Can I Claim Rental Deduction in My Tax Return? Accountants Help.

[Deactivated] on 03/07/2018 - 14:04
Last edited 03/07/2018 - 16:59

Hi OzBargain,

Looking for tax advice if someone could help.

I'm seeking to understand if I can claim the portion of rent for my home office space.

I work for a small consultancy group who do not have an office in Australia. All employees work from home and we conduct our business affairs including client consulting from either a cafe or my home office. The ATO website states "you have a work area – a room such as a study or spare room is set aside primarily or exclusively for work activities but your home isn't your principal place of business – for example, you may have an office elsewhere, but work at home after hours" in that situation you can't claim the rent however my home is my principal place of business.

I am an employee earning a wage not a director.

The ATO live chat people are useless they just copy and paste links and don't answer my question.

I would use an accountant but this is the only question I need to know.

Thank you for your help.

Update: This is straight from etax article: https://www.etax.com.au/home-office-expenses/

"Generally, occupancy expenses are relevant only to those using their home as a place of business. However, if your employer does not provide you with a workspace and you can provide evidence that your home is your primary place of work, you can claim the relative percentage of the overall occupancy expenses of your home – as well as the running costs of your home office."

Poll Options

  • 41
    Yes - You can claim occupancy expenses
  • 8
    No- You can't claim
Education & Work

Comments

  • uG on 03/07/2018 - 14:12
    +3

    From the ATO Website:

    "Where your home is also your place of business, you can claim deductions if you carry out income-producing work at home and incur expenses in using your home for that purpose.

    You can claim a deduction for the following:

    occupancy expenses (such as rent, mortgage interest, insurance, rates). You can claim the portion of these costs that relates to the room or workshop you use as a place of business. A common method of working out how much to claim is the floor area (as a proportion of the floor area in your whole home)."

    Source: https://www.ato.gov.au/General/Property/Property-used-in-run…

    • AustriaBargain on 03/07/2018 - 14:33

      What if your home office isn't producing income yet, but you are advertising services that you can carry out in the office? Can you still claim it? All of my clients either go out of business before they can pay or they are just unwilling to pay.

      • [Deactivated] on 03/07/2018 - 15:35
        +6

        What are you claiming if you're not making an income?

        If you're not paying tax, you can't deduct from said nil tax.

        • owli on 03/07/2018 - 15:57

          Do they have another source of income?

        • [Deactivated] on 03/07/2018 - 16:01
          +7

          @owli:
          You can't create a loss generating entity to shoulder all your living expenses under the pretense of operational cost.

          That's tax fraud and it does not end well.

        • AustriaBargain on 03/07/2018 - 16:12

          I claimed for last FY, other expenses. But this year I’m not so sure. And I paid tax from other jobs, yes.

        • owli on 04/07/2018 - 16:38

          Thanks, @tshow:
          I think AustriaBargain would have to carry those losses forward for the next financial year when/if his business eventually does turn a profit?

        • [Deactivated] on 04/07/2018 - 17:40
          +1

          @owli:
          I suppose.

          I'm not an accountant but I have a few businesses. I'm advised by my accountant that I cannot have a business shoulder the financial liabilities of another unrelated venture especially when the other venture.

          Otherwise everyone would have a delivery servicr "business". Deductable vehicles and gas.

      • JIMB0 on 03/07/2018 - 16:39

        Wouldn't the losses be quarantined to your business and not be able to be used to offset other income (ie. your day job)?

        • AustriaBargain on 03/07/2018 - 16:43

          I’ve got no idea. But I declared it in any case. I wouldn’t have paid those expenses unless I thought they could make me money down the road. And most of them have no private application outside of business (what am I going to use a 12 month sub to Quickbooks for). If they return some money or they don’t, I don’t mind. I trust the tax man.

      • demeter on 04/07/2018 - 13:14

        The OP is an employee. Home office expenses are different for employee vs. running a business/with ABN.
        If you are an employee and you claim any expenses like home office expenses, you would have to explain that you had no other choice (e.g. the OP's employer does not have office space to work in). You can't just claim the expenses and work from home if you had a choice otherwise.

        If you are starting a business (holding an ABN, NOT an employee), you'll have start up costs which you can claim (advertising, etc) before you make sales. And yes, you may have business losses.

      • TeeJay98 on 05/07/2018 - 11:59

        Interesting.

        If you have an ABN and wish to claim home office expenses, you will need to assess / meet some requirements.

        First and foremost: Income Requirement: Are the four elements of calculating your income less than (when tallied) $250K?

        If yes, move on to attempt passing one of the following four tests:

        If no, you will not be able to offset your losses.

        1. Assessable Income Test

        Did you generate income of $20K or more?

        1. Profits Test

        Did you make a taxable profit in three out of any of the past five years (including the current year)?

        1. Real Property Test

        Value cap of $500K on real property.

        1. Other Assets Test

        Value of other assets used in your business on a continuing basis is at least $100K

  • pantsparty on 03/07/2018 - 14:13
    +1

    Yes

  • [Deactivated] on 03/07/2018 - 14:20

    The online chat people are saying that I can't because "I'm not a director of the company and employees generally can't claim occupancy expenses"

    • AustriaBargain on 03/07/2018 - 14:34

      I figured we were talking about self employment here, rather than working from home as an employee of someone else's business.

      • [Deactivated] on 03/07/2018 - 14:37
        +1

        Yea, however that someone works from their house too. It's not like I can travel interstate to their house everyday to work. My issue is that they say generally, which I'd agree with, but I'm the 1% who is in this situation.

        • HighAndDry on 03/07/2018 - 15:01

          There's far more than 1% of people who use flexi-days and/or other work-from-home arrangements. And no, you can't claim because your employer should be paying you all your work-related expenses. If it's not valid enough to claim a reimbursement from your employer, it's not valid enough to claim as a tax deduction from the ATO.

          Effectively you'd be double-dipping: Your employer would (should and is considered to be) already paying for all your work related expenses. You can't claim those same expenses from the ATO too.

        • [Deactivated] on 03/07/2018 - 15:09
          +1

          @HighAndDry: I've never met another employee that works full-time from home for another business. Flexi-day yeah, all the time, but 24/7 no. My employer also does not pay for my work phone, computer, home internet, electricity etc. nor do I expect them to but I can still claim those things regardless if I can claim rent.

        • HighAndDry on 03/07/2018 - 16:11
          -1

          @Mysterymeat:

          You're not special. And all of this is academic. The rules are that you can't claim rent or mortgage expenses as an employee even if you're working from home. That's pretty much it.

        • [Deactivated] on 03/07/2018 - 16:15

          @HighAndDry: Can you please send me the link that mentions this? Facts are academic, opinion not.

  • CyberMurning on 03/07/2018 - 14:40

    "Can I Claim Rental Deduction in My Tax Return? Accountants Help."
    sorry i am not accountant. and probably 98.88% of ozb member are not as well.

    • Euphemistic on 03/07/2018 - 15:46
      +6

      Wont stop most of us answering the question though!

      • [Deactivated] on 03/07/2018 - 15:52

        Doesn't stop a layman giving the correct answer either.

        It's an objective question. The validity of the answer is binary.

  • nicolemcmilllon on 03/07/2018 - 14:54
    +3

    I would claim a portion of electricity, internet, telephone as well as depreciation of equipment (desks, chairs) in your home office. It won't be much though, all of it would be less than $1200 a year I am guessing.

    • HighAndDry on 03/07/2018 - 15:01
      -7

      OP isn't self-employed, they're an employee. So they can't claim any of that.

      • [Deactivated] on 03/07/2018 - 15:10
        +3

        Mate, you don't know anything, have you even read the ATO site? https://www.ato.gov.au/general/property/your-home/working-fr… educate yourself.

        • [Deactivated] on 03/07/2018 - 15:41
          +1

          What H&D is saying is regarding your terms of employment. If you're a contractor, you would be working for a company probably as a sole proprietor. In this case, you can apportion cost of business to deduct against your (your company's) taxable income.

          If you fall under employee status, you cannot make deductions as you wouldn't incur operational cost because it is not your business. If you do incur personal cost, that should be brought up with the business. An employee does not incur operational cost.

        • [Deactivated] on 03/07/2018 - 15:52
          +1

          @tshow: You're a Doctor right? Not an accountant. I'm not saying that you're wrong, I don't know enough about taxation to pass that judgement. I'm simply stating that the link to the ATO website is created specifically for employees who work from home as required for their position and mentions they are able to claim costs listed as internet, phone, electricity, gas etc. not sure if these are operational cost but it's irrelevant.

        • [Deactivated] on 03/07/2018 - 15:57

          @Mysterymeat:
          My profession is about finding answers and solutions. It is principally about health but the same skillset I use elsewhere too.

          Follow the link at the bottom of the page you pointed to. It takes you here.

          https://www.ato.gov.au/Individuals/Income-and-deductions/Ded…

          The first few paragraphs states specifically the exceptions for deductables, specifically for employees. This includes rent.

        • [Deactivated] on 03/07/2018 - 16:07

          @tshow: I think you could apply that logic to most professions. My Wife is also a Doctor but hell, she's far to busy to be helping me with tax, working 60 hour weeks.

          You will see it states that employees "Generally" can't. I think it's fair to say I'm not a general 9-5 office employee. The link to claiming rental deduction, as indicated here: https://www.ato.gov.au/General/property/property-used-in-run… specifically mentions that "If your employer has an office in the city or town where you live, your home office will not be a place of business, even if your work requires you to work outside normal business hours."

          That's my issue. If I did not pay for my rent, I could not perform my job.

        • HighAndDry on 03/07/2018 - 16:16

          Ok, "you can't claim any of that" was a bit overly broad. This is the actual link you want:

          https://www.ato.gov.au/Individuals/Income-and-deductions/Ded…

          Basically you can claim: Work related equipment expenses, work related telephone expenses, heating and cooling, and lighting.

          But it's certainly not a broad "you can claim everything" rule. Also, scroll down and read the record-keeping requirements.

        • HighAndDry on 03/07/2018 - 16:19

          @Mysterymeat: The entire page isn't applicable to you. The heading of the page is:

          Running your business from home

          As you're an employee, it's not "your business". And it doesn't matter - if you need to pay rent or not to perform your job. Most people wouldn't be able to do their jobs if they were homeless.

        • [Deactivated] on 03/07/2018 - 16:20

          @Mysterymeat:
          I had a patient that had an exemption for car and house. He is a paraplegic. I know he rocks up in those modified vehicles and he had to look for accomodation with access from carport to house.

          I'm pretty sure that's what the ATO had in mind with their exceptions.

        • chumlee on 03/07/2018 - 16:48

          @tshow: i work from home a lot and claim a portion of gas, electricity etc. Perfectly legal as an employee to do so

        • [Deactivated] on 03/07/2018 - 16:55

          @chumlee:
          You can but that's generally a small amount. the big one is rent, depreciation, furniture.

          I did deduct those but with my own home, for CGT purposes, I didn't. After skimming through those links though I think I should be able to without affecting my owner occupied CGT exemptions.

        • [Deactivated] on 03/07/2018 - 17:01

          @tshow: "Generally, occupancy expenses are relevant only to those using their home as a place of business. However, if your employer does not provide you with a workspace and you can provide evidence that your home is your primary place of work, you can claim the relative percentage of the overall occupancy expenses of your home – as well as the running costs of your home office."

          This is from etax which I believe is reputable.

        • HighAndDry on 03/07/2018 - 17:47

          @Mysterymeat: You realise it also says:

          It should meet the criteria, outlined by the ATO:

          clearly identifiable as a place of business, for example, you have a sign identifying your business at the front of your house

          Again, this is why it doesn't apply to… well 100% of people "working from home", and generally only applies to Drs working out of a home surgery, etc.

        • mskeggs on 03/07/2018 - 18:25

          @tshow:
          “As an employee, generally you can't claim a deduction for occupancy expenses, ”

          The “generally” applies unless your home office is a separate place of business, either your full time office, like op or the place you regularly work as part of your workplace agreement with your employer (e.g. you work every Monday at home).
          You “generally” can’t claim occupancy expenses for ad hoc work like a few hours once in a while finishing a report.

        • Deridas on 04/07/2018 - 15:24
          +1

          @Mysterymeat:

          etax.com.au is a private online tax agent, it's not more reputable than the tax agent you find in a shopping centre.

    • spiff on 17/07/2018 - 13:24

      Will you be doing an AMA again this year Nicole? :D

  • dasher86 on 03/07/2018 - 15:15

    what did your professional tax accountant say?

    • [Deactivated] on 03/07/2018 - 15:17

      I have 2 CPA accountant's in the family. Both said I can claim. Which is why I don't understand why the ATO live chat people said no. I don't think they are qualified to answer my personal needs but I don't want a call and fine from the ATO at the same time.

      • John Kimble on 03/07/2018 - 15:31
        +5

        So 2 accountants say you can, but you still need random strangers on the internet to validate/confirm?

        Why don't you just claim it? What's the worst that could happen? You have to pay it back?

        • [Deactivated] on 03/07/2018 - 15:36

          They said they would claim it for their clients but they never had someone in my situation (both in late 20's) I don't mind paying it back but isn't their a fine to go with it?

        • John Kimble on 03/07/2018 - 15:40

          @Mysterymeat: dunno, ask your accountant relatives? I would hope they would be lenient for a (relatively) low value, first offence…but perhaps that's just me being naive…

        • [Deactivated] on 03/07/2018 - 15:46

          @John Kimble: The total amount is around 3k deduction so about 1k refund from the rent side. I claimed it last year with no problems but I don't want to be audited and then have to payback thousands of dollars. Might just sit it in savings for a few years.

        • treeman on 04/07/2018 - 09:58

          @Mysterymeat:

          I don't believe you pay a fine. You say sorry my mistake and pay the money back.
          At worst if you can't pay straight away you may have to pay interest?

  • w00dcah on 03/07/2018 - 16:18
    +4

    OP, the first thing you need to consider is this: Are you an employee or are you self-employed/running a business? You have already said you are an employee.

    This is important because it determines what you can claim. There are two categories of home office expenses – “Running Expenses” and “Occupancy Expenses”.
    Employees can claim running expenses (electricity, phone, depreciation etc), but not occupancy expenses (including rent).

    As you are an employee, your home is not a “principal place of business”. You have a home office, but you do not have a place of business at your home. They are not the same thing. You can only claim occupancy costs for a place of business.

    See here: http://blog.deloitte.com.au/home-sweet-home-office-a-simple-…
    And here: https://www.ato.gov.au/General/Property/Your-home/Working-fr…

    • HighAndDry on 03/07/2018 - 16:21
      +1

      It's not hard to find online. OP just doesn't want to hear this particular answer.

    • [Deactivated] on 03/07/2018 - 16:30
      -1

      Thanks @w00dcah it's clearly a misunderstood area with 75% of the poll stating that I can claim. If there's any doubt than I won't claim. It's just interesting that they state my "home is not my principal place of business" I wonder where is then? My local Cafe? My car? I conduct all of my business out of my home so that's why I was confused.

      • Ughhh on 03/07/2018 - 16:34
        +1

        Probably because it's not your business, you're an employee, you don't run the business, your boss does. Your boss can probably claim, but you can't.

        • [Deactivated] on 03/07/2018 - 16:42
          -1

          I was actually going to use this return to buy a Pug. More money to centrelink then. All good.

        • HighAndDry on 03/07/2018 - 17:48
          -1

          @Mysterymeat: Ha! Shame, pugs are adorable. It's not that we want you to pay more tax. Do you know I just found out someone uses their disability money (so our tax dollars) to go gambling? Like, wtf.

          But we all suffer so come suffer with us.

  • [Deactivated] on 03/07/2018 - 16:47
    +1

    This is straight from https://www.etax.com.au/5-forgotten-tax-deductions/ " if you work entirely from home (either self-employed or as a home-based employee) you can typically claim the ”occupancy cost” of your home office space as a tax deduction. These expenses can include software, equipment, furniture and a percentage of your rent/mortgage and electricity."

    That's the first article I've read that mentions home-based employee not an employee that occasionally works from home.

    • w00dcah on 03/07/2018 - 16:59
      +2

      OP, I stand corrected: https://www.ato.gov.au/rba/content/?ffi=/static/rba/content/…

      Claim away.

      • HighAndDry on 03/07/2018 - 17:50
        -1

        Noooo that's not what a Private Ruling means. At most, this means OP can apply to ATO for his own private ruling, after which he can then claim those expenses. Private Rulings are not generally applicable to anyone else.

        • w00dcah on 03/07/2018 - 18:10

          Yep, fair enough that's true. But it at least shows that it is not a clear cut "not deductible" as it is in most employee circumstances.

          If push came to shove, OP would have to satisfy the ATO on a few things, including that their employer hasn't provided a place for work, and that their "office" is of the right nature and set up to satisfy the requirements.

          But the cases cited and Taxation Ruling 93/30 would suggest there is at least an argument if OP can satisfy the ATO of a few things.

          Really, OP just needs to see an accountant who can advise based on ALL of the facts.

        • [Deactivated] on 03/07/2018 - 18:12

          https://www.ato.gov.au/law/view/document?DocID=TXR/TR9330/NA… paragraph 11 - section 12

        • HighAndDry on 03/07/2018 - 18:29
          -1

          @w00dcah: Definitely. But the fact that there is a private ruling actually shows that someone (presumably a professional accountant with experience, because you need someone like that to apply for private rulings) thought that it's not a claimable deductible by default.

          It actually makes me a lot more confident that OP can't claim it than the opposite.

    • cloudy on 05/07/2018 - 10:52

      I reckon you can, I’m no accountant.

      But remember, even if you can claim, for example depreciation of furniture, first you need a receipt of purchase to show you paid for it.

      Then you need to approximate how much is office and how much is personal use. Then you need to depreciate by useful life.

      Hope that helps, if you can’t do all that you will find trouble if audited in the future becssue this is an area where they will crack down on due to the ease of people putting down random numbers.

      • [Deactivated] on 05/07/2018 - 13:58

        I'm only claiming a rental deduction. Worked out from the floor space of my office. It's not a huge deduction anyway.

        • cloudy on 05/07/2018 - 16:28
          +1

          Sounds fine by me, non accountant

  • jhmtaylor on 04/07/2018 - 19:02

    Here is a thought. Ask your employer to restructure your remuneration with a home office rent and expense allowance in lieu of the same amount of salary. It will be untaxed at the employer source and you will then have to justify the expenditure to the ATO. Run it by your accountant and see what he thinks. Obviously it wont work for last year though.

  • frostman on 05/07/2018 - 08:36

    If you're an employee, you can claim some running costs such as; electricity, gas (heating), Internet.

    If you're operating under ABN, you can claim a portion of your rent or (mortgage) as a tax deduction PROVIDED the room is fit for business.
    i.e you cannot have a TV, play room and claim that expense. The room must demonstrate a business/office/work-environment.
    The downside is when you sell, you have to factor that into your capital gain tax.

  • scorpiosony on 05/07/2018 - 12:12

    NO.
    Here's your answer.
    TR 93/30
    http://law.ato.gov.au/atolaw/view.htm?docid=TXR/TR9330/nat/a…

    • [Deactivated] on 05/07/2018 - 14:01

      That taxation ruling clearly states:

      "The absence of an alternative place for conducting income producing activities has also influenced a court or tribunal to accept a part of a taxpayer's residence as a place of business. In each of these cases the taxpayer was able to show that, as a matter of fact, there was no alternative place of business, it was necessary to work from home, and that the room in question was used exclusively or almost exclusively for income producing purposes."

      I fit all of those requirements. I'm justing going to claim. If I get audited I will explain why I thought I could and if I need to pay back money then so be it.

      • HighAndDry on 05/07/2018 - 14:04

        I feel like you'd already decided that and just wasted everyone's time here to validate your preconceived idea. I mean, your OP says:

        and we conduct our business affairs including client consulting from either a cafe or my home office.

        And the ruling very specifically says:

        the taxpayer's circumstances are such that there is no alternative place of business and it was necessary to work from home

        But you know you can believe what you want.

        Also related - I'm pretty sure if you're renting, your lease says you can only use the property for residential purposes, and the property itself is only zoned for residential use. Moreover, if you're renting an apartment, I'd also be fairly sure the Strata bylaws say you can only use the property for private residential use.

        • [Deactivated] on 05/07/2018 - 14:11
          +1

          I'm starting to think you're just a troll. I'm not trying to waste anyones time. I had a genuine question that I did not know the answer to. Upon further research I found more information which I then posted here. I'm a contributing member to this bargain community. Sometimes I ask questions, other times I answer and sometimes I can offer great bargains to all. Just yesterday I provided hundreds of people with free beer: https://www.ozbargain.com.au/node/388967

        • HighAndDry on 05/07/2018 - 14:16
          +1

          @Mysterymeat: I didn't say you set out to do it deliberately. I'm saying from the OP and every subsequent comment, you've consistently showed that you wanted to claim it as a deductible, have disagreed or disregarded anyone with material opposite to this view, and have basically been soliciting people to agree with you. This is natural - we all like hearing what we want to hear - I'm just calling out the level of this cognitive bias you're showing.

        • [Deactivated] on 05/07/2018 - 14:26
          +1

          @HighAndDry: I'm not soliciting. I'm simply proving other evidence they may have missed. After reviewing it they can come back and object and I would listen. More than 75% of the people using the poll suggested I could. I just asked another CPA accountant who sat on the reserve bank board for 20 years and said I could. If the ATO want to audit me and find me in fault I will pay it all back. I have the answer I was looking for and if I could close this thread I would. I've got to get back to my illegal office now before strata kick me out of my apartment.

        • HighAndDry on 05/07/2018 - 14:34
          +1

          @Mysterymeat: You realise that instead of actually addressing the substantive issues I raised, you've spent the last two comments complaining that I'm a troll because I still refuse to agree with you? As I said in my comment above though - you can do what you want. No one here can stop you.

          I have the answer I was looking for

          Exactly what I said.

        • [Deactivated] on 05/07/2018 - 15:07
          +1

          @HighAndDry: You have more sassy retorts than my Wife, and that's saying something.

        • Baysew on 17/07/2018 - 13:30

          @Mysterymeat:

          I just asked another CPA accountant who sat on the reserve bank board for 20 years

          Past & Present Reserve Bank Board Members

          Are you sure about that?

  • Mango Madness on 05/07/2018 - 12:41

    Given you only have a home office, your home would be considered your principal place of business (based on your information).

    If you claim a deduction, you may be triggering the CGT clause, due to primary place of business (if you claim deduction).

    Tax Law is situational. If you claim a deduction for expenses, then you are liable for capital gains later on. So the question is a matter of deferring tax, and whether it is worth the CGT you'll encounter.

    • Lets say your eligible home expenses are: Rates, Electricity, Water, House Depreciation (assuming your house has a depreciable value). What you can claim depends on your situation.
    • Let's say this is $10,000 per year, and the office occupies 5% of our house, then you claim a deductible expense of $500.
    • If your house value is $500,000 and increases by 2% per year (likely more than 2%), this is a $10,000. Your CGT payable becomes 5% of the value, being $500.
    • In this scenario, you break even (ignoring time value). But you also have the added time of calculating these items.

    This is a general example of the short term benefit vs long term cost.

    • [Deactivated] on 05/07/2018 - 14:04

      Good information. I live in Sydney and was not born into family wealth so I'm in a rental and CGT will not apply. Will keep this in mind for the future.

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