Running your own business is complicated enough without worrying about how to claim home office expenses. Well Stellar Accounts are here to make it easy for you, and hopefully save you some money when you’re running a home business.
Types of Home Office Expenses
Home office expenses are the types of expenses claimable, particularly for those running their business from home.
There are two types of Home Office Expenses:
- Home occupancy expense – these type of expenses relate to running your business from home: interest rates on your mortgage; rates; insurance; water or rent if you’re renting your home.
- The second type of expense that you can claim as a small business owner working from home is running costs such as internet usage, electricity and your home phone land line, if you use that in your business.
To be able to claim the home occupancy costs you need to be operating as a sole trader or partnership. Companies and trusts can’t claim this on face value because they don’t actually own the home. So, you will need to have a personal ABN (Australian Business Number) or partnership ABN to claim occupancy expenses.
You also need to have a separate office or a space in your home that’s just used for the business.
How to Claim Home Occupancy Costs
For those able to claim home occupancy costs, the tax deduction is calculated on the floor space of the room you are using to run the business, in comparison to the rest of the house.
If you have a room converted into a home office, work out the square meterage of that room and compare it to the rest of the house.
Example: If your room is about 20m2 and your whole house is 300m2, the percentage would then be 6.67% and you would then use that 6.67% to work out the deduction for your rent. If you pay $350 per week rent and you use that home office for 40 weeks of the year, your total amount of rent you pay for that year would be $14,000. Then you would apply that percentage 6.67%, with a total deduction for rent for the year around $934.
Home occupancy costs can also relate to a claim if you have a shed on the property. As a tradie if you store a lot of your building materials there that you use for your clients and you may also work in there for a portion of your business. In this case work out what the square meterage is of the shed, compare it to the square meterage of the whole property and get the percentage from that to make your claim.
Home Occupancy Expenses and Company/Trust Claims
In the case of a company or Trust and claiming home occupancy expenses, you would need to charge the company or the trust rent to use that portion of your house.
Once rent is charged, you would have to include the rent payment received as rental income in your own personal tax return. This would then be offset by the costs related to renting a portion of your home. You could be looking at a zero impact on your personal tax return as the income you receive from renting the property would be offset by the costs related to renting the property.
Home Running Costs
You can also claim as a deduction, home running costs including electricity, the internet and home phone line.
With electricity, if you have a separate place in your home that you use just as your office, then you can claim that percentage of that space of your electricity costs. If you don’t have a distinct office or space in your home and you’re just using the kitchen bench to work on your business from home, then you can still claim electricity costs. The ATO has a % that they will allow you to claim and that’s based on the number of hours that you say you work on your business per week.
With the internet and the home phone, these tax deductions are based on the actual costs.
You need to work out the percentage that you use for business purposes. For example, with the internet, the ATO requires that you log 4 consecutive weeks of usage to determine a percentage, which you then use against the total cost over the year.
FINAL NOTE: If you’re claiming home occupancy and/or running costs make sure you can prove everything if you’re ever audited.
- Use your house plan to work out the floor percentage being used.
- Keep a record of hours worked from home on or in your business.
- If claiming a percentage of home phone and internet, keep a 4 week log of usage that will form the basis of percentage claimed.
How to Claim Home Office Expenses
If you need any help or advice on home office expenses, contact Stellar Accounts today.
Stellar Accounts is Brisbane’s leading small and new business accounting firm. We have a reputation for simplifying your accounting, tax and bookkeeping needs so you don’t need to stress or worry.
With more than 20 years’ experience across a wide array of industries – our clients (typically small and medium sized businesses) – gain a distinct advantage over their competitors because we keep them in the loop of the latest information and regulatory requirements. Call us on 0428 887 104.
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