Navigating Working from Home: How Business Owners Can Claim Home Office Costs

Hey there, business owners! One of the questions we often get asked is, “Can I claim part of my rent if I work from home?” The answer is a bit more nuanced than a simple yes or no, but we’re here to clear up the fog. Let’s dive in!

Ways to Claim Home Office Expenses

There are two main ways to claim Home Office Expenses:

  1. The fixed rate method
  2. The actual cost method

The Fixed Rate Method

The fixed rate method allows you to claim a set rate of 67 cents per hour you work from home. This rate accounts for the following:

  • Utilities
  • Internet costs
  • Telephone costs
  • Stationary and computer consumables

This means you can’t claim these as separate deductions when using the fixed rate method.

In terms of records to keep:

  • A diary that notes the hours you work from home for the entire income year
  • Bills to prove that you actually pay rent, utilities, etc for each of the different bills

We highly recommend you check out the in-depth process directly from the ATO here.

The Actual Cost Method

If you want to claim an exact amount, you’ll need to work out the specific costs. This is a bit more time-consuming but can be beneficial if your home office is a significant part of your living space. To do this, you’ll need to figure out the percentage of your home used for work and apply that percentage to your total rent and other expenses.

Aside from rent, you might be able to claim expenses for:

  • Utility bills
    • You’ll need all your total invoices and you can apply the work from home % against these amounts.
  • Cleaning expenses
    • You’ll need all your total invoices and you can apply the work from home % against these amounts.
  • Internet and phone costs
    • To calculate your claimable phone and internet costs, you’ll need itemised bills for at least one month. This will allow you to identify work calls and work-related internet usage, you can then use these to calculate the work related %.
  • Office supplies
    • The full amounts (so long as they are under A$300) can be included as a deduction for home office running expenses on your income tax return. Just make sure you only claim the work-related proportion of these expenses, and exclude any private use which is not claimable.
  • Office Equipment
    • Individual cost < $300: If you pay for any home office equipment or furniture that enables you to work from home, and the item is less than $300, you can claim the full cost of this item as a deduction on your income tax return.
    • Individual cost > $300: If you pay for any home office equipment that enables you to work from home, and the item is greater than $300, you can claim a deduction for the decline in value of the item in your income tax return.

In terms of records to keep:

  • Copies of all of your bills
  • Rental invoices
  • Calculations of how you worked out the home office %
    • To determine the percentage that you can claim you’ll need to establish a dedicated work area. Measure the floor area in proportion to the rest of the house to determine the percentage you can claim
  • You will also need to demonstrate – via a diary – the typical number of hours worked from home
    over a typical four-week period to substantiate your records. This will be used to calculate a workrelated
    percentage, which can be applied to phone and internet costs.

The Actual Cost method does require a bit more calculation, we’d recommend you check out specifically what you need to do on the ATO’s website here.

Few notes from us:

  • Keeping a dedicated folder, either physical or digital, can make this task easier. Don’t forget, record-keeping is crucial to substantiate your claims if the ATO ever wants to take a closer look.
  • Your home office doesn’t have to be a separate room, but it should be a distinct area primarily used for business. A corner of the living room may not qualify if it’s also used for family activities. Make sure the area you claim is mainly for work purposes.
  • We recommend you taking a photo of your home office just in case you move and are required to provide evidence of the home office.
  • If you own your own home, you may want to think twice about going with the Actual Costs method since this could impact the tax exemption people generally have on their main residence.

We hope you’re enjoying our blog, just a note though. The information provided here is intended for general informational and educational purposes only. While we aim for accuracy, we can’t guarantee that this content will apply to your specific situation—every business owner’s circumstances are unique.

This blog is not a substitute for personalized advice from a qualified accountant, tax advisor, or any other professional. If you have questions specific to your individual circumstances, we strongly recommend consulting a professional for tailored advice.

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