DO IT RIGHT NOW: SIMPLE WAYS TO CLAIM TAX DEDUCTION (PART 3)


DEDUCTION FOR EXPENSES FOR A HOME-BASED BUSINESS


First of all, you should indicate whether you are the mentioned object or not. If you operate your business at or from home and have a room or space set aside exclusively for business activities, you are exactly a home-based business.


Record you need to keep

No matter which type of expenses you want to claim, you need to keep the record at least 5 years to prove that you really incurred this amount. For a home-based business, the evidence is related to:

  • Purchase and repairs of furniture and equipment used for your business

  • Utility bills and cleaning expenses

  • Mortgage interest, rent, insurance and council rates

  • Rental contract between homeowner and business (if you claim occupancy expenses)

  • How you separate your business and private use

You are sole traders or partnerships

If you run your business as a partnership or a sole trader, you can claim for the costs related to occupancy and running expenses.

Occupancy expenses

This is the cost you pay for your premises, including land taxes, mortgage interest or rent, council rates, house and contents insurance. Provided you can claim occupancy expenses, you can claim running expenses. But you can only claim these costs if your house set aside for your business has the character of a ‘place of business’ as following:

  • not appropriate for private use

  • apparently identifiable as a business place

  • used exclusively or almost exclusively for your business and your clients can take a business visit to it

To calculate the amount you can collect, a common way to use is executing the floor area you use for your business as a percentage of the total floor area of your whole home. For example, your shop covers 50% of the floor of your home then you can claim a deduction for 50% of occupancy expenses. Please make a little notice in case personal services income rules (PSI) apply to your business, you may not be able to claim occupancy expenses.

Running expenses

This is the cost incurred when you use the home's facilities for your business. Even when your premise is not a 'place of business', you still can claim running expenses if you handle your work from it. Before working out on calculating, you should know this type of expenses includes the following costs:

  • Electricity and gas for lighting, heating and cooling: splitting the bills of these charges will indicate how much you pay for business and private purposes. It is based on the proportion of the floor area you use for your business or the time proportion you used it for your business.

  • Home phone and internet service: you can claim your business calls and a portion of the line rental costs for phone service. For internet service, you can claim the proportion of time or data you used your internet for business uses. However, please note that installing a landline cannot be claimed cuz it is a capital expense.

  • The declines in value and cost of repairs of business assets: you can claim a deduction for an asset that has a limited effective life and can reasonably be expected to decline in value over the time it is used.

  • Cleaning costs

To calculate the amount you can claim, please make sure the following requirements are met:

  • Running expenses are reasonable in your circumstances

  • You exclude your normal (private) living costs

  • You have records to show how you calculated the business expense

You are companies or trusts

Your business should have a genuine, market-rate rental contract (or similar agreement) with the owner of the premise. This will demonstrate which expenses the business pays for and can claim as a deduction. If there isn’t a genuine rental contract, there may be tax implications for you and the business.

If you are an employee of the business and the business pays for or reimburses you for some of the costs of running your business from home, you cannot claim a deduction for the expenses in your individual income tax return. Your business will be subject to fringe benefit tax (FBT) if it pays or reimburses you for the expenses.


Capital Gain Tax (CGT)

You may have to pay Capital Gain Tax (CGT) when you sell the house used for your business. This will not happen as long as at least one following condition occurs:

  • You operated your business from a rented home.

  • You didn't have an area specifically set aside for your business activities.

  • You operated your business through a company or trust.

Should you have any questions, feel free to contact us at office@gordondu-associates.com.au or (08) 9345 0499.


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