Home-Based Business Deductions

Key Points

The types of expenses you can claim depend on how you operate your business from your home.

You can only claim deductions for the portion of your expenses that relate to running your business. You must keep records for at least 5 years to show how you calculated your claim. If you sell your home, there may be capital gains tax (CGT) implications. If you choose to use the fixed rate method, you need to keep a record (e.g. a daily diary) of all hours worked from home.

Sole Traders & Partnerships

If you operate your business as a sole trader or partnership, you can claim a deduction for the costs of running your business from home.

There are 2 types of expenses for your home-based business – running expenses and occupancy expenses. Whether you can claim running expenses only, or both running and occupancy expenses, depends on whether you have an area of your home set aside as a ‘place of business’.

Running Expenses

Actual Cost method – You can only claim based on receipts or other written evidence.

Fixed Rate method – You can use a fixed rate of 67 cents an hour – This includes electricity, gas, stationary, computer consumables, internet and phones.

Floor Area method – Can be used if you have an area of your home set aside as a ‘place of business’.

Occupancy Expenses

Occupancy expenses are expenses that you pay to own or rent your home, for example: mortgage interest or rent, council rates, land taxes, house and contents insurance.

You can only claim occupancy expenses if the area of your house set aside for your business has the character of a ‘place of business’ .

Place of Business

Indicators that the area of your home that you’ve set aside is a place of business include:

Clearly identifiable as a place of business (such as a sign at the front of your house). Not easily suitable or adaptable for private or domestic use. Used exclusively or almost exclusively for your business and used regularly for business visits by your clients.

Companies & Trusts

If you operate your home-based business as a trust or company, there should be a genuine, market-rate rental contract (or similar agreement) with the owner of the property and the company or trust that operates your business. This will determine which expenses the company or trust pays for and can claim as a deduction. Generally, the agreement would cover running and occupancy expenses.

If there isn’t a genuine rental contract, there may be tax implications for you (as an individual) and the company or trust that operates your business, for providing benefits to you.

If you are an employee of the company or trust that operates your business, and it pays for or reimburses you for some of the costs of running your business from home, you cannot claim a deduction for the expenses in your individual income tax return. 

If you earn personal services income, you may not be able to deduct some occupancy expenses

Capital Gains Tax (CGT)

If you were entitled to claim occupancy expenses, or you own your home and receive rental income from your business, there may be CGT implications when you sell your home. The main residence exemption may not apply for the proportion of your home and the periods that you used it for your business.

Next Steps

Find out more about Beck Partners , Who We Are and What We Do at our website and feel free to contact info@beckpartners.com.au if we can be of any assistance.

0419 671 602 e info@beckpartners.com.au