In the case of those who works from home, even if it is not exactly a home-based business, occupancy expenses includes costs that you pay to either own, rent and other related expenses, which typically include:
- Rent, or mortgage interest
- Council Rates
- Water Rates
- Land Taxes
- House insurance premiums
To be eligible to benefit from this deduction, the ATO has an ‘interest deductibility test’ that you should pass. It is the ATO’s expectation that you will have an area of your home dedicated exclusively for business activities, for example an office space or a workshop. This area should have ‘the character of a place for businesses’ instead of just a space that is used to generate income.
Generally, you can claim the same percentage of occupancy expenses as the percentage of the area in your home used for income production. A common method is to calculate the floor area used for work, then work out the percentage of this area over your entire home area. For example, if a room you used as an office takes up 10% of your home floor area, then you can claim 10% of the expenses as a tax deduction. Other basis might need to be considered if the floor area percentage method is not a good indicator.
An important thing to note: Family homes are generally exempted from capital gains tax. However, if the home is also used to generate income, then that portion of the home will be subject to CGT.