Over one million Australians choose to run their small business from home. It is not only cost effective but offers fantastic work life balance options that are hard to come by in the world of small business. Each year, relentless advances in technology make it easier than ever to run a business from home, so more and more small business owners are making this their first step.
From a tax perspective there are some considerations to be had around working from home, some good and some not so good.
What can be claimed if your home is your primary workplace?
There are some great deductions which you can claim where you use your home as your principal of work. Note, you cannot claim a portion of rent OR interest etc on home loans if your home is not your principal place of work.
If you rent, you can claim a percentage of your rent as a deductible business expense. The amount you claim is calculated as follows:
(Floor area of dedicated work area / Floor area of total house) x weekly rent x period worked from home.
The best example is if you have a bedroom which is solely dedicated to your business as a home office. Say the bedroom is 16m2 / a total house size of 120m2, this would allow you to claim 13.3% of your rent expense. If you have more dedicated space (i.e. a rumpus room converted into a larger office or garage used to store merchandise) then these needs to be considered in your calculations.
Interest, Rates etc for home owners
If you are a home owner, you are able to claim the costs of owning your house using the same floor area methodology as mentioned above.
A word of warning though, claiming part of your home as a business expense will mean that when it comes time to sell your home, you may be liable for some capital gains tax. This is because part of your house has been used for income generating purposes – and therefore not eligible for the main residence exemption that allows home owners to avoid paying tax on capital gains in relation to their homes. The exact amount of tax you will need to pay will vary depending on the amount of profit you make on the sale of the house, and importantly, how much and for how long the home has been used to generate income. This is also very relevant to home owners using their home to generate income via Airbnb.
What else can be claimed?
The items below are available to be claimed by taxpayers working from home, even if their home is not their primary place of work (i.e. you have another office, shop or work on site with customers).
Phone & Internet
The ATO will allow you to claim a reasonable percentage of your home internet (and home phone if you have one) where you use it for work. If you are ever subject to an audit by the ATO, you will need to be able to justify the percentage you are wanting to claim, so be sure to have a methodology behind your percentage.
Electricity and running costs
By far the easiest way to claim electricity, heating, and general depreciation of the home office space is by the ATO home office rate which is set to 52c/hour for the 2019 financial year. Simply work out how many hours you worked from home during the year and multiply it by 52c to get your claim. Again, have a methodology behind your calculations so that if ever asked by the ATO, you can justify your claim.
Where to from here?
To understand exactly what you should claim and how much you should claim you should talk to your accountant. A good accountant will be able to advise you on what you can safely claim without exposing you to unnecessary risk of an ATO audit. Talk to Link Advisors about your business deductions to make sure you are not missing out on any claims.