A great article by Mark Chapman for Money Magazine.
With many employees putting in extra hours in the evening and at weekends, and many employers moving to flexible working environments where an office space isn’t necessarily provided, it’s becoming increasingly common for people to work either partly or wholly from home.
If you’ve set up a home office in your study or converted a spare bedroom into a work space, you need to be aware of the potential tax deductions you can claim when you come to complete your 2017 tax return.
Here’s my list of the top five deductions you could be eligible for:
Heating, cooling and lighting bills
You have to heat your home office in winter and keep it cool during summer. You also need light to see what you’re doing! That means that you can claim the proportion of utility bills that relates to the time you spend working in your home office. You can’t claim for periods when the home office is being used for other purposes and nor can you claim for the element of your bills that relates to the rest of your home.
Depreciation of home office furniture and fittings
If you kit out your home office with furniture such as a desk, shelving and cupboards, you can claim a deduction for the decline in value of that furniture to the extent that it relates to your work activity. That’s likely to lead to a write-off of the cost over several years (the “effective life” of the asset).
Depreciation of office equipment and computers
Similarly, if you purchase items of technology for use in your home office, you can depreciate them over their life and claim a deduction each year for the work-related element. That might include:
- Mobile phones
Low-cost capital items
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). That could include some of the cheaper tablets and mobile phones, as well as many printers.
Make sure you claim for the work-related proportion of other costs such as:
- Computer consumables (such as printer ink)
- Phone and internet costs
- Cleaning costs
What you can’t claim
Many people try to claim a percentage of rent or the interest on a mortgage if they work from home. This isn’t allowable.
Ideally, you should have a 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.
How much can I claim?
There’s no maximum amount that you can claim. Provided that the amount you’re claiming is calculated in accordance with the rules, and that you have the necessary substantiation, you can claim whatever you’re entitled to.
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 expenditure over the year. Of the two methods this usually produces the larger deduction but the record-keeping requirements are more stringent.
You’ll also need to work out how big your home office is compared with the rest of your house (using floor area as a guide). This will enable you to calculate the split between costs that relate to the office and costs that are domestic in nature.
- ATO rate per hour method
Instead of keeping details of actual costs, you can use a fixed rate of 45 cents per hour for heating, cooling, lighting and the decline in value of furniture. You just need to keep a record of the number of hours you use the home office and multiply that by 45 cents.
Finally, a word of warning: It is quite common for people to have insufficient documentation to support a home office claim, particularly for the split between business and personal use, so be sure to keep records.