Home-Based Business Tax Deductions: Expenses, Records and CGT

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A home-based business may claim eligible business expenses, but private costs must be excluded. Running costs and occupancy costs have different tests. Using a company or trust does not automatically protect your home from capital gains tax.

Running expenses and occupancy expenses

Running expenses can include the business portion of electricity, internet, cleaning and equipment costs. Occupancy expenses include rent, mortgage interest, rates and insurance. Eligibility for occupancy deductions depends on the facts, including whether an area has the character of a place of business; occasional work at the kitchen table is different.

Start with the ATO’s home-based business expense guidance. Match the method and records to the expense. Do not claim the same cost twice, and separate capital purchases from ordinary running expenses.

What if your business operates through a company or trust?

Identify who owns or leases the home, who incurs each cost and the basis for any reimbursement or rental arrangement. The ATO home-based business factsheet explains genuine market-rate agreements and potential Division 7A or FBT issues. Informal transfers from the business account should not simply be labelled rent.

Can business use affect the CGT exemption?

Yes. A dedicated business area can affect the main residence exemption when an owner sells the home, including where a company conducts the business. Entitlement to occupancy deductions matters; choosing not to claim an available interest deduction does not necessarily preserve a full exemption. See the ATO’s CGT guidance and company example.

Get advice before setting up a dedicated premises arrangement, changing how the space is used or selling the property. A larger current deduction should be considered alongside a potential future CGT cost.

Records to bring to a review

• A floor plan showing the space used and an explanation of its business and private use.
• Bills, invoices and equipment purchase records.
• A record of working patterns and the basis for each apportionment.
• Lease, rental or reimbursement agreements and evidence of payments.
• Property acquisition details and dates of changes in business use.

If you work from home as an employee rather than operating a home business, read our separate working-from-home deductions guide. The eligibility tests should not be treated as interchangeable.

Discuss your circumstances

Stewart Private Accounting helps business owners in Perth and across Australia with accounting and tax support. Contact our team to discuss the records, scope and fees for your work.

This guide provides general information current at the update date. The treatment depends on your circumstances and the applicable income or FBT year.