Are you working from home or running a home-based business?
25 July, 2022 BY Bibek Nepal, CPA

Are you working from home or running a home-based business?

Using your home as the base for your business is becoming increasingly popular, particularly due to COVID-19.

According to ATO, if you work from home, you can claim “home office running expenses” such as heating, cooling, cleaning, landline phone and internet, equipment and furniture depreciation, equipment repairs, etc for the area of your home that is used for work purposes.

If you run your home-based business, you may be able to claim home offices occupancy expenses such as mortgage interest, council rates, land taxes home and contents insurance for the area of your home that is used for business purposes.

Your business structure (sole trader, partnership, trust or company) you use to operate your business affects your entitlements and obligations when claiming home office expenses.

If you run your home-based business as a sole trader or partnership, you may be eligible to claim home office running expenses as well as home office occupancy expenses.

To be eligible to claim a deduction for occupancy expenses, you must pass the interest deductibility test i.e. the area you have set aside in your home for your business must have the character of a place of business.

If you are eligible to claim occupancy expenses, you will also be able to claim running expenses.

If you run your home-based business as a company or trust, your business entity should have a genuine, market-rate rental contract (or similar agreement) with the property owner.

It is important to note there may be capital gains tax (CGT) implications for the proportion of your home and for the periods you used it for your home-based business when you sell your home in the future.

You may also be able to claim motor vehicle expenses between your home and other locations if the travel is for business purposes.

You may not be able to claim occupancy expenses if personal services income rules (PSI) apply to your business.

If you are working from home or running a home-based business, we can help you check your entitlements to claim home office expenses.

 

Disclaimer: This article is provided as general information only and does not consider your specific situation, objectives, or needs. It does not represent accounting or tax advice upon which any person may act. Implementation and suitability require a detailed analysis of your specific circumstances. Before taking any action, consider your own circumstances and seek professional advice.

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