Small Business Tax Dictionary
Occupancy Expenses
Occupancy expenses are costs associated with owning or renting a property that is used for business purposes, such as a home office.
What are occupancy expenses?
Common occupancy expenses include:
- Rent payments — if you are renting the property
- Mortgage interest — the interest portion of home loan repayments (not the principal)
- Property taxes — rates and council charges applicable to the property
- Insurance premiums — home and contents insurance costs
Occupancy expenses in Australia
In Australia, these expenses receive partial deductibility treatment when a residential property incorporates a dedicated business workspace. The deductible amount is typically calculated based on the floor area used for business activities relative to the total property area.
For example, if your dedicated home office takes up 15% of your home's total floor area, you may be able to claim 15% of occupancy expenses as a business deduction.
Important considerations
- Claiming occupancy expenses on a property you own may have capital gains tax (CGT) implications when you sell. The main residence CGT exemption can be partially lost if you claim occupancy expenses.
- Proper record-keeping and compliance with Australian tax laws are essential to claim this deduction accurately.
- Understanding occupancy expense deductions can deliver meaningful tax advantages for entrepreneurs operating from home.