Home office expenses and CGT implications

A taxpayer can make expenditure claims for home office expenses. It will need to be shown that part of the home is used for income earning purposes and has the character of a place of business, or is used in connection with income earning activities, but is not a place of business.

Where additional running costs are incurred because of income producing activities, an individual taxpayer may make a claim for home office expenses based on:

• Actual expenses
• Diary records for a typical four-week period in each year. This will establish a pattern for the entire year.

In broad terms, the following types of expenses are normally incurred:

• Telephone and internet expenses
• Heating and lighting expenses
• Equipment depreciation
• Occupancy expenses where the home is a place of business – these include rent, interest, etc.

Occupancy expenses are deductible only if a particular or part of the dwelling is set aside and is clearly identifiable as a place of business and used exclusively for business purposes. Having a computer alcove at home will not meet this test.

Self-employed people usually have a much greater chance in this claim as they generally have no other place of work or often bring home work on a regular basis and this is based on floor space. Teachers and others who work from home can claim an hourly rate.

Note: If you elect to claim occupancy expenses there are Capital Gains Tax implications. Having accepted that your home is a place of business the main residence exemption will be affected. This, however, means little out of Sydney and Melbourne where often Capital Gains haven’t existed.

For more information, call into your closest TaxAssist Accountants office for a free initial consultation.

Date published 4 Jan 2017

This article is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this article, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.