Occupancy expenses are those expenses you pay to own, rent or use your home, even if you are not conducting a home-based business. Occupancy expenses can be used as a home office tax deduction and generally include:

  • Rent, or mortgage interest
  • Council Rates
  • Water Rates
  • Land Taxes
  • House insurance premiums.

The ATO’s ‘interest deductability test’

Before you can claim occupancy expenses as a deduction – i.e. a home office tax deduction – you must pass what the ATO calls an ‘interest deductibility test’. This generally means the ATO expects you will have an area of your home set aside exclusively for business activities, such as an office or workshop. To pass the test, this area should have ‘the character of a place of business’ rather than simply being an office you use incidentally for income producing purposes.

What percentage of home office tax deductions can you claim?

You can generally claim the same percentage of occupancy expenses as the percentage area of your home that is used to make income.  One common way to work this out is to use the floor area put aside for work.  This is calculated as a proportion of the floor area of your home as a whole. If, for example, your home office is 10% of the total area, then you may be able to claim 10% expenses.  In some situations it may be necessary to adopt a basis other than floor area. For example a large workshop attached to the home may take up a great amount of floor space but contribute much less to the value of the overall property.

A note about Capital Gains Tax

The family home is generally exempt from capital gains tax. However, if you have carried on a home business as described above, the portion of the home attributable to the business activity will be subject to CGT.

Talk to us about claiming home office expenses.