Home-based business: Allowable deductions explained

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    Home-based business: Allowable deductions explained

    The world is getting smaller, as they say. With today’s technology and companies looking to cut costs, outsourcing has become a trend and legitimate home-based business are popping up everywhere.

    Freelancers and entrepreneurs from Melbourne to Massachusetts are using their talents and skills to create fulfilling careers without that daily commute. A home-based business can offer flexibility and a work/life balance you are looking for, and there are plenty of tax advantages to be aware of as well.

    You may be your own boss with home-based work, but knowing which tax savings you are entitled to can help make your business successful. There are deductible expenses when you work from home that you may be entitled to, some of them include:

    • Occupancy expenses
    • Running expenses
    • Vehicle expenses


    Deductions for occupancy

    These expenses relate to the use of the home, but not necessarily to the business itself. These costs may include rental payments, mortgage interests, council rates and insurance.

    If you qualify for the mortgage interest deduction, the Tax Office defines the criteria as an area set aside for working that must have the ‘character of a place of business’. The dedicated space for your business needs to look like a business for the product or service you provide.

    In general, you can claim the same percentage of occupancy expense as the area of your home you use to generate income. For example if your home office is 15% of the total area of your home, then you can claim 15% of your rent, rates, insurance, etc. If you claim mortgage interest, you will also need to calculate the capital gain when you sell it.

    Running expenses

    You can also claim general running expenses that may include telephone, gas, electricity bills that are a result of using your home as a business. You can only claim the deduction based on the business percentage.

    Travel expenses

    Home-based workers can claim a deduction for travel costs, as long as it is business related. Some of these may include;

    • Travel to see a client
    • Travel to purchase business supplies or equipment
    • Travel to your accountant
    • Travel to the bank

    With any of these travel expenses it is important to document everything, keep your receipts and invoices, fuel dockets and any other paperwork relating to your travel and how they relate to your business.

    No specific work space

    Depending on your work, you may not have a defined business space. Nancy’s Knitting, for example, you may find Nancy knitting in front of the TV, out on the front porch or while lying in bed. She may not be able to claim the percentage of the rent or mortgage but still can claim utilities, phone and certain equipment like a computer, desk or chair.

    Just about any type of business today can be run from home, from accountants to caterers to custom teddy bears. If you have any questions about your home-based business, tax deductions or need tax advice, please give our friendly Caulfield accountants a call.


    Hillyer Riches Management Pty Ltd is a Corporate Authorised Representative (No 466483) of Capstone Financial Planning Pty Ltd. ABN 24 093 733 969. AFSL / ACL No. 223135.This document contains general advice only and is not personal financial or investment advice. Also, changes in legislation may occur frequently. We recommend that our formal advice be obtained before acting on the basis of this information.

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