Claiming a tax deduction for expenses for a home-based business

If you operate some or all of your business from your home, you may be able to claim tax deductions for home-based business expenses in the following categories:

  • occupancy expenses – such as mortgage interest or rent, council rates, land taxes and house insurance premiums.

These can only be claimed if an area of your home has the character of a ‘place of business’ such as a sign at the front of your house, exclusively used for your business or regularly visited by your clients. When you sell your home, you may have to pay capital gains tax (CGT). It’s important to keep the right records to work out your deductions or CGT.

  • running expenses – such as electricity, cleaning, telephone/internet, decline in value of plant and equipment and furniture, and furnishing repairs.

There are three options to calculate the running expenses of your home-based business, as long as it is reasonable in your circumstances, you exclude your normal (private) living costs, and you have records to show how you calculated the business expense.

The three options are:

  • Actual cost method
  • Fixed Rate – 52 cents an hour – This is based on your actual use and covers costs for electricity, cleaning and the decline in value of your furniture and furnishings
  • (Temporary) Shortcut Method – 80 cents an hour (from 1 March 2020 to 30 June 2021) – This is similar to the fixed rate method but it covers all running expenses.

If you have any questions about home-based business deductions or any other matters, please don’t hesitate to contact our office.