Working from home
If you work from home you may be able to claim a deduction for some of your expenses relating to the area you use.
In general, the deductions you can claim depend on whether:
>you have a work area – a room such as a study or spare room is set aside primarily or exclusively for work activities but your home isn’t your principal place of business – for example, you may have an office elsewhere, but work at home after hours
>you don’t have a work area – your principal place of business is not at home, nor do you have an area or room primarily or exclusively set aside for work, but you do some work at home – for example, you might work for a few hours in the lounge room
>your home is the principal place of business – a business is run from home and a room is set aside exclusively for business activities.
The following table sets out the deductions you may be able to claim if your home is not your principal place of business.
|Deductions you may be able to claim||You do have a work area||You don’t have a work area|
|Cost of using a room’s utilities such as gas and electricity||Yes||Yes|
|Work-related phone costs||Yes||Yes|
|Decline in value (depreciation) of office plant and equipment such as desks, chairs and computers||Yes||Yes|
|Decline in value (depreciation) of curtains, carpets and light fittings||Yes||No|
|Occupancy expenses such as rent, mortgage interest, insurance and rates||No||No|
Capital gains tax implications
Irrespective of whether or not you have a work area set aside, if you own the home and are entitled to the main residence exemption from capital gains tax, this is not affected provided your home is not your principal place of business.
Running your business from home
Is your home your principal place of business?
The information in this section applies where your home is also your principal place of business – that is, you run your business from home, and a room is set aside exclusively for business activities. Examples include:
>a small business operator whose main office is in their home
>a tradesperson or craftsperson who has their workshop at home
>a doctor or dentist who has their surgery or consulting room at home.
Where your home is also your place of business, you can claim deductions if you carry out income-producing work at home and incur expenses in using your home for that purpose.
You can claim a deduction for the following:
>the cost of using a room’s utilities, such as gas and electricity – which must be apportioned between business and private use, based on actual usage.
>business phone costs – if a telephone is used exclusively for business, you can claim for the rental and calls, but not the installation costs. If the telephone is used for both business and private calls, you can claim a deduction for business calls.
>decline in value (depreciation) of office plant and equipment, such as desks, chairs, computers. If equipment such as a computer is also used for non-business purposes, your claim must be apportioned between business and private use.
>decline in value (depreciation) of curtains, carpets and light fittings.
>occupancy expenses (such as rent, mortgage interest, insurance, rates). You can claim the portion of these costs that relates to the room or workshop you use as a place of business. A common method of working out how much to claim is the floor area (as a proportion of the floor area in your whole home).
If your employer has an office in the city or town where you live, your home office will not be a place of business, even if your work requires you to work outside normal business hours.
If your income includes personal services income (PSI), you may not be able to claim a deduction for occupancy expenses.
Capital gains and the main residence exemption
Generally, you can ignore a capital gain or loss you make when you sell your home or main residence (under the main residence exemption).
However, you don’t get the full main residence exemption if your home is your principal place of business, although you’re probably entitled to a partial exemption.
To work out the capital gain that is not exempt, you need to take into account a number of factors including:
>proportion of the floor area of your home that is set aside to produce income
>period you use it for this purpose
>whether you’re eligible for the ‘absence’ rule (see treating a dwelling as your main residence after you move out)
>whether it was first used to produce income after 20 August 1996.
If you first used your home as your place of business after 20 August 1996, the period before you first used your home to produce income is not taken into account in working out the amount of any capital gain or capital loss. Instead, you use the market value of your home at the time you first used it to produce income.
It’s a good idea to get a valuation of your home at the time you first use it as your place of business, so that when you come to sell it you don’t pay more capital gains tax than necessary.
**The information in this document is taken directly from the ATO website with the intent to be a quick and easy reference point for our clients