If a taxpayer’s home has the character of a ‘place of business’ then occupancy costs like interest expenses, rates, rent, maintenance, etc., may be tax deductible.

The actual home office occupancy expenses claimed will be a percentage of the total household occupancy expenses. The percentage claimed is calculated as the home office floor area (in metres squared) divided by the total house floor area. Home offices normally average 5-10% of the total house floor area.

This is to be contrasted with the normal situation for employees who use their home office for convenience and as such are only allowed deductions for home office running costs (like electricity and depreciation of home office furniture), and not occupancy costs.

In TR 93/30 the ATO states a home will have the character of a place of business in the following two situations:

  • An area is set aside exclusively for the carrying on of a business by a self-employed person e.g. a self-employed carpenter uses their home as a base for operations.
  • An area is used as a taxpayer’s sole basis of operations for income producing purposes as no other work location is provided by the employer to the employee.

Factors that will evidence this include:

  • The room at home was used exclusively for income earning purposes.
  • There was no alternative place of work and it was necessary to work from home.
  • The nature of the work required that the taxpayer needed a place of work or business.

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