Coronavirusis changing how we claim tax this year. But what about rent or mortgage?
If your office is now at home, you may be wondering: does this mean I can claim my rent or mortgage at tax time?
In an effort to get you through uncharted waters, we recently published this piece on what you can claim when working from home.
With many of us now sharing our work space with our kids, our cats and our dirty dishes, the ATO has introduced a new, simpler method for people to make claims at tax time.
It's an 80-cents-per-hour method, which includes all running expenses like the phone, power bills, heating and cooling.
But many of you sent through some questions about particular household items. You were worried that if you claimed any home office expenses now that you might have to pay more tax when it comes time to sell your property.
So we went back to our experts to find out.
It all depends on your situation
So now that your work space and living space has combined, can you also claim your rent or the interest on your mortgage?
Well, it's complicated. But in general, no.
That's because in most cases, your house isn't the main office, studio or place of business, says Andrew Gardiner, spokesperson for the National Tax and Accountants' Association.
"This is the case even though you might be highly encouraged or forced to work from home when dealing with the coronavirus crisis," he said.
The main exception is if you legitimately run your small business from a dedicated space in your home or your employer does not provide you with an office or work station at their business premises.
"The classic example would be someone who runs a hairdressing salon out of part of their house and they have it dedicated for that purpose," Mr Gardiner said.
But even then, you can't claim your total rent or the full amount of your interest on your mortgage.
You can still only claim a portion, worked out by calculating the floor area of the business space compared to the total property size.
OK, but do I have to pay capital gains tax when it comes time to sell?
Many people sent questions into us, worried that if they made any home office claims, they might get a sting in the tail when it comes time to sell their home — meaning they might have to pay capital gains tax.
Capital gains tax is basically a tax that you pay to the Government when you make a profit on an investment — usually a property or shares.
You don't usually have to pay capital gains tax when you sell the home that you live in — it's called the main residence exemption.
Fortunately, even if you make claims for home office expenses like the internet, phone, heating and cooling, you won't have to pay capital gains tax on the sale of the family home, tax accountant Paula Hart says.
"Capital gains only comes into effect when you are running your business from home, or not provided with an office or work station by your employer," she said.
What the experts are saying about coronavirus:
So, if you run your hair salon out of a room in your house, you may have to pay some capital gains tax when it comes time to sell your family home.
In that case, she says it's important to keep good records on "the date you purchased the property, the date you started or stopped using the property to produce income".
"Even if you stopped using the property as your principal place of business," she added.
What if I run my side hustle from home?
This is where it gets a little bit tricky.
Mr Gardiner says it can be hard to prove you're running a legitimate small business when it might just be classified as a hobby.
"[The ATO] has become even more aggressive again when you're also a full-time employee," he warned.
So be careful when trying to claim a deduction for rent or the interest on your mortgage if you're running a side hustle out of your front room.
He says the advantage of not claiming the rent or interest on your mortgage is that you probably won't have to pay capital gains tax when you sell.
When it comes to making claims, the tax office has three golden rules.
"Taxpayers must have spent the money themselves and not have been reimbursed, the claim must be directly related to earning income and there must be a record to substantiate the claim," said ATO assistant commissioner Karen Foat.
But, of course, if you're still confused, make sure you check with your accountant.
This article contains general information only. It should not be relied on as financial advice.
If you need individual tax advice please see an accountant.
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