Tax deductions for homeowners this EOFY
With the financial year coming to an end this month, many of us will be starting to think about preparing our tax returns, particularly (once we’ve located all those receipts) how to minimise tax liabilities by claiming the appropriate deductions.
When it comes to home-related tax deductions, as a general rule, when you own and occupy your property without earning any income from it you're not eligible for any specific tax deductions.
However, if you receive an income from renting out a portion of your home, or incur expenses working for an employer or running your own business from your property – there are a number of deductions you can claim when tax time rolls around each year. Follow our handy guide to tax deductions for homeowners this EOFY to make sure you don’t miss out at tax time.
Deductions for employees working from home
With the option to work from home now a permanent feature of many office-based roles, whether you get to spend every day in your PJs or have a hybrid arrangement with some days at home and others in the office, there are several tax deductions you may be able to claim.
What you can claim…
If you work from your home for an employer – full or part-time – you may be able to claim a deduction for running expenses including heating, cooling and lighting, the decline in value for items used for work such as furniture, along with internet and phone expenses.
And what you can't…
You can't claim a deduction for the cost of any items provided or paid for by your employer such as a laptop or a phone, and you may also want to monitor the frequency of your tea breaks given household items such as coffee, tea or milk also non-tax-deductible.
Unless your employer doesn't provide a workplace other than your home, or you work in an area of your property only used for work purposes, you generally can't claim for occupancy expenses like mortgage interest, rent, council and water rates, land taxes and house insurance premiums.
Calculating your tax deduction
To calculate your deduction for work from home expenses, select the method that best suits your circumstances from the two available:
- Fixed rate method - an amount per work hour for additional running expenses plus expenses not covered by the fixed rate.
- Actual cost method - the actual expenses you incur as a result of working from home.
With the pandemic now behind us, the shortcut method used for calculating home office expenses during Covid is now discontinued, and can only be used for tax years ending 2022, 2021 and part of 2020.
For help with working out your deduction entitlements use the ATO’s Home office expenses calculator.
Deductions for a home-based business
If you run your own business from home, you may be able to claim tax deductions for your occupancy costs including mortgage interest or rent, council rates, land taxes and home insurance premiums; running costs such as electricity, phone, cleaning and decline in value of equipment (depreciation); and travel via car for business purposes.
Deductions when renting out part of your home
If you have the space, renting out an unused area of your home such as a spare room, can be a great way to earn additional income. Be aware that the ATO treats this arrangement like any other investment property, so while you can claim the same tax deductions, any rental income has to be declared in your tax return.
You can only claim expenses related to the specific area you rent out, during the period it is leased for, with these including council rates, mortgage interest, home insurance, electricity, gas, cleaning and maintenance costs.
As an owner occupier renting out part of your home, bear in mind that if you decide to sell your home you may not be entitled to the full main residence exemption from capital gains tax (CGT), and may have to pay CGT on part of any capital gain made.
Finally, keep records & submit on time
If you plan to claim for a deduction you need to keep records of all expenses incurred in either paper or electronic format. It’s a good idea to keep all your records and receipts in one place throughout the year so you can put your hand on them when tax time rolls around.
Finally, if you’re preparing your own tax return don’t forget to lodge it before the deadline of 31 October each year, while if you’ve employed a tax agent they can still lodge a return on your behalf after this date.
Disclaimer: You should always seek advice from a specialist finance/tax agent about your specific circumstances. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.