‘Run your business from home? Find out how to get those tax deductions!’
So, you’ve set-up your workspace at home and you’re enjoying all the benefits of choosing your work hours and working from home. Which include Netflix on the lounge, strolls to get coffee at random hours and those amazing sleep-ins. Who are we kidding… Running a business from home is tough! Let’s explore getting those well-deserved tax deductions of working from home.
The ATO has specific rules around claiming house expenses should you run your business from home. You need to have a room/space set aside exclusively for business activities. Examples include:
- A small business operator whose main office is in their home
- A tradesperson or craftsperson who has a workshop at home
- A doctor or dentist who has their surgery or consulting at home
Deductions you can claim
Firstly, assess what you can claim as a deduction. A helpful list is below:
- The cost of using a room’s utilities, such as gas and electricity
- Business phone and internet costs
- Decline in value (depreciation) of office plant and equipment, such as desks, chairs, computers.
- Decline in value (depreciation) of curtains, carpets and light fittings
- Occupancy expenses (such as rent, mortgage interest, insurance, rates).
Secondly, you need to work out the work-related % versus the private-use %. This may be done via actual usage ie business calls vs private calls for phone, or designated work floorspace divided by total floorspace for rent or interest on the home loan. This may change based on the type of deduction, being phone vs rent vs equipment.
The main consideration
Do you own or rent? If you own the place, you need to consider the main residence capital gains tax exemption. In plain language, when you start using your home for income producing activities and claim the expenses, you lose the capital gains tax-free exemption for the time this occurs on the portion you’re claiming.
So, is it as simple as saying, don’t claim anything from the home as you will pay CGT? No. At the present, with CGT assets enjoying a 50% discount if held for more than one year, the tax benefit of claiming the expenses and getting an immediate tax benefit may outweigh the CGT-free benefit.
The property capital growth, size of deductions and the tax rates all play a part in assessing whether you should claim the home expenses.
Everyone has differing scenarios so please ask for a consultation if you are unsure what is best for you.