If you operate your business from home you may be able to claim deductions for running costs and occupancy costs.

Occupancy Costs:
These are the costs of owning or renting your home e.g. mortgage interest, house insurance, council rates and rent.

Running Costs:
Include the following – electricity, cooling, lighting, cleaning and depreciation on furniture and equipment.

You can only claim a deduction for your occupancy costs if your home is considered your main place of business. This is generally the case where you carry out most of your business’ work at home or your business does not own or rent any premise other than the home.

Generally a section of the home is dedicated to the place of business if the following factors are satisfied:
1. The area is clearly identified as a place of business.
2. The area is not suitable for private use.
3. The area is used exclusively or almost exclusively for carrying on the business.
4. The area is used regularly for visits of clients or customers.

To work out the proportion of occupancy costs and running costs you can claim you can use the area of the floor space which the business work takes place. The ATO says you can use any method as long as it is accurate and reasonable.

Where a section of the home is not considered a place of business that section is considered a home office. This is where you perform work at home but your main place of employment is on another premises. If this is the case only running costs can be claimed as an expense and proportioned the same way as if it was a place of business.

Pro Tip
Please be aware if you are considering using part of your home as a place of business and claiming occupancy costs that part of the home is subject to capital gains tax when you sell your home. The market value of your home at the point of when you first start to produce income is the cost base for capital gain purposes. It would then be a good idea to get a valuation of your home when it starts as your place of business, so when you sell your house you don’t pay more capital gains tax than necessary.

Author: Rhys Frewin
Email: rhys@faj.com.au