Can I claim a home office as a legitimate business expense?

How does it work when claiming home office as a business expense?

Top voted answer
Hitesh Mohanlal

Hitesh Mohanlal, Director at WOW! Advisors & Business Accountants

This is probably to most common question asked by my clients. It generally depends on the circumstances and exactly what you use your home for. Friends will tell you they have claimed for many years and not had a problem and that may be true but friends generally do not understand the entire consequences of claiming home expenses as business expenses.

Firstly, if you own the property you could, without realising it, end up paying capital gains tax on you home when you sell it. If you live in a home you own it is your principal private residence and is not subject to capital gains tax. When you start claiming home expenses like mortgage interest and electricity what you are saying is that it is no longer 100 % private use. So if you claim 25% expenses are business you have converted your home to 75% private and 25% commercial and when you sell you have to calculate 25% as a capital gain.

The next issue is if the cost is genuine business use. So if you use a small desk in a room which is also used by your son to sleep in then the ATO will say that the small office is just incidental to the home - even if you spend 24 hrs a day in there. The same would be if you spend 4 days out on the road and spend 1 day at home in the office. The ATO is unlikely to allow you to claim significant costs relating to running the home.

At the other end if your garage and spare room is full of stock there is a genuine claim that a bigger home is required in order to run the business and you may be able to claim expenses.

My advise would be to talk to your advisor and do some calculations. I have done this for my clients and sometimes it make sense to claim home expenses and for others it does not.

Jef Lippiatt

Jef Lippiatt, Owner at Startup Chucktown

Here in the United States it is very similar. Essentially to claim a home office, you must only use the room for work and be able to close a door to prove it isn't being used when you are not conducting business.



Yes.A portion of the home which is used for income producing activities and does have the character of being a place of business can be claimed. This would include where part of a home is set up as a sole base of operations and/or where clients can be attended to on site. The claims would be apportioned in most cases on the area of the home used and would include a portion of rent, mortgage interest, insurance, council and water rates. Claiming these expenses would also mean that for home owners there may be a capital gains tax consequence when the house is later sold. You may also be able to claim running costs on the home such as a portion of electricity for heating/cooling and lighting, cleaning costs and depreciation of furniture. Claiming running costs do not make the home subject to CGT when sold.