If you’ve ever worked in or run a small business, then you know how much of a challenge it can be. Making sure that you’re aware of your budgets, forecasting, generating sales and customers while still managing to make time for the things that matter most, such as family and personal time, can be a real struggle. Almost one million Australians have decided to run their businesses from their home. With lower overheads and often a much higher work/life balance, it’s no wonder that so many small business owners have decided to stay home and make their house their principle place of business.
Running a business from home also means that you’re able to claim certain expenses on your annual tax return that are specific from home-based businesses.
Aside from the expenses outlined in last week’s blog, what you need to know about working from home claims, including work related running expenses, phone and internet expenses and decline in assets, you may also be able to claim occupancy expenses if your home is your place of business. Occupancy expenses are items such as rent, interest on your home loan, property insurances and land taxes. This can easily be calculated using the formula below.
Your total expenses x floor area x percentage of year that part of your home is exclusively used for work.
As always, the Australian Taxation Office requires evidence of any expenses claimed if audited. So, to be eligible to claim occupancy expenses, you need to be able to prove that there is an identifiable area of your home which is used solely for your business and that the area is not suitable for any other purpose. You also need to prove that there has been no other work location provided to you, meaning that most employees will be unable to claim occupancy expenses. A good example of this is a solopreneur hairdresser who has a salon set up from their home.
Something to keep in mind if you’re claiming occupancy expenses is the relationship of using your home to generate an assessable income. This may result in capital gains tax (CGT). When selling, ordinarily your family home would generally be exempt from CGT. However, if you are claiming part of your home as a business expense, then you will most likely need to pay CGT on any gain made from the sale equal to the portion of business use. You may also need to obtain a valuation of your home at the time it was first used to generate business income.
If you want to know more about claiming for home-based businesses and occupancy expenses, are thinking of selling your home and are interested in CGT or want to make sure your budgets, forecasting and other business-related items are up to date, speak with us today.