Working from home has become a normal part of life for many Australians. But when it comes to claiming work-related expenses, it’s important to understand what you can — and can’t — claim.
The ATO has identified cases where taxpayers have incorrectly claimed costs such as rent, mortgage interest and other household expenses as working-from-home deductions.
The key is understanding the difference between running expenses and occupancy expenses.
What are running expenses?
Running expenses are the additional costs you incur because you work from home.
Depending on your circumstances, these may include:
- Heating, cooling and lighting
- Internet and data expenses
- Work-related phone costs
- Stationery
- Computer consumables
- The decline in value of work-related furniture and equipment
If your employer has reimbursed you for an expense, you generally can’t claim that same expense as a tax deduction.
Employees who work from home to perform their normal employment duties may be able to claim eligible running expenses, provided they incur additional costs and keep the appropriate records.
There are currently two methods available for calculating working-from-home running expenses: the fixed rate method and the actual cost method.
The method that works best will depend on your individual circumstances and the records you have available.
What are occupancy expenses?
Occupancy expenses are different. These are the costs associated with owning or renting your home, such as:
- Rent
- Mortgage interest
- Council rates
- Water rates
- Land tax
- Home insurance
For employees, these expenses are generally not deductible simply because you work from home.
In most cases, you need to be able to demonstrate that the area you use for work has the characteristics of a place of business, rather than simply being a room or area where you happen to work.
This is an important distinction, particularly if you’re considering claiming a portion of your rent or mortgage interest.
What if you are eligible to claim occupancy expenses?
If you meet the requirements to claim occupancy expenses, you can’t simply claim the entire cost of your rent or mortgage interest.
You need to calculate the portion that relates to your work use.
This may involve considering factors such as:
- The floor area used for work
- How often and for how long the area is used for work
- Your ownership interest in the property
- Your share of the rent if the property is jointly rented
Keeping accurate records is important to support how you have calculated your deduction.
Be aware of potential capital gains tax consequences
There is another important consideration when claiming occupancy expenses.
If part of your home is used as a place of business and you claim occupancy expenses, there may be capital gains tax (CGT) implications when you eventually sell the property.
This is one reason why it’s important not to simply claim an occupancy expense because you work from home. The potential tax benefit needs to be considered alongside the broader tax consequences.
Getting your work-from-home deductions right
Working from home can provide legitimate tax deductions, but the rules aren’t the same for every taxpayer.
Before claiming rent, mortgage interest or other occupancy expenses, it’s worth making sure you understand whether you’re actually eligible and that you have the records needed to support your claim.
Dymond Foulds & Vaughan can help you understand which working-from-home expenses you may be entitled to claim and ensure your deductions are supported by the appropriate records.
If you’re unsure whether your work-from-home expenses are deductible, contact Dymond Foulds & Vaughan today for professional advice tailored to your circumstances.