What are the tax deductions available for homeowners?

If you’re buying a house to live in or already own an owner-occupied home, you may not be eligible for any tax deductions. However, if you’re earning an income by renting out your investment property, or are using part of your home for running a business, you may be able to claim a tax deduction for some of the costs you incur.

Some of these deductions could include the cost of utilities, mobile phone, home phone and internet, but not your home loan interest – only property investors can claim this on their taxes. In some cases, you may also be able to claim part of your home insurance as a tax deduction. These deductions could potentially help to offset some of the taxes you may have to pay on the income from your small business.

Most of the available tax deductions don’t require you to define a specific work area within your home. But if you can show that you’ve set up a dedicated workspace within your home, you may also be able to claim tax deductions on depreciating assets. These can include:

• office desks and chairs;
• telephones;
• lighting fixtures, and;
• heating or cooling equipment.

To qualify for the tax deductions, you may also have to demonstrate that your home doubles up partially as your workspace or acts as a storage space for work tools and equipment. For instance, a doctor using the study located within their home as a clinic or a home decorator whose accessories are kept at their residence could qualify for these tax deductions.

It’s worth checking the ATO’s list of possible home-based businesses to see if your business qualifies for tax deductions.

Corporate employees who began working from home during the COVID-19 pandemic could previously claim home office expenses via a temporary shortcut method of 80c per hour. However, this program expired as of 30 June 2022, though those working at home can still use a fixed rate method to calculate their working from home expenses at a rate of 67c per hour.

What tax deductions are available for investment property owners?

Many Aussies buy property as an investment to rent out, meaning they also need to pay tax on any rental income they earn. But you can claim tax deductions on some of the expenses incurred in renting out your home. It may also be possible to claim a tax benefit on the interest you pay on the property’s mortgage. 

People who invest in property in Australia may qualify for several tax deductions as long as they are earning rent from the property. If there is a period when you live in the property, there are no tax deductions available during that period. For instance, if the property was genuinely rented out for only six months of the financial year, the tax deduction available would be half the amount available for the full year. A similar calculation may apply if you are only renting out part of the property.

One common tax-saving strategy is the practice of negative gearing. This refers to situations where the homeowner’s rent doesn’t fully cover the costs you incurred for the property. These costs may include: 

1. The home loan interest paid by the homeowner
2. Expenses associated with maintaining the property 
3. Rental-related expenses like the cost of publishing property advertisements and agent fees
4. Expenses on depreciating assets

While the homeowner may suffer moderate losses initially, the tax benefits and long-term increase in the property’s value may be able to help make up for any losses. Homeowners can also claim a tax deduction for any depreciation in the value of assets like appliances or furniture in the rental property or the part of the home that’s rented out. 

Investment property owners may also qualify for tax breaks on any capital works undertaken before renting out the property, and even on the costs of constructing the property. According to the ATO, capital works refer to any significant construction or renovation of the property or any fixed installation attached to it. The tax deduction rate and the duration for which the deduction is available depends on the property’s age and the type of construction or renovation.

Because tax laws may be updated each year, it’s important to check with the ATO and/or a tax accountant before making any financial decisions that could affect your taxes.  

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