Unfortunately, the answer is….that depends! This is never a good answer, but in this case it is the truth. There are a number of factors and grey areas that will affect whether you can claim a tax deduction for working at home. Depending on the answer, any of these factors may have more serious consequences if claimed in error.
Let me explain:
As you would expect, the ATO are reluctant to allow any deductions for working from home. If you can establish that it is necessary for you to do this, there are allowances for electricity, Internet and maybe some depreciation. Bad luck on your tea and coffee though!
The key here is necessity – as the ATO takes the view that if your employer provides suitable facilities at the workplace, your working from home is at your convenience – and therefore there is no cost associated with that. Go figure!
Maybe the ATO will need to re-think this position, in light of the Prime Minister’s stated objective of 12% of employees working remotely by 2020! But for now, rules are rules.
Electricity can be claimed on the basis of time spent, but Internet is a more troublesome issue, since you need to be able to demonstrate (via a logbook or some other record) the proportion of time the Internet is used for income-producing purposes. Facebook does not count.
However, if you are the business owner and trying to claim that you conduct your business from home, the rewards in terms of tax deductions are far higher.
You need to be able to establish that the ‘business area’ of your home is dedicated to the business activity – your couch is not good enough! To satisfy this requirement, the business area must have its own entry, clearly separate from the residential area, and would need to be identified as a place of business.
In this case, you would be able to claim a portion of rates, electricity, Internet and so on. If you’re not able to satisfy these requirements, see above!
The downside is that you will need to make sure your business premises comply with local government regulations, as well as Workplace Health & Safety laws. Then, of course, there are the tax implications – which mean that the Capital Gains Tax exemption for your home does not extend to the ‘business area’.
For example, if your business area was 10% of the total area of your house, you would have to pay 10% Capital Gains Tax on the profit made when you sell your home.
If you think your tax matters in this area aren’t quite right, you should consult a professional to make sure you get this right.
Working from home can have advantages, but you need to be aware of the consequences.