Your Guide to Home Office Tax Deductions (Part 1)

When it comes to tax deductions, the landscape can be tricky/overwhelming/confusing and everything in between. Add in the fact that you have a home office, and this can make things even harder. Phone, internet, rent, office equipment… where does it start and where does it end?

To try and help you navigate your way to the best result for you and your business, we have put together a guide for home office tax deductions in Australia. If you have any questions, give the accountants at Bottom Line Control a call on (07) 5471 7077 and we would be happy to help.

*Please note, this guide is broad in nature and may not suit your exact circumstances. Always speak to a professional when it comes to individual and business taxation matters before making any decisions.

So, let’s talk about home business tax deductions

This topic can be a little tricky to follow, so we will do our best to set things out clearly. Additionally, to make things easier to read, we have split this guide into 2 parts - make sure you read this part first though as it will be difficult to follow Part 2 if you don't!

What is a home-based business?

A home-based business is where your home is your principal place of business and you have a room or space dedicated to it. Your business can be run either from home or at home. The difference is:

• From home: This means that your business does not own or rent any kind of premises. For example, a gardener does all their work at the homes of other people, but their tools, supplies and records are kept at their home.‍
• At home: Alternatively, if you work at home you complete most of your income-producing activities at home. For example, a hairdresser completes their work at home, with clients coming to them for haircuts.
  

Examples of home-based businesses include:

• Education: tutor, music teacher.
• Finance/insurance: accountant, bookkeeper, insurance broker.
• Construction: plumber, electrician, tiler, bricklayer.
• Property/business services: gardener, cleaner, interior decorator, sign writer.
• Personal services: beautician, dressmaker, photographer, personal trainer.
• Health and community services: dietician, massage therapist, counsellor, physiotherapist.
  

Note, if your home is not your principal place of business but you complete work from home, you still may still have some deductions available to be claimed.

What is a home office?

A home office to a space that you use to complete income-producing activities for your business. This could be a whole room or just a specific area designated solely for your business. There are three ways you can work at home, which include:

1. Your home is your principal place of business, and you have a designated area specifically for your business activities. This area is also unlikely to be suitable for domestic use e.g. A doctor’s surgery or a hairdressing studio.
2. Your home is not your principal place of business, however you have a designated area for completing work e.g. a lawyer working out of a study.
3. You work from home but do not have a designated work area e.g. a teacher marking papers in their living room.

What is a home office tax deduction?

A home office tax deduction is an amount you may be able to claim against your business income for home-based business expenses. Varying home office tax deductions may be available to you, depending on your circumstances.

If you're a contractor or a consultant, your personal services income may affect the deductions you can claim. Check out the ATO website for information.

When can you claim a home office tax deduction?

According to the ATO, in circumstances where your home is also your place of business, you can claim deductions if you complete income-producing work at home which result in expenses in using your home for that purpose.

How do your home office tax deductions affect your taxable income?

The ATO calculates the taxable income for a business using the following formula:

Assessable income – tax deductions = taxable income

Most of the money that your business gets from running makes up assessable income (income subject to tax). Your taxable income is then what you are taxed on at the end of the financial year.

Things to remember when it comes to home office tax deductions

In general, a majority of expenses that are incurred from running your business are claimable. It is important to remember the following though:

• Always make sure that the expenses you are trying to claim are directly related to you earning an income.
• All expenses must be related to the business, and not for private use.
• Always have records to support the expenses you are trying to claim.
• If you find that some of your expenses are business and private use combined, you can only claim the section relating to business expenses.‍

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Continue reading in Part 2 here.

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If you would like more information regarding home office tax deductions and how they are applicable to your circumstances, give Bottom Line Control a call on (07) 5471 7077 and our qualified team would be happy to assist.

Resources:

Australian Government - Australian Taxation Office (Home office expenses): https://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/Home-office-expenses/

Australian Government - Australian Taxation Office (Home office expenses calculator): https://www.ato.gov.au/Calculators-and-tools/Home-office-expenses-calculator/

Australian Government - Australian Taxation Office (Claiming a tax deduction for expenses for a home based business): https://www.ato.gov.au/Calculators-and-tools/Home-office-expenses-calculator/

Australian Government - Australian Taxation Office (Running your business from home): https://www.ato.gov.au/General/property/property-used-in-running-a-business/running-your-business-from-home/

Australian Government - business.gov.au (Tax deductions): https://www.business.gov.au/Finance/Taxation/Tax-deductions

Australian Government - Australian Taxation Office (Working from home): https://www.ato.gov.au/general/property/your-home/working-from-home/

Australian Government - Australian Taxation Office (Using your home to produce income): https://www.ato.gov.au/general/capital-gains-tax/your-home-and-other-real-estate/your-main-residence/using-your-home-to-produce-income/

Finder (How to claim a home office): https://www.finder.com.au/how-to-claim-a-home-office

*Please note, this is a guide only and should be treated as such. You should always complete extensive research yourself and also obtain professional advice when it comes to home office tax deductions, as every set of circumstances is different and the information contained above may not be applicable to your needs.