Claiming tax deduction for home office? Part 2

Whether you are self-employed or are an employee, you may be able to claim certain work related expense as a tax deduction where the part of your home is used for income producing purpose and has the character of a place of business.

To claim such work related expenses, part of your home must be used regularly and exclusively as one of the following:

• The principal place of business for your trade or business;
• The place where you meet and deal with your patients, clients, or customers in the normal course of your trade or business; or
• in connection with your business or income producing activities, but does not constitute a place of business

Today we are examining using your Home Office as a Home work area

This means that your principal place of business is not at home but you have an area, such as a study or a spare room, set aside primarily or exclusively for business activities. For example, you may have an office elsewhere but work at home after hours

If you have a home office which is used in connection with your income earning activities, you can claim the running expenses of a home office as a deduction if you are able to show that such additional expenses have been incurred as a result of your income producing activities.

Running expenses are relating to the use of facilities within the home. These include electricity charges for heating/cooling, lighting, cleaning costs, telephone, internet, computer and/or software expenses, depreciation, leasing charges and the cost of repairs on items of furniture and furnishings in the office.

You should keep a diary to work out how much of your running expenses relate to doing work in your home office and a letter from your current employer supporting your income producing activities at home as part of your duties is an appropriate evidence of a connection between the use of a home office and your work.

You can claim deductions for:

• the cost of using a room’s utilities, such as gas and electricity
• business phone costs
• the decline in value of office plant and equipment (for example, desks, chairs and computers), and
• the decline in value of curtains, carpets and light fittings.

You cannot claim a deduction for the cost of owning or renting the house (such as rent, mortgage interest, insurance and rates).

This article has been prepared for the purposes of general information and guidance only. It should not be used for specific advice or used for formulating decisions under any circumstances. If you would like specific advice about your own personal circumstances please contact our office.