Claiming home office costs: what you can claim and what you can't

The ATO keeps a close eye on the deductions which taxpayers claim for working from home. It’s easy to make a mistake, perhaps by claiming too high a work-related proportion for a particular type of expense, claiming something that shouldn’t be claimed at all or simply not keeping records to substantiate the expense.

Here at H&R Block we also encounter lots of taxpayers who simply don’t know that they can claim for working from home. Previously, they may have missed out on deductions which we know they are entitled to.

So, what are the rules for claiming expenses when you work from home?

The deductions you may be able to claim for are:
• occupancy expenses such as rent, mortgage interest, rates, land taxes and house insurance premiums (but only in limited circumstances, see below)
• running expenses such as:
a) home office equipment, including computers, printers and telephones. You can claim the full cost (for items costing up to $300) or the decline in value (for items costing $300 or more). If you’re self-employed, you may be able to immediately write-off equipment costing up to $20,000.
b) work-related phone calls (including mobiles) and phone rental. You can claim a portion reflecting the share of work-related use of the line if you can show you are on call, or have to phone your staff, employer, customers or clients regularly while you are away from your workplace
c) heating, cooling and lighting
d) the costs of repairs to your home office furniture and fittings, and
e) cleaning expenses.

Being able to claim these expenses depends on whether your home is your place of work or business and if you have an area set aside exclusively for work activities.

Here is what you can claim for the three ways to work from home:

1. If your home is indeed your place of work and you have an area set aside exclusively for work activities, you may be able to claim both occupancy and running expenses. If, as is more typical, you carry on your work or business elsewhere (at an office, perhaps) but do some work at home occasionally, you cannot claim occupancy expenses – even if you have a home work area set aside.

2. If your home is your place of business or work and you have a home work area, you can claim occupancy expenses, home running expenses, business phone costs, the decline in value of office equipment and depreciation.

3. If your home is not your place of business but you have a home work area, you can claim home running expenses, business phone costs, the decline in value of office equipment and depreciation, but are unable to claim occupancy expenses.

For those who work at home but who don't have a work area, only home running expenses, business phone costs and the decline in value of office equipment can be claimed during tax time.

Once you determine the costs that you can deduct, you are required to keep the relevant records.

These can be:
• receipts or other written evidence of your expenses – including receipts for items of equipment you have purchased
• diary entries you make to record your small expenses ($10 or less) totalling no more than $200, or expenses you cannot get any kind of evidence for, regardless of the amount
• itemised phone accounts from which you can identify work-related calls, or other records, such as diary entries (if you do not get an itemised account from your phone company)
• a diary you have created for work to calculate how much you used your equipment, home office and phone for business purposes over a representative four-week period.

As an alternative to keeping detailed records, you can claim a flat rate allowance of 45 cents per hour for each hour you work from home but if you claim this, no other claim for individual items is allowed.

To summarise, then, make sure you claim everything you’re entitled to, not a cent less and not a cent more and make sure you can substantiate all that expenditure either through receipts or diaries. Follow those basic rules and you should have no trouble from the taxman.

Finally, if you’re not sure what you can and can’t claim, visit your local H&R Block office to ensure you claim everything you’re entitled to.