Working from home – tax implications
More and more people are working from home, and knowing exactly what you can deduct can be an important part of your tax planning. Hillyer Riches are tax agents in Caulfield and we are here to help with any questions you may have regarding home businesses and the tax implications. We have put together a few tips below to help you with any last minute tax deductions that you may have overlooked.
Expenses associated with your private residence are usually not part of your allowable deductions, but if you generate any assessable income at home, then you are entitled to claim expenses and make tax deductions.
There are two very different scenarios of possible “home office” according the Tax Office. The first one is where your home is not your primary place of business, but you do some of your work from home. The other, is where your home is also being used as a place of business. The tax implications are different, depending on which category you may fall into.
There are certain items you may use in your home business like; desks, computer equipment, electronics, and chairs. These items “decline in value” and can be a deduction based on depreciation rates.
If you use the asset for the sole purpose of your business, then you may claim the decline in value, or you may immediately write off most depreciating assets that cost less than $20,000, subject to the passing of legislation. There are specific rules for this, you must qualify for “small business” status, and turnover less than 2 million per year.
Running costs that may be deductible include:
Remember that these costs must be from the portion or percentage of home that generates income, not your private usage portion. You can determine this by calculating the portion of your home office, divided by the overall floor area. If your office, studio or workshop is 15% of the total area, then you can claim 15% of your running costs, like heating, cooling and lighting.
The Tax Office also have a standard formula that you may want to use instead. You can keep a journal of your hourly activity and deduct 34 cents per hour based on an established pattern. Make sure to keep accurate records, as you will need to substantiate them if audited. Talk to our tax professionals if you have any questions, or wish to see which method may be best for your situation.
If you use the phone solely for your business, you can claim deductions for the line usage, calls, but not the installation into the home. If you share your private phone with your business, then you will need to keep track of business and personal calls, and deduct the business ones. Keeping an accurate record is important so there is no confusion when it comes time for your return.
Deductions for occupancy
You can only make deductions for occupancy if you use your home as your place of business, not just working from home once in a while as a salaried employee. Some of these occupancy expenses include:
- Rent, mortgage interest
- Council rates
- Land taxes
- Home owners insurance premiums
You can generally claim the same percentage of occupancy that is used to generate the income. Note that if you are using your home as your place of work, then you will also need to pay any Capital Gains Tax (using the same percentage) as part of your business income when you sell your home. There are some concessions for small businesses, which we can assist you with if relevant to your circumstances by our tax agents located in Caulfield.
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.