Working from home: running expenses vs occupancy expenses (and the CGT sting)

There are two completely different categories of home-based work expense, and confusing them is one of the more expensive mistakes an employee can make — because one of them can cost you part of the tax-free sale of your home.

Running expenses: what almost everyone claims

Running expenses are the additional costs of using your home for work:

Electricity and gas for heating, cooling and lighting
Internet and data
Mobile and home phone
Stationery and computer consumables
Decline in value of office furniture and equipment
Cleaning of a dedicated work area

These are claimed either through the fixed rate method (70 cents per hour for 2025–26) or the actual cost method. Critically, claiming running expenses has no capital gains tax consequence for your home.

Occupancy expenses: what almost nobody can claim

Occupancy expenses are the costs of owning or renting the property itself:

Rent
Mortgage interest
Council rates
Land taxes
House insurance premiums

For an employee, these are almost never deductible. To claim them, an area of your home must have the character of a place of business, which requires all of the following:

The nature of your income-earning activity requires you to have a place of business
It was necessary for you to work from home because your employer does not provide an alternative place of business
The area of your home is set aside and appropriately set up for that purpose, and used exclusively or almost exclusively for work

The classic indicators are a separate entrance, signage, client visits, and a room that would be unsuitable for domestic use. A spare bedroom with a desk in it does not qualify, and neither does a dining table.

The part that costs real money

This is the point most people miss. If you are eligible to claim occupancy expenses for a home you acquired after 20 September 1985, you lose part of your main residence exemption from capital gains tax.

The portion of any future capital gain that is taxable is generally the same percentage you could have claimed for mortgage interest — usually based on the floor area set aside for business.

A 15% floor area used as a place of business means roughly 15% of the gain on your home becomes taxable. On a $400,000 gain, that is $60,000 brought into your assessable income — before the 50% CGT discount.

Note the wording: the CGT consequence flows from being eligible to claim occupancy expenses, not merely from whether you actually claimed them.

If you do become eligible, get a valuation

If you start using part of your home as a place of business some time after buying it, get a market valuation of the property at that date. Without it, the calculation of your eventual capital gain becomes far harder and usually less favourable.

Sole traders and home-based businesses

The rules are similar but the analysis is different, and running a business from home genuinely can create a place of business. For sole traders the trade-off is the same: an occupancy expense deduction now against a CGT liability later. For many home-based businesses the interest deduction is worth less than the exemption they give up, particularly in a rising property market.

This is a calculation, not a rule of thumb. It depends on your marginal rate, the floor area, how long you expect to own the property, and what you expect it to be worth.

The short version

Running expenses — claim them, no CGT consequence, most people qualify
Occupancy expenses — high bar to qualify, and qualifying can cost you part of your main residence exemption

Need a hand with this?

If someone has told you to start claiming rent or mortgage interest against your home office, please talk to us before you do. It is one of the few tax decisions that is genuinely difficult to unwind.

Book a consultation

Call 0410 250 400

Sources

This article is general information only and does not take your personal circumstances into account. Rates and thresholds are current at the date of publication. Speak to us before acting on anything you read here.