Home Office Expenses

Where individual taxpayers keep a diary for the purpose of establishing a connection between the use of their home office and their work or business, the Commissioner will accept diary records covering a representative four week period as establishing a pattern of use for the entire year.

Individual taxpayers who claim deductions for work or business related home office running expenses comprising electricity, gas and depreciation on office furniture may claim either a deduction for the actual expenses incurred or a deduction calculated at the rate of 20 cents per hour. Other home office expenses, such as telephone expenses and depreciation on computers or other equipment, will have to be calculated separately

Individual taxpayers who claim home office expenses are required to be able to prove that they have incurred such expenses. Such taxpayers must also be able to establish a connection between the use of their home office and their work or business. The Commissioner's view of the law relating to home office expenses is contained in Taxation Ruling TR 93/30 - Deductions for home office expenses.

Normally, a taxpayer would have to keep a complete diary recording the duration and purpose of each use of their home office during the year in order to demonstrate this connection for every occasion. However, this imposes an unreasonably high compliance cost upon taxpayers in relation to what are frequently small claims.

In order to ease this evidentiary burden, the Commissioner will accept a diary covering a representative four week period as establishing a pattern of use for the entire year. The taxpayer may then use this pattern of home office use to calculate the home office running expenses claim for the entire year, allowing for periods when the home office is not used for income production, such as holidays, illnesses, etc. This method is outlined in Tax Pack.

A new diary must be kept for each financial year, as patterns of use are likely to fluctuate over two or more years. Employees must keep each of these diaries for five years after lodgment of the return for that year or the due date for that lodgment, whichever is later, in accordance with section 900-25 Income Tax Assessment Act 1997.

A small number of taxpayers incurring home office expenses may not have a regular pattern of home office use upon which a representative pattern may be based. Such taxpayers will need to keep records of the duration and purpose of each use of their home office during the year.

Based upon actual use or an established pattern of use, the Commissioner will accept that a taxpayer has incurred 20 cents per hour for home office running expenses for heating, cooling, lighting and depreciation of furniture (desks, tables, chairs, cabinets and shelves). This rate is based upon average energy costs and the value of common furniture items used in home offices. However, due to larger variations in cost of computers, telephone, faxes, etc, the taxpayer will still have to calculate depreciation on other items in the home office separately.

Naturally, taxpayers who wish to use the actual costs method to claim a deduction for these home office running expenses can do so, but they will need to keep appropriate records to be able to show the amounts of the expenses incurred and the extent to which they are incurred in deriving assessable income.

By accepting this simpler and easier method of calculating the small amounts of home office running expenses, the Commissioner is again attempting to decrease the cost of compliance for individual taxpayers.

The following are examples applying this approach to typical taxpayer situations. Example 1