied to the whole year, or the actual time. Alternatively, you can claim it as an actual expense by documenting the total amount spent on running your office (electricity, heating, cooling, cleaning etc) and then calculate the percentages of both ‘time’ dedicated to working and ‘space’ (within the home) dedicated to working.

Occupancy expenses

Occupancy expenses refer to rent, interest, insurance, land taxes and rates that you may pay on your home. These can only be claimed if you have no other office or place of business but work solely from your home. It is also a requirement that your home office could only possibly be used for business. It would not be applicable to claim occupancy expenses for your dining room because that is where you have your laptop set up! This expense is calculated using a simple formula: total expenses x floor area x percentage of the year that the space was used for business. This deduction is generally only available to the owner of the house and business, not employees.

Phone and internet expenses

Phone and internet expenses are frequently claimed and require close monitoring and clear boundaries. Unless you have a separate account and line for your business, and only work from home, it is unlikely that you will be able to claim 100% of your phone and internet expenses. You are also unable to make this claim if your employer provides you with your phone or you are a casual employee. To make an unsubstantiated claim, you are allowed a deduction of $50. You can, alternatively, claim your actual expenses but these claims will need to be documented with a consistent and reliable method, as mentioned above.

Asset depreciation

Assets such as computers and printers depreciate in value over time. If these items cost more than $300, you may be able to claim a deduction for this decline. This can, in certain circumstances also apply to office furniture if you are calculating actual expenses for running costs and not using the fixed rate.