Over the last few years, there has been a significant increase in the number of home-based businesses starting up in Australia.
While working from home can help improve a person’s work and life balance, when it comes to claiming home expenses for these business owners, there are a multitude of factors that need to be considered. There are two types of house expenses home-based business owners can claim:
Occupancy costs, including council rates, house insurance, rent and mortgage interest
Running costs, like electricity, phones and gas
For home-based business owners to be able to claim occupancy costs, the house that they run their business in must be clearly identifiable as the place of business, and include an area that is specifically allocated for the business. Business signage, a unique access point for customers or clients and an area of the house devoted to the business can be used as evidence to claim occupancy costs.
Unfortunately, quite a few home-based businesses fail to meet these criteria i.e. tradespeople who carry out the majority of their work onsite. For these kinds of home-based business owners, it is much easier to claim for running costs. This is because all that needs to be proven is that there is an office in the house that is used for business purposes i.e. tradespeople would be eligible to claim running costs for an office they used to prepare invoices, quotes or for research and planning.
Even though claiming occupancy and running costs as a tax deduction can provide home-based business owners with a tax benefit, it can have an expensive flip side. Owners should take note that once their home becomes more than their main residence, there is a high chance that it will end up in the CGT system.
While a general CGT exemption exists for main residences, it can be lost due to the extent that the home is used as a place of business.