Tim works from home as a Graphic Designer and would like to know what tax deductions he may be able to claim. He has calculated that his home office represents 20% of the total area of the dwelling.
As Tim has a dedicated office at home and has no other place of business he can claim the relevant proportion of occupancy expenses as well as running expenses. Occupancy expenses include rent or mortgage interest and council rates. Running expenses can include power, telephone and depreciation on office equipment. Deducting occupancy expenses may have eventual Capital Gains Tax (CGT) implications.
Using Tim’s estimated costs over a five year period the tax impacts would be:
|Home Office||Total ($)||Amount Claimable ($)|
|Occupancy costs||25,000 pa||5,000 pa|
|Running cost||4,000 pa||800 pa|
|Depreciation on Equipment||2,000 pa||2,000 pa|
|Deduction over five years||39,000|
Should Tim sell his house after five years with a discounted capital gain of $100,000, he would need to report $20,000 as the taxable component of the gain. The net taxable effect of these transactions over the five year period would be $19,000 in deductions.
If the home office is not the sole place of business, running costs and depreciation would still be claimable representing a total deduction over five years of $14,000. This would not have any CGT implications on Tim’s home.