Claiming Occupancy Expenses for Home Use – Are You Compliant?

As working from home becomes more common, many individuals are looking to maximise deductions related to their home office. However, if you are claiming occupancy expenses (like rent, mortgage interest, rates, or insurance), the ATO has strict rules — and non-compliance could result in audit or penalties.

Here’s what you need to know before including these expenses in your tax return.

🧾 What Are Occupancy Expenses?

Occupancy expenses relate to the ownership or rental costs of your home, such as:

• Mortgage interest (if you own)
• Rent (if you lease)
• Council rates
• House insurance
• Land tax

These are separate from running expenses, which include electricity, internet, cleaning, and office equipment depreciation.

✅ When Can You Claim Occupancy Expenses?

To claim occupancy expenses, you must:

1. Have a clearly defined area set aside exclusively for work — not a shared space like a dining table or bedroom corner.
2. Earn income from home in a way that is substantive and ongoing, not just occasionally.
3. Show that the space is used solely for income-producing purposes, and not for private use.

🛑 If your employer simply allows you to work from home occasionally, or you don’t have a dedicated office space, you likely won’t qualify for occupancy expense deductions.

🔍 Key Compliance Issues

1. Capital Gains Tax (CGT) Impact
   If you claim occupancy expenses for a home you own, that part of your home may lose the main residence CGT exemption when you sell. This could result in a taxable capital gain.
2. Inadequate Records
   You must keep:
• A floorplan showing work-use area
• Evidence the space is used exclusively for business
• Records showing how you calculated the business-use percentage of your home
3. Incorrect Method
   Many taxpayers mix up the fixed rate method (for running costs) with actual occupancy claims. Occupancy costs can only be claimed using actual expenses, apportioned by floor area and usage.
4. Rental Property Use
   If you are renting part of your home (e.g. via Airbnb), that area must be excluded from occupancy claims for personal work-from-home use.

🚫 Common Traps to Avoid

• Claiming rent or mortgage interest when you only work from your kitchen table
• Claiming occupancy and running expenses under the same method without accurate records
• Overstating floor area or failing to adjust for mixed use
• Ignoring CGT consequences

🧠 Our Tip

Only claim occupancy expenses if your home is your principal place of business (e.g. a GP’s consulting room or architect’s home studio). Most employees working from home are limited to claiming running expenses only — using either the fixed rate or actual cost method.

We’re Here to Help. We can assess whether you’re eligible to claim occupancy expenses. Help you calculate and apportion correctly. Explain CGT impacts and record-keeping requirements.

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Yan Qi CA

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