When claiming home office expenses, the Australian Taxation Office (ATO) offers three methods: the Fixed Rate Method, the Actual Cost Method, and the Occupancy Method. Each has specific requirements and benefits. Here's a guide to help you choose the best option for your situation.
Method 1: Fixed Rate Per Hour
What It Is
Starting 1 July 2022, the ATO permits a claim of 67 cents per hour worked from home using the Fixed Rate Method. This method requires you to keep a logbook of all hours worked throughout the year and restricts claims for other expenses considered "included" in this rate.
What It Covers
If you choose this method your cannot claim the following expenses as they are considered "included" in the hourly rate by the ATO:
Electricity and gas for heating, cooling, and lighting
home and mobile internet or data expenses
mobile and home phone usage expenses
stationery and computer consumables, such as printer ink and paper
Additional Claims
You can separately claim the decline in value of assets like computers and office furniture, also any repairs to these items.
Record Keeping
Maintain a record of all hours worked from home and the expenses you incur working from home.
When to Use It
This method is ideal if you have minimal home office expenses or if it offers a higher deduction compared to other options. In TaxTank, you can easily toggle between methods to see which gives you the best outcome, helping you maximise your claim without extra hassle.
2. Actual Cost Method
The Actual Cost Method allows you to claim a portion of the actual expenses you incur from working at home. This method requires detailed tracking of your expenses to reflect work-related use accurately.
What It Covers
With this method, you can claim a percentage of specific costs related to your home office, including:
Electricity and gas for heating, cooling, and lighting
Home and mobile internet or data expenses
Mobile and home phone usage expenses
Stationery and computer consumables, like printer ink and paper
Cleaning costs for a dedicated home office space
Additional Claims
You can also claim the decline in value (depreciation) of office assets, such as computers, desks, and chairs, along with any repairs to these items.
Record Keeping
To use the Actual Cost Method, you’ll need to keep detailed records, including receipts and bills for all relevant expenses, as well as a logbook of hours worked from home to meet ATO requirements. With TaxTank, this process is streamlined, just set your claim percentages, and our live bank feeds will automatically allocate expenses, capturing every deductible cost accurately and effortlessly.
When to Use It
Choose this method if you’re looking to maximize your deduction with a bit more effort. For those with higher home office expenses, the Actual Cost Method can lead to a larger claim. And with TaxTank its easy, just set your claim percentages, and our live bank feeds will automatically allocate expenses, capturing every deductible cost accurately and effortlessly.
3. Occupancy Method
What It Is
The Occupancy Method allows you to claim a portion of both occupancy and running expenses (actual rate method) if you use a specific area of your home for your sole trader business.
What It Covers
This method includes both occupancy costs and running expenses, allowing you to claim a larger share of your home costs, including:
Occupancy Expenses
Mortgage interest or rent
Council rates
Land taxes
House insurance
Plus, Actual Costs (running expenses)
Electricity and gas for heating, cooling, and lighting
Home and mobile internet or data expenses
Mobile and home phone usage expenses
Stationery and computer consumables, like printer ink and paper
Cleaning costs for a dedicated home office space
How It Works
For occupancy costs, the ATO requires you to calculate the portion of your home used exclusively for business as a percentage of your total home area. In TaxTank, our quick claim calculator makes this simple, just enter the size of your home office in square meters and specify your business use, and we’ll calculate your claim accurately.
Record Keeping
Keep detailed records of all expenses, including mortgage statements, rent receipts, council rates, insurance documents, and running costs like utility bills. In TaxTank, just set your work-use percentage, attach receipts as you allocate expenses, and securely store them for easy access year after year.
When to Use It
This method is ideal if you're a sole trader and have a dedicated home office and want to maximise your claim by including both occupancy and running costs. It’s especially beneficial if you incur substantial home expenses and can maintain the required records.
Important: Note that claiming occupancy expenses may create a proportionate capital gains tax (CGT) liability if you decide to sell your home. However, certain concessions may apply to reduce this liability. For more details, refer to the ATO’s guide on home-based business deductions.
FAQs
Q: Can I switch methods during the year?
A: No, the ATO requires you to use the same method consistently throughout the tax year.
Q: What if my work-from-home situation changes?
A: With TaxTank, you can update your details anytime to reflect changes in your work use, ensuring accurate deductions.