Small Business Tax Dictionary
Running Expenses
Running expenses are the costs associated with using a specific area within a home for business purposes. These may encompass utilities like electricity, heating, phone bills, and internet charges.
Running expenses vs. occupancy expenses
It is important to distinguish between running expenses and occupancy expenses:
- Running expenses relate to the costs of actually operating the home office — electricity, heating, phone, internet, and cleaning costs
- Occupancy expenses relate to the cost of owning or renting the property itself — mortgage interest, rent, rates, and insurance
This distinction matters because the tax treatment and eligibility rules can differ, particularly in Australia.
Running expenses in Australia
In Australia, running expenses become deductible when a home area is utilised exclusively and consistently for business activities. Calculation methods include:
- Fixed hourly rate — the ATO provides a fixed rate per hour of home office use, which covers electricity, internet, and phone costs
- Actual expense method — requires apportioning costs between personal and business use, based on time or floor area
The actual expense method typically delivers a higher deduction but requires more detailed record-keeping.
Running expenses in New Zealand
In New Zealand, running expenses used in the business portion of your home can be claimed using the square meter rate method (which covers most home running costs automatically) or by calculating actual costs and apportioning by floor area or time.