How to get the taxman to pay for your home office


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With utility bills and other living expenses so high, making ends meet can be difficult for many people.

Getting the taxman to contribute to your electricity bills might seem like a pipe dream but if the circumstances are right, that's exactly what can happen.

Not just your electricity bills either; you could be able to claim all sorts of home-related expenses as deductions in your tax return

tax home office small business

So, when is it possible and what can be claimed?

Working from home

Work patterns have changed in recent years and one of the effects is that many people are increasingly working from home rather than from a traditional office.

That might be by choice or it might not (if you have a tight deadline and need to work a weekend to get that crucial report finished, the chances are you'll do it from your home desk) but, either way, many people are kitting out a home office to help them do their job.

What you can you claim

The expenses that you can claim include the work-related proportions of:

  • Heating, cooling and lighting bills.
  • Depreciation of home office furniture and fittings.
  • Depreciation of office equipment and computers.
  • Small capital items such as furniture and computer equipment costing less than $300 can be written off in full immediately (they don't need to be depreciated).
  • Computer consumables (like printer ink), stationery, telephone and internet costs.

Many people try to claim a percentage of rent or the interest on a mortgage if they work from home using a home office. This isn't allowable.

Ideally, you should have a specific room set aside as a home office.

If you are using a room with a dual purpose (for example, a dining room), or a room shared with others (lounge room) you can only claim the expenses for the hours when you had exclusive use of the area.

Running a business from home

If you run a business and your home is also your principal place of business, you can claim all the items noted but in addition you can also claim an appropriate business-related proportion of what are called "occupancy costs".

That refers to things like your rent, mortgage interest, insurance and rates (none of which are claimable if you're an employee who works from home).

Examples of people who could benefit include tradies or craftsmen who have a workshop at home, doctors or dentists who run a surgery from part of their home or so-called "mumtrepeneurs" who start home-based businesses as a way of balancing work and childcare.

Remember that if you run a business from home, you may also lose part of your CGT exemption on the sale of your home because the exemption doesn't apply to those parts of your home that have been used to help you derive taxable income.

Making your claim

There are two methods you can use to calculate a claim:

Diary method/actual running expenses

Keep a diary to work out how much of your running expenses relate to doing work in your home office or other workspace.

The diary needs to detail the time you spend in the home office compared with other users of the home office.

Keep your diary record for a representative four-week period. The "work-use proportion" you come up with over those four weeks can then be applied to all your actual expenditure over the year.

Of the two methods, this usually produces the larger deduction but the record-keeping requirements are more stringent.

ATO rate per hour method

You can use a fixed rate of 45 cents an hour for home office expenses for heating, cooling, lighting and the decline in value of furniture, instead of keeping details of actual costs.

You just need to keep a record of the number of hours you use the home office and multiply that by 45 cents an hour.

Finally, a word of warning: It is quite common for people to have insufficient documentation to support a home office claim, particularly around the proportionate split between business and personal use, so be sure to keep records.

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Mark Chapman is director of tax communications at H&R Block, Australia's largest firm of tax accountants, and is a regular contributor to Money. Mark is a Chartered Accountant, CPA and Chartered Tax Adviser and holds a Masters of Tax Law from the University of New South Wales. Previously, he was a tax adviser for over 20 years, specialising in individual and small business tax, in both the UK and Australia. As well as operating his own private practice, Mark spent seven years as a Senior Director with the Australian Taxation Office. He is the author of Life and Taxes: A Look at Life Through Tax.