Home office expenses and CGT implications
If you work from home, you may be able to claim a deduction for some of your expenses relating to the area you use.
Generally, you can claim the deductions depend on whether any of the following applicable:
- you have a work area – a room or area set aside primarily or exclusively for work activities but your home isn’t your principal place of business – for example, you may have an office elsewhere, but work at home after normal hours;
- you don’t have a work area – your principal place of business is not at home, nor do you have an area or room primarily or exclusively set aside for work, but you do some work at home – for example, you might work for a few hours in the lounge room;
- your home is the principal place of business – a business is run from home and a room is set aside exclusively for business activities;
You are entitled to claim your home office running expenses, but only limit to the portion that is used for work-related purpose. The home office running expenses generally include electricity, gas, landline phone, internet, depreciation of equipment and furniture & fittings setup in the work area.
When your home is setup as your principal place of business with a room or area that is set aside exclusively for business activities, you are deemed as running your business from home. Apart from the above running expenses, you are also entitled to claim the occupancy expenses such as rent, mortgage interest, insurance and rate. This is also limited to the portion that relates to the room or workshop you use as a place of business. A common method of working out how much to claim is the floor area (as a proportion of the floor area in your whole home).
Generally, you will not be taxed on the capital gain you make when you sell your home or main residence which under the main residence exemption. However, you don’t get the full main residence exemption if your home is your principal place of business, although you’re probably entitled to a partial exemption.
To work out the capital gain that is not exempt, the following factors should be taken into consideration:
- proportion of the floor area of your home that is set aside to produce income;
- period you use it for this purpose;
- whether you’re eligible for the 6 years rule;
- whether it was first used to produce income after 20 August 1996;
If you need help in understanding the above or your home office capital gains tax implication, please contact one of our tax consultants at The Quinn Group on (02) 9223 9166 or submit an online enquiry.