Occupancy expenses for employees
As an employee working from home, generally:
- you can't claim occupancy expenses
- you can claim running expenses.
If you acquired your home after 20 September 1985 and you are eligible to claim occupancy expenses, there are capital gains tax (CGT) implications for your home. There are no CGT implications if you only claim running expenses.
See Deductions for home-based business expenses if you operate a business from your home.
Occupancy expenses are expenses that you pay to own or rent your home. These include:
- mortgage interest
- rent
- council and water rates
- land taxes
- house insurance premiums.
If you're eligible to claim occupancy expenses, you can also claim running expenses you incur.
Eligibility to claim
You can only claim occupancy expenses if you have an area set aside that has the character of a 'place of business'. Indicators that the area of your home you've set aside to work from may be a place of business include:
- the area is clearly identifiable as a place of business
- the area isn’t readily capable of being used for private or domestic purposes
- the area is exclusively or almost exclusively used for carrying on a business
- the area is used regularly for visits of clients or customers.
To claim occupancy expenses when you work from home, you must show that:
- the nature of your income earning activities requires you to have a place of business
- it was necessary for you to work from home because your employer doesn't provide you with an alternative place of business
- the area of your home that you use for work is exclusively or almost exclusively used for work purposes and isn't readily capable of being used for any other purpose.
Calculate your occupancy expenses
Occupancy expenses can generally be apportioned on a floor area basis. You must also apportion your expenses on a time basis if you only use that area of your home for work purposes for part of the year.
Example: occupancy expenses deductible
Abdul works at his employer’s office in Brisbane. His employer permanently closes the office at the end of January 2024. Abdul’s employer still requires staff in Brisbane to provide services to their clients, which includes face-to-face meetings.
Abdul’s employer provides him with the equipment he needs to fulfil his work functions. They also pay for a work, health and safety check on the room in Abdul’s home that he intends to work from. Abdul's home address is listed on his employer's website as an address for the business and he is required to keep client files secure.
From 1 February 2024, Abdul starts working from the room set aside in his house. The floor area of the room is 10% of the total floor area of the whole house.
Abdul doesn’t use the room for non-work purposes and keeps it locked because it is set up as a permanent office of his employer where his clients attend for meetings.
Abdul can claim a deduction for occupancy expenses as a result of working from home for 5 months of the year because:
- his income earning activities require him to have a place of business for client meetings and to keep files
- his employer doesn't provide him with an alternative place of business
- it is necessary for him to work from home
- the room he works from is used exclusively for work purposes and it is not readily capable of being used for any other purpose.
Abdul's occupancy expenses for the 2023–24 income year are $24,918. That is:
- mortgage interest $19,524
- council rates $4,259
- home insurance $1,135.
Abdul calculates his deduction for occupancy expenses as follows:
Total occupancy expenses × floor area percentage × time used for work purposes
$24,918 × 10% × (5 months ÷ 12 months) = $1,038.
As Abdul can claim mortgage interest expenses as a deduction, he will be required to pay tax on a portion of any capital gain he makes when he sells his home. He can't claim the full main residence exemption.
End of example
Example: occupancy expenses not deductible
Randy’s employer decides to permanently close the office he currently works from before their shutdown in mid-December 2023. From January 2024, Randy works from home in either his loungeroom at a desk or at the dining table. As Randy only needs a laptop and a mobile phone, he doesn’t have a room set aside to work from.
Randy can’t claim a deduction for any portion of his occupancy expenses.
Even though his employer hasn’t provided him with a work location and it is necessary for him to work from home, he doesn’t have an area of his home set aside to use exclusively, or almost exclusively, for income producing purposes. His dining room and lounge room are also readily capable of being used, and are used regularly, for private purposes.
End of exampleRecord keeping for occupancy expenses
You must keep records for all of your occupancy expenses, including:
- bank statements for your mortgage interest
- rental receipts
- quarterly invoices for your water and council rates
- invoices or receipts for your house insurance
- land tax assessment notices and evidence of payment
- a floor plan of your home with the floor area used when working from home clearly marked
- records of time spent using the area for a purpose other than working from home
- records showing how you apportioned your occupancy expenses.
You must also keep records for the property, including:
- the purchase and sale contract for your home
- records of any incidental expenses you incur on the purchase and sale of your home – for example, real estate agent commission and stamp duty
- records of the occupancy expenses for every year you claim them.
If you become eligible to claim occupancy expenses sometime after you buy your home and you're eligible to claim a deduction for interest expenses, you won't be eligible for the full main residence exemption. It doesn't matter whether you actually had a home loan or whether you claimed a deduction for interest, your main residence exemption will still be affected. However, there are special rules around the cost of your home in these circumstances. As such, you should get a market valuation for your house at the time you first start using it for income producing purposes.
These records must be kept for the entire period that you own your home and for 5 years after you sell it.
Find out more about how your home may be affected if you use your home in earning your income.