How to claim tax deductions for home-based business expenses if you operate some or all of your business from home.

What is a home-based business?

A home-based business is one where an area of your home is set aside and used exclusively as a place of business.

The types of expenses you can claim depend on how you operate your business out of your home and the business structure. You can only claim deductions for the business portion of your expenses.

If you do not have an area set aside and used exclusively as a place of business but you do some work from home, you may still be able to claim a deduction for some of your expenses relating to the area you use.

Be aware that you may have to pay capital gains tax (CGT) when you sell your home if you used part of your home for business purposes – remember to keep the right records to work out your deductions for CGT. If you are eligible, you may be able to reduce your CGT by applying the small business CGT concessions.

Home-based business expenses

If you operate some or all of your business from home, you may be able to claim tax deductions for the business portion of expenses.

These may include:

• occupancy expenses (such as mortgage interest or rent, council rates, land taxes, house insurance premiums)
• running expenses (such as electricity, phone, decline in value of plant and equipment, furniture and furnishing repairs, cleaning)
• the cost of motor vehicle trips between your home and other locations, if the travel is for business purposes.

You may not be able to claim occupancy expenses if personal services income rules (PSI) apply to your business.

You can claim both occupancy expenses and running expenses if you have an area of your home set aside as a ‘place of business’.

Remember, if your business is entitled to goods and services tax (GST) input tax credits, you must claim the deduction in your income tax return at the GST exclusive amount.

You may be eligible for an immediate deduction or an accelerated rate of decline in value for depreciating assets under one of the tax depreciation incentives..

For the 2023–24 income year, you may be able to use the fixed rate method to calculate your running expenses – which is a fixed rate of 67 cents per work hour and incorporates the following usage expenses:

• electricity
• gas
• stationery
• computer consumables, such as printer ink
• internet
• phone.

You can’t claim an additional separate deduction for the expenses covered by the rate per work hour.

You can separately claim a deduction for the decline in value of depreciating assets, such as laptops, mobile phones and office furniture. You can also claim a deduction for any other running expenses not covered by the rate, for example, cleaning your home office.

If you don’t use the revised fixed rate method, you can claim the actual expenses you incurred while working from home.

Regardless of what method you choose to use to calculate your home-based business expenses, you should keep complete and accurate records for at least 5 years to substantiate your claims.

Type of business structure

Your business structure can affect the method you can use and the expenses you can claim, especially if your business is a company or trust.

For more information, see:

• Home-based business expenses – sole trader or partnership
• Home-based business expenses – company or trust

 

Last updated 16 July 2024

QC33864 Deductions for home-based business expenses | Australian Taxation Office (ato.gov.au)