The technology available to us today means that business activities can be performed from just about anywhere.
Some of Australia’s most successful and well- known brands were started from someone’s kitchen, spare room or garage. Running a business from home is certainly a popular starting point especially for a small business that is starting out and trying to save on costs.
A home-based business is one where you operate the business:
- at home – you carry out most of the business ‘work at your home or
- from home – where the business does not own or rent any premises other than your home
Some examples of running a business from home can include:
- A small business operator whose main office is in their home
- A tradesperson or craftsperson who has their workshop at home
- A doctor or dentist who has their surgery or consulting room at home.
If you are running a business from home there are a number of deductions available to you each year at tax time:
Running costs – the cost of using an area’s utilities such as gas and electricity. This must be apportioned between business and private use depending on actual usage.
Business Phone costs – If a telephone is used exclusively for business, you can claim for the rental and calls but not installation costs. If the telephone is used for both business and private calls, you can claim a deduction for business calls. This covers both mobile phones and landlines.
Business Internet costs – If your internet connection is used by other members of the household for private purposes then the internet costs will need to be apportioned.
Depreciation of plant and equipment, including office furniture, office equipment and plant & equipment.
Occupancy expenses – such as rent, mortgage interest, insurance and rates. You can claim a portion of these costs that relate to the room or workshop you use as your place of business. Using a percentage of the floor area is a popular method of working out how much to claim.It is worthwhile keeping in mind that where you do use your home as your principal place of business and claim occupancy expenses you may not be eligible for the full main residence exemption when you come to sell your home. If your income included personal services income (PSI), you may not be able to claim a deduction for occupancy expenses.
Insurance Expenses – Household insurance expenses do not cover business activities such as customers coming to your home. You will need to consider specific insurances for your business and these may be deductable.
Motor Vehicle Expenses – The cost of trips between your home and workplace is generally a private expense, however you can claim the cost of any business related travel. If you are carrying on a home based business, you can claim the cost of trips between your home and other places if your travel is for:
- Working at a client’s premises or delivering documents to them
- Purchasing equipment or supplies
- Doing your banking
- Seeing your tax adviser about a matter related to your business
A particular business may need a planning permit, building permit and or health registration. All home based business owners should ensure that they have the correct permits in place according to their relevant business associations or authority and that they adhere to local council and /or local government regulations.
This communication is general in nature and current as at the time of production. The information contained in this communication does not constitute advice and should not be relied upon as such. Should you wish to discuss any matter raised in this article, please feel free to contact us.