Claiming Rent When Working Form Home as IT Contractor

kkoc3 on 26/07/2020 - 13:36
Last edited 26/07/2020 - 13:39

Hi All

Just seeking some general Advice from all IT contractors . I will be seeing a tax agent however doesn't hurt to ask here .

I am an IT developer who is working as daily rate contractor. Please note that i work through various agencies depending on contract but mostly one contract at a time . I do not have a company setup . With COVID changing things i believe i will be working from home majority of time now and in future .

Question :- If i rent a 4 bedroom house paying 800 / WK and use one room as home office( dedicated) can i claim 200 ( 800/4) in my tax deduction ?

If No why ?

PS: i know everyone can claim 80c as blanket work from home however i am thinking this 80c blanket rule is more for this year only.

Financial

Comments

  • toniyellow on 26/07/2020 - 13:40
    +13

    Ask your accountant but

    Occupancy expenses such as rent, mortgage interest, insurance and rates - No
    https://www.ato.gov.au/general/property/your-home/working-fr…

    • berry580 on 27/07/2020 - 18:48
      +1

      That's the ATO, you can claim all the deductions in the world, as long as they add up to peanuts.

      • [Deactivated] on 27/07/2020 - 22:25
        +9

        What if you have a nut allergy

        • CocaKoala on 28/07/2020 - 07:34
          +6

          Ah, you claim nothing in that case.

  • [Deactivated] on 26/07/2020 - 13:42

    I personally think it is fair and don't think you would have a problem.

    You may have to show proof if audited but I think that's simple.

    (I stand corrected. Rent is explicitly excluded. As per link in first comment.)

    • Scantu on 28/07/2020 - 11:26
      +1

      That would be if you were an employee.

      Sounds like OP is a Sole Trader, in which case claiming n percentage of office space of the rent is totally fine.

      • [Deactivated] on 28/07/2020 - 11:27
        +1

        That's good to know. Thanks.

        • bigbadboogieman on 29/07/2020 - 00:36

          This creates capital gains considerations as the residence is now considered partially as a work place. They get you one way or the other you only get to choose how and when.

  • SnoozeAndLose on 26/07/2020 - 13:45
    +1

    I don't think so, if so people can claim interest? If the person pay off their home then it is unfair.

    • [Deactivated] on 26/07/2020 - 13:47
      +8

      Even if deduction of interest is allowed, I am not sure if I want to complicate my home with business.

      There are other implications such as CGT.

      • RockyRaccoon on 26/07/2020 - 18:57
        -4

        No CGT when you are renting….

        • [Deactivated] on 26/07/2020 - 18:59
          +3

          Response was to comment above re interest and paying off a home.

      • 82norm on 27/07/2020 - 10:12
        -1

        Yes, at sale time…..

    • geoffs87 on 27/07/2020 - 20:27
      +7

      It’s certainly interesting, because companies property costs are an expense line, offset against revenue which reduces profit, therefore less tax.

      Almost all companies are now enabling their employees to work from home more often, subsequently reducing their property footprints and costs… so we start working from home at our own expense. Shame we can’t claim even a portion of our home loans/rent as a tax deduction, I’m even looking at buying a bigger place in order to have a permenant office for my wife and I!

      • bigbadboogieman on 29/07/2020 - 00:48

        That's a valid point but unfortunately ATO has the exclusion. There are quite a few "ethical" delimmas but ATO washes its hands off and no one bothers.

        Consider this: For income tax/ATO, a person is considered as an individual even though they may be part of a family unit but for Medicare and almost everything else like divorce settlement, etc; the law considers partner as equal contributors in a family unit. A family unit can comprise of atleast two people (partners). Sometimes one of those two people are in a lower tax band and if both were considered as a single family unit and able to share their unused bands (just like Medicare levy surcharge) then potentially the other higher earning partner could offset some portion of tax which they can't do now because ATO taxes everyone as an individual.

        People do complicated stuff like trusts, etc just to spread the income across all family members. All of these shady practices would disappear if ATO applied more transparent and people friendly rules.

  • whooah1979 on 26/07/2020 - 13:49

    Change the lease to your partner’s name and have them lease the office to your ABN.

    • JimmyF on 26/07/2020 - 16:35
      +3

      Change the lease to your partner’s name and have them lease the office to your ABN.

      What company? OP says

      I do not have a company setup

      Then the partner will also have to have to declare the income. So the OP is just shift tax to them..

      Plus if the partner is subleasing, that could be a breach of the lease agreement, and there is OHS/Insurance issues.

      • No ONE on 28/07/2020 - 18:34

        partner will also have to have to declare the income. So the OP is just shift tax to them

        But the partner can also claim deduction because the partner is paying to real-estate. Hence zero tax effect for partner.

  • elgrande on 26/07/2020 - 13:53
    -1

    I rent a 6 bedroom Mossman residence. I use one room to sleep/shower/eat in, the remainder of the house I used for my work. As such, I claim 90% on tax.

    • SnoozeAndLose on 26/07/2020 - 14:06

      what categories do you use as the deduction? Office operating cost?

      • [Deactivated] on 26/07/2020 - 14:15
        +2

        Category number #2.

        Most people consider this big business.

      • elgrande on 26/07/2020 - 19:40
        +3

        Yep, but sometimes I put it under work related educated expense, as it educates me as to how I can own my own mansion if I work harder.

    • ihbh on 26/07/2020 - 14:19
      +2

      How does 5/6 become 90%?

      I suppose you only have a microwave in your bedroom and a door to the outside (or you just climb in and out of the window)? :)

      • mbck on 26/07/2020 - 16:41
        +2

        Pretty sure that was a troll post lol

      • elgrande on 26/07/2020 - 19:38
        +3

        6 bedrooms.. but you need to factor in other living spaces ("working spaces") including the family room, lounge room, movie room, games room, massage room, lobby, guest lodge, pool house, gym, sauna, workshop, library and the washroom.

    • giftcardinspector on 27/07/2020 - 08:01
      +1

      Massage parlours are different obviously

  • cjbowden on 26/07/2020 - 15:36

    You may want to consider if you are 'Working from home', or whether you are 'running a business from home'. Different rules and deductions apply.

    • kkoc3 on 26/07/2020 - 19:00

      This is interesting !!!

      Let suppose i setup a company with ABN . ABN address is listed as my residential address ( my office is my garage)
      As a developer i don't need to be at my clients office as i can get my requirements remotely and work remotely as well . So effectively i am running my company from my garage .

      In this scenario i am working from home as well as running my business from home .

      I am sure its not this simple as every IT contractor out there must have thought of it . I am missing some thing here just wanted to share my thoughts on public forum .

      • whooah1979 on 26/07/2020 - 19:10

        Do they pay you super?

        • kkoc3 on 26/07/2020 - 19:13

          If i setup a company i will invoice my clients and i suppose my company will me super and salary .

  • bobwokeup on 27/07/2020 - 01:05

    I’m an IT contractor working from home due to COVID and my accountant worked out that I got the best return by claiming a percentage of my home office equipment purchased, internet, mobile, electricity and gas bills (water is excluded), etc. The other option is the flat rate of $0.80 per hour.

    *edit - sorry just noticed your last paragraph in your post about the flat rate.

    • AustriaBargain on 29/07/2020 - 06:56

      80 cents an hour is just the temporary covid easy calculation rate. Regular easy calculation rate is about 50 cents an hour iirc.

  • brad1-8tsi on 27/07/2020 - 11:46

    I dated someone for a while in 2016 who was a sole trader and she had moved out of her PPOR and put a tenant into it and had been renting a villa for 5.5 years on which she had claimed a large proportion of the rent.
    She said that she claimed the garage because it stored documents and the company car; the lounge room as she had clients for meetings there and office space. She also had done some debt recycling / restructuring and the PPOR was an investment property for that 5.5 years under the 6 year rule.

    She obviously had a a great accountant that was willing to push the boundaries but she was comfortable with the arrangement and there had been no questions from the tax office during that time. She'd only been back in the PPOR 2 months when I met her and seemed like an excellent business woman so I can only assume it was legit.

    • dufflover on 27/07/2020 - 17:00
      +2

      You get asked questions if your name gets listed by a computer algorithm then you are unlucky enough to be shortlisted for an actual audit. With that sort of arrangement I doubt it would hold up to being legit if a human actually looked at it.

    • lunchbox99 on 27/07/2020 - 18:24
      +2

      Well either she had an excellent accountant or it was all not allowed but she was just never audited. Just because you can self-assess without being audited, that does not mean ATO has agreed it is ok. The problem is most people are never caught.

      • brad1-8tsi on 28/07/2020 - 11:36

        Thats why the OP should ask an accountant rather than OzBargain

      • Baysew on 28/07/2020 - 13:37

        The problem is most people are never caught.

        Was watching some TV show. The line was, "Yeah you can get away with many times, but we only have to catch you once."

    • AustriaBargain on 29/07/2020 - 06:57

      Why didn't you marry her if she was so great.

      • brad1-8tsi on 29/07/2020 - 11:58

        Why didn't you marry her if she was so great

        Been there, got the t-shirt. It says "never again".

        I also think marrying someone based on their taxation finesse isn't a long term strategy.

        • AustriaBargain on 29/07/2020 - 18:35
          +1

          It sounds exactly like a long term strategy.

    • railspider on 29/07/2020 - 09:41

      If she was ever audited that arrangement would never hold up

  • kaos on 27/07/2020 - 13:35

    there are pretty good rules in the USA but in Australia the rules are much more strict.
    It's very clear that

    1. the area you get a deduction for has to be used exclusively for the purpose of work
    2. the % you can claim is based on total lettable area not just the inside living bits

    @elgrande's 6 bedroom Mosman mansion and Brads example above don't meet these requirements

    • suntap on 27/07/2020 - 14:11

      *sorry, your post beat mine.

    • smalltime0 on 27/07/2020 - 15:46

      The rules get super complicated if you happen to conduct business across state lines in the US.
      Also you need to follow local, state and federal tax codes, depending upon where you're conducting business.

      • AustriaBargain on 29/07/2020 - 06:58

        What if I did a $2,500 job for a business in California from my home office.

    • AustriaBargain on 29/07/2020 - 06:57

      Is the garden and stuff counted in the calculations?

  • suntap on 27/07/2020 - 14:10
    +1

    Question :- If i rent a 4 bedroom house paying 800 / WK and use one room as home office( dedicated) can i claim 200 ( 800/4) in my tax deduction ?

    If No why ?
    1. you can't claim occupancy expenses
    2. if you are able to claim, what you can claim is done on square meterage used. It is not done on the amount of bedrooms a home has, but how many "under roof" metres the house is. So your claim would not be 25% but say 9m2 (or whatever size room you use as an office) out of the total square metres of the house. It is limited to the one space you use for business ie. you can't claim some of the kitchen space as you occasionally make a client a coffee or that you use the bathroom during business hours. lol.

    • kaos on 29/07/2020 - 12:26

      well, your reply was a direct quote so it does add to the answers very nicely, cheers

  • kaleidoscope on 27/07/2020 - 15:48

    You can if you’re running a company such as working for abn. You can’t if you’re just working from home.

    Working for abn requires some procedure to adhere to. Talk more details with your accountant.

  • gromit on 27/07/2020 - 16:02
    +1

    As someone else mentioned occupancy expenses like rent generally can t be claimed. Even if you had a special case that allowed it then it would be based on percentage of house used for office and not the number of bedrooms.

  • mrhugo on 27/07/2020 - 16:10
    -5

    Just have a room dedicated to work and only work. Say your rent is 500pw and your home is 100sqm. If the room is 10sqm, then you can claim $50pw. Musicians do this all the time, they have a studio setup for their work.

    But don't make it a living room, or the kitchen or the living room. A spare room is fine. In the odd case you are audited maybe take the spare bed out and those storage boxes of winter and summer clothes and make it more a real office. If your office is in your living area, then maybe move it to the spare room.

    But don't claim things like 50% of the rent. And this only works if you rent.

    You don't need an ABN, a PAYG Contractor (i.e. via the agency) is fine.

    And you can do this all year round, but must be justified. I guess in these COVID times things are a little easier to justify.

  • striker5950 on 27/07/2020 - 16:47

    you can claim electricity, you have to measure the living area of the interior divided by the (home office) this cannot be your bedroom. it can be another room dedicated to be your work area.

  • drfuzzy on 27/07/2020 - 19:22
    +1

    Not an accountant but the question centres on whether the IT consultant is earning Personal Services Income (PSI). The ATO website defines PSI.

    If the consultant is billing time at an hourly rate then this is clearly PSI and rent or mortgage is not deductible.

    If instead the business was selling software licenses or products and billings were per license then this would not be PSI and a portion or rent or mortgage may be deductible.

    The OP has not provided adequate information to answer the question.

    • Ace26 on 27/07/2020 - 21:33

      Spot on, pretty standard arrangement with employers who treat someone as a contractor but the payroll treats this person like a PAYG employee (expect no benefits of being perm but extra $$ for being a contractor). Like others said, even if OP went went through the trouble getting a company they would fail PSI rules.

  • gimme on 27/07/2020 - 19:57

    Also keep in mind tbe 80c claim is ONLY since March AND you can't claim other expenses like internet, office supplies etc so some may be better off using the old 52c method. Easy to work out which one is better based on individual circumstances.

  • trev likes bargains on 27/07/2020 - 23:01

    If i rent a 4 bedroom house paying 800 / WK and use one room as home office( dedicated) can i claim 200 ( 800/4) in my tax deduction

    It just hit me. You are not getting charged for the garage, living areas, kitchen, laundry, bathrooms and toilets.

    • SF3 on 28/07/2020 - 00:26

      The maths also doesn’t add up even if prorated, assuming he is working during business hours not 24/7.

      Say works 8 hours a day for 5 days. 40hours of 168hours week is 23% of a week working in his residence. 23% of 200 is $46 per week.

      • tarb on 28/07/2020 - 04:38
        +1

        I don't think time would matter. It's a resource that's either needed or not; you don't have to be driving 100% of the time for a car to be a a required business expense, or printing non stop for a printer. Even if you only need an office for 2 hours a day, it's still a business requirement - I imagine whats more important - as stated above in the comments is that the room not be used for anything else.

  • JudgeRizzo on 28/07/2020 - 10:07
    -1

    If you have a dedicated work space/office at home, then you can claim the % of your rent or interest on mortgage, rates, utilities etc. For example, a bedroom in our home is my dedicated office, which is 15.2% of the total area. I claim 15.2% of the interest on the mortgage, electricity, water etc. This works out to be significantly more than the 80c per hour. There are capital gains considerations though - if I were to sell our house, it's possible I would need to pay CGT on 15.2% of any gain. Talk to an accountaint :)

    • Maichu on 28/07/2020 - 11:08
      -1

      Op can only claim a portion of rent as deduction if the primary place of business is at home (which sounds like it may be the case in the future)
      See ATO link

      No capital gains considerations for Op as they are renting, but may be applicable for others reading this.
      not qualified to give tax advice so DYOR

    • bobwokeup on 28/07/2020 - 18:28

      My accountant advised me you definitely can not claim on interest for mortgage, rent, rates or water but you can claim on electricity and gas.

      • JudgeRizzo on 28/07/2020 - 20:08
        +1

        I'm not an accountant, but from what I understand there are instances where working from home with a dedicated work space you are eligible to claim a deduction for occupancy expenses (mortgage interest, rates, insurance). I believe the ATO refers to it as "your principal place of business". In my instance, I work from home full time, in a city where my employer has no office, which makes the dedicated office space my home my principal place of business despite not running a business myself from home. Sorry, I should have added this qualifier to my original reply. If you're just working from home because of COVID, or a few days a week then it's not applicable. It may very well be applicable to OP though who is a contractor who may be transitioning to full time working from home. As I said earlier, it does have CGT implications if you do this.
        https://www.hrblock.com.au/tax-academy/claiming-home-office

        • chocolatebegood on 28/07/2020 - 23:35

          You’re wrong about your situation. In your instance, you would not meet the rules to claim occupancy expenses. Simply working from home does not mean you are running a business from your home. You’d only be entitled to the $0.52/$0.80 per hour worked from home or the manual calculation of running costs.

          • JudgeRizzo on 29/07/2020 - 09:35

            @chocolatebegood: I'm not sure what to tell you. Perhaps you are right, but two different accountants I've used disagree with you - I think specifically because having no alternative (like an office in my city) does qualify my own home office as my primary place of work. A quick google search and there is plenty of information. On top of the link above from HR block, eTax say:

            "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.

            To work out how much you can claim you need to work out what percentage of the floor area of your entire home is taken up by your home office. So, if your home office takes up 15% of your home, you can claim 15% of your occupancy expenses"

            And from ATO themselves in TR 93/30:
            "In TR 93/30 the ATO states a home will have the character of a place of business in the following two situations:

            • An area is set aside exclusively for the carrying on of a business by a self-employed person e.g. a self-employed carpenter uses their home as a base for operations.
            • An area is used as a taxpayer’s sole basis of operations for income producing purposes as no other work location is provided by the employer to the employee.
              Factors that will evidence this include:

            The room at home was used exclusively for income earning purposes.
            There was no alternative place of work and it was necessary to work from home.
            The nature of the work required that the taxpayer needed a place of work or business."

            So yea, this may be relevant to OP's situation.

            • gromit on 29/07/2020 - 15:51

              @JudgeRizzo: There are definitely exceptions that allow you to claim your rent, however the OP is an IT contractor and that particular line of work is highly unlikely to qualify as he would fall into the PSI category.

  • Plug on 28/07/2020 - 16:10

    You cannot claim a portion of your rent as it is not a business expense and your working from home has not affected your rent liability. You could claim for the extra costs for utilities incurred due to working from home - power, gas, water that you would not otherwise have used. Source - five years working at the ATO.

    • bashar20 on 28/07/2020 - 20:42

      How do you measure your extra power, gas and water expenses due to working from home.
      I just moved to a new house and don’t have a benchmark for my usage.

      • chocolatebegood on 28/07/2020 - 23:31

        You work it out based on square metres of the area used for work over the whole house. You’d also need to apportion the area for personal/work use based on time using that space for each activity. Otherwise just use the $0.52 per hour or the $0.80 per hour.

  • [Deactivated] on 28/07/2020 - 16:28
    -4

    How much you making and what sector?

    • CocaKoala on 28/07/2020 - 17:58

      and what sector?

      Is this the part you missed in the title of the post?

      as IT Contractor

      • [Deactivated] on 28/07/2020 - 20:26
        -3

        Stay in school kid

        • CocaKoala on 28/07/2020 - 20:42
          +1

          May be you should go back to one, given you couldn't read one sentence properly.

    • SF3 on 28/07/2020 - 20:39

      S/he works through various agencies - that means freelance, as an IT developer.

      You can check rates for such roles at seek.com.au

  • chocolatebegood on 28/07/2020 - 23:26

    You can claim the 80c per hour you work from home from March to September this year. The normal rate is $0.52 per hour outside of this period. You can claim actual running costs if you work them out based on a percentage of area used for work though. You cannot claim rent unless you run a business and even then your home would have to be a primary place of business. This means an area unsuitable for personal use. A desk in a study etc wouldn’t be good enough to claim rent even if you were running a business.

  • bigbadboogieman on 29/07/2020 - 01:06

    Disclaimer: I am neither a taxation expert nor a practicing accountant. It's best to seek expert advice instead of asking a random group of people online.

    Deemed Employment
    There are some rules around "Deemed Employment" where even though the form of your relationship may appear "contractor / customer" but substance of the relationship could be "employee / employer" in which case ATO can actually push towards treating the income as employment and reject some deductions and vice versa for the company receiving your services. Important considerations at following link:

    https://www.revenue.nsw.gov.au/help-centre/resources-library…

  • CoreJava on 29/07/2020 - 06:08
    +1

    rent a commercial office and live in it. Then it is okay to claim

  • tightasian on 29/07/2020 - 09:13

    Nah, private nature. Don't even think about it

Login or Join to leave a comment
Login Join