Q. I am in the process of preparing my Income tax return for last financial year. I am employed and occasionally work from home. What deductions am I eligible to claim and what mistakes or traps should I be aware of?
A. Taxpayers may claim work-related expenses incurred as a direct result of working from home. Typical examples of expenses would be phone, internet, depreciation of your computer, printing and stationery. But you must be able to provide clear evidence that you have not blurred the lines between personal and work-related expenses.
There is no default level of deduction that you are entitled to claim and you obviously cannot claim where expenses have not been incurred. Whilst you don’t need receipts for claims under $300 for work-related expenses, $150 for laundry and 5000 kilometres on a motor vehicle, you still must have incurred the costs and be able to explain how you calculated your claim.
You are not entitled to claim for expenses where they are reimbursed by an employer, for example where you receive a car or laundry allowance. In all cases, you must have documented records supporting any work-related claim.
If you are claiming a portion of household running costs like electricity for heating, cooling and lighting, you need to be able to demonstrate that these were additional costs incurred by working from home. Other examples would be the internet or mobile phones where you can only claim the work-related component.
If you have a dedicated workspace within your home, be careful what you claim as an expense. For example, if you were to claim “rent expense” for a home office then that may mean that you lose your principle residence exemption and therefore your home may be subject to capital gains tax in the future.
Before making any claims for work-related expenses, seek advice from a tax adviser and ensure you satisfy all requirements for record keeping to substantiate a claim and that you are aware of the broader tax consequences of any claim you make.
Q. We own a holiday home that we personally use but also rent out via Air BnB from time to time. What expenses are we able to claim on the property?
A. Holiday homeowners are able to claim legitimate expenses incurred on their property. However, you cannot claim expenses for the time that the property is either used by the family or friends or is unavailable for rent at market rates.
Deductions can only be claimed if the property is actually available for rent. To assist property owners, the ATO applies four rules to ensure that a holiday home is genuinely available to rent; The property should be advertised to a wide audience. The property needs to be in a condition making it rentable. The rental rates must be at genuine market rates. You cannot refuse tenants without legitimate reasons.
If the property is rented out to friends at “mates rates”, deductions can only be claimed on expenses up to the amount of income received.
Ensure you keep accurate records of the income you receive from your rental property, expenses you incur and evidence of the property being rented or genuinely available for rent at market rates. Keep accurate records of who stayed at the property and when including the time you and your family stay at the property.
From July 1 2017, taxpayers are no longer able to claim any deductions for the cost of travel to their investment property for “inspections”, with very few exclusions.
For further information on legitimate property expenses on holiday homes, visit www.ato.gov.au or contact your tax adviser.