Be careful what you claim for when working from home. There are capital gains tax risks

Nearly all of the income tax focus in the context of “working from home” during COVID-19 has been on claiming “running expenses” – things like electricity, heating and internet/broadband fees.

These are pretty straightforward.

The Australian Tax Office has created a temporary shortcut for claiming running expenses to make it easier: it’s 80 cents for each hour you work from home between March and July.

At the same time, it has made the brief comment that employees generally cannot claim “occupancy expenses” as deductions. Occupancy expenses are things like interest on housing loans, rent, council rates, building insurance and similar things.

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These would be deductible if you were running a business from home, but generally should not be if you are merely working from home for an employer that normally provides you with a place to work.

Claim running expenses, not occupancy expenses

Occupancy expenses are usually far bigger than running expenses and their deductibility assumes considerable importance to government revenue, and to people who claim them.

And there’s something else about them.

The capital gains tax exemption for the gain on sale of the family home (the main residence) is linked to them; in particular to the deductibility of interest expenses.

If a taxpayer is entitled to deductions for interest on the home loan, she can lose a portion of her capital gains tax exemption.

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