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Small business owners may be able to claim deductions for the costs of using their home as a principal place of business when filing their income tax return.
Tax deductions may be claimed for the business portion of household expenses, however, it can be difficult to ensure you are claiming expenses you are entitled to. How you operate the business out of your home will determine the types of expenses that may be claimed. Your business structure will also affect your entitlements and obligations when claiming deductions on home-based business expenses.
Individuals that operate a business as a sole trader or partnership are entitled to claim a deduction for the costs of conducting business from home. There are two types of expenses that can be claimed, running expenses or occupancy expenses. Typically, those that are eligible to claim occupancy expenses can also claim running expenses.
Running expenses refer to the increased costs of using your home’s facilities for the running of your business, including:
To calculate the running expenses of your home-based business, you must ensure that you exclude your private living costs and that you have records to show how you calculated the expense.
Occupancy expenses are those that you pay to own or rent your home, including:
Occupancy expenses are calculated based on the floor area of your home that is used for the business and the portion of the year that it was used.Small business owners should note that capital gains tax (CGT) payments may be required for periods when your home was used for business. However, CGT won’t apply if you operated your business from a rented home, didn’t have an area specifically set aside for your business activities or the business was run through a company or trust.
Records that need to be kept include written evidence, tax invoices and receipts, and should substantiate your claims for all home-based business expenses.
For any questions about maximising your deductions, or managing your tax affairs, please contact us.
AGS Financial Group Pty Ltd, ABN 70 093 990 946, trading as AGS Financial Group, are authorised representatives of AMP Financial Planning Pty Limited ABN 89 051 208 327 (Australian Financial Services Licence No. 232706). Accounting, taxation, and business advisory services are provided by AGS Accounting Pty Ltd ABN 12 166 728 696. AGS Accounting Pty Ltd is a member of Chartered Accountants Australia & New Zealand. Liability limited by a scheme approved under Professional Standards Legislation. Any advice on this page is general in nature and does not take into account your personal objectives, financial situation or needs. Accordingly, you should consider the product disclosure statement for any product and your own objectives, financial situation and needs before acting on this information and before acquiring a financial product. You can obtain a copy by contacting us on 02 9966 8188.
Financial planning, corporate benefits and mortgage services are provided by AGS Financial Group Pty Ltd ABN 70 093 990 946, an Authorised Representative of AMP Financial Planning Pty Limited ABN 89 051 208 327 (AMPFP), AFS Licence No 232706. Accounting, taxation, and business advisory services are provided by AGS Accounting Pty Ltd ABN 12 166 728 696. AGS Accounting Pty Ltd is a member of Chartered Accountants Australia & New Zealand. Liability limited by a scheme approved under Professional Standards Legislation.