HOME BASED BUSINESS

This article applies if you are a self-employed person operating your business without renting/owning business premises and home happens to be the place that you work out of.

Good examples of this are Tradies that have a workshop/shedding at home, personal trainer who sees clients at home or awesome accountants who have an office under the main roof of their house.

If this is you then you may be able to claim the costs of running & owning your home as an income tax deduction. Important Note: the choice to run a home based business from a house that you own yourself (rather than rented) can affect capital gains tax when you sell that property, before you decide if this is for you please discuss with your qualified accountant.

First you need a Place of Business

You need to either be doing most of the things your business does at your home or you work at lot at your customers premises but do not own or rent any other property that you use for work purposes.

Next you need a work area that is “set aside primarily or exclusively for work activities”, this means that use of that space that is not work related has to be minor. A separate office or work shop that is its own standalone room is a good factor. In addition if the area is clearly identifiable as a place of business or has client access facilities or has been modified so it is no longer a normal part of the home all help show that the area is for work rather than family living.

For example  if you do your work at home and, if you regularly see clients at your place, have clear business signage or have created a space that is specific to your business , then you tick the boxes to say that home is a Place of Business.

This means that if you do some or your work at home but can’t genuinely say that you  do pretty much everything  your business needs from home, please see Excas Accounting article “ Working from Home” for what exact deductions you may be able to claim.

What to Claim

There are three main categories of expenses you can look at for your home office tax deductions:

1. Items you have in your work space
2. Running costs of your home
3. Costs of occupying your place

1. Items you have Bought for your Business

The costs of your work equipment, tools, computers and furniture all get accounted for by depreciating part their purchase cost over multiple years. You end up claiming back all you have spent but it gets spread over a few years rather than all at once.

You can also deduct the costs of depreciation on the fixtures and fittings in your workspace – items like curtains, carpets, light fittings and built in storage are examples of the type of items allowed.

Anything else that you buy to run specifically for use in your home office such as stationery, cleaning products or client amenities will be deductible. This doesn’t mean that anything you buy for your home is now a tax deduction – it has to be directly related to you earning income.

2. Running Expenses

You can claim a proportion of the costs of running your home, such as electricity, gas, WIFI data, telephone costs, repairs and cleaning costs.

Essentially any of the costs of running your home that change with more consumption you can claim a proportion of – as the more you are at home working the greater your expenses are.  To work out how much you can claim you need to choose a method to split the business part of these costs from your normal living costs.

Your choices are:

• Use the floor area of your work space compared to the total floor area of your house. Or
• Diary for four weeks each year to chow how much you use your home office Or
• Use ATO set rate per hour that covers heating, cooling, lighting & furniture costs

3. Occupancy Costs

These are the costs you incur to basically provide a roof over your head – such as rent/mortgage interest, council rates, land taxes, water rates and home insurance. These costs are generally a fixed amount per year – they do not go up and down with usage.

As these expenses don’t have a direct relationship with how much work you do from home you can only claim these types of costs if you have a distinct work area that is quite different from all the other parts of your home. Ideally a room set up solely for work purposes that is kitted out in the way you would expect a similar business to be that works out of its own premises.  For example if you are a photographer it needs to be set up as a studio, not just the spare room that has some of your equipment in it.

For these types of expenses you would generally use the Floor Area method to calculate your claims.

For further information please refer to the ATO guidelines for what tax deductions are claimable for the costs of a home-based business  here : https://www.ato.gov.au/Business/Income-and-deductions-for-business/Deductions/Deductions-for-home-based-business-expenses/

As with all tax deductions the more records you have prepared to bring to your Registered Tax Agent the better your tax result will be.

For exact advice call Excas Accounting 0458421878 to make an appointment.