Your home is generally exempt from tax until you sell it, which means it won’t be much of a concern in your annual tax return. However, it also doesn’t give you relief from potentially high mortgage repayments.
However, the Australian Taxation Office (ATO) allows some deductions to be applied to residential premises.
Owner-occupied properties
You don’t need to pay tax on your primary place of residence, but you may still be eligible for tax concessions if you run a business or work from home.
Home office set-up
If you have a work from home arrangement or manage a business from your home, you may claim a tax deduction on the proportion of your home that is used for business.
However, the deduction you may claim changes depending on whether you have a dedicated work area or simply accomplish work in your residence.
With a dedicated work area
If you set aside a room or area of your home for work or business, you may claim a tax deduction for home office expenses for that portion of your home.
You may claim a tax deduction for depreciating assets placed inside your home office, phone and internet expenses incurred for work, as well as utility expenses.
Remember that you are only eligible to claim a deduction on the proportion of your property that is used as a home office. Some deductions you may claim are running expenses and depreciation costs.
The ATO disallows residential property owners from claiming occupancy expenses, such as mortgage interest and property insurance, as a tax deduction even if they work from home. The only way that occupancy expenses may be claimed is if you satisfy either of the two conditions:
- The dedicated work area is your primary place of business and is unsuitable for domestic use (e.g. dentist clinic); or,
- Your employer cannot provide an office and doesn’t reimburse you for the running expenses related to accomplishing your work.
However, the ATO points out that you will not be eligible to claim a capital gains tax (CGT) exemption for the proportion of your home that you claim a tax deduction on.
Without a dedicated work area
You may estimate the proportion of your bills that is used for work or business.
For instance, you may have a $65 monthly internet plan that is used for work transactions five out of seven days or 71.43 per cent of the time. This means you may claim $557.16 out of the $780 annual bill as a tax deduction on your tax return.
Consider the table below.
| Deductions you may be able to claim | With a dedicated work area | Without a dedicated work area |
| Running expenses (i.e. utilities) | Yes | Yes |
| Work-related phone costs | Yes | Yes |
| Depreciation of office plant and equipment (i.e. desks, chairs and computers) | Yes | Yes |
| Depreciation of curtains, carpets and light fittings | Yes | No |
| Occupancy expenses (i.e. rent, mortgage interest, insurance and rates) | No* | No |
Part residential, part rental property
If you own a residential property but rent out a portion of your home (e.g. spare room), the ATO will allow you to claim deductions on expenses related to renting out a portion of your home.
For instance, if you rent out the spare bedroom and your tenant uses half of your total living area, you may claim a deduction on 50 per cent of the occupancy expenses and depreciation costs.
Explore nestegg for more information on taxes and allowable deductions.
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