Running Your Business From Home? What Expenses You Can and Can’t Claim

Wednesday, 7 Oct 2020

Although COVID-19 has made remote working the new norm, the concept of work from home had arrived long ago. Several self-employed individuals had leveraged the opportunity to start small businesses from their homes with the help of the internet and computer.

Starting from Steve Jobs to Jeff Bezos, some of the most prominent entrepreneurs in the world began their ventures from home. These days a laptop and a high-speed broadband connection are all that is required to start earning an income in Melbourne.

There are several advantages of home-based businesses, such as perfect work-life balance, the flexibility of work hours and comfort. Besides, you can also claim deductions for the costs incurred by the home-based business.

You can consult any of the bookkeeping services in Melbourne to understand which expenses can be claimed and which ones are not entitled. Usually, people are not aware of these deductions or get penalised for making incorrect claims. Thus let us help you with all the details of the deductions that can be claimed by home-based businesses.

What Are Home-based Businesses and Their Expenses

Running your business from home in Melbourne involves trading exclusively from your residence. It could be a small retail business like an online books business with its principal office at home.

It could also include a workshop being set up at home by a skilled entrepreneur, such as a pottery workshop or a mobile repair workshop. It could also be a professional service provider or a medical practitioner using his home as a consulting office or clinic.

Thus you must have a room dedicated for business activities to claim the deductions. Also, your bookkeeper will help you to understand the capital gains tax and the main residence exemption, which is significant for home offices owners.

If you own a separate office, but you still work from home for a few hours, then you are eligible for deductions. One significant factor to consider is that you can claim only that expense which is directed towards the business.

For example, if you are using the phone to make both personal and business calls, then you can claim only those calls which were made for work. Your bookkeeper can come handy in keeping a record of the official calls to calculate the claim.

Expenses Which Are Eligible For Deductions

You must be clear about the expenses which are eligible for deductions, or you may end up getting penalised by the ATO. Your bookkeeper will keep you informed about them. Here are the expenses that can be claimed:

  • Expenses related to office calls and internet usage for work. If you are working for only a few hours from home, then you must be able to present the call log for business use to segregate it from personal use. Besides all the basic recordkeeping, your bookkeeper will assist in keeping track of these business calls.
  • Utility costs for the work hours, such air conditioning, water and electricity to work comfortably from home. The claim needs to be made only for the area of the house that is being used as the office and not the entire property. These are considered running expenses.
  • Occupancy expenses include the rent or mortgage you are paying to live in the house along with land taxes in Melbourne and house insurance premiums. If you are generating personal services income (PSI), then you are eligible for occupancy expenses deductions, such as rent and mortgage.
  • Depreciation in the value of the furniture and the fittings that are being used for the home office, such as the desks, chairs, cupboards, etc.
  • Depreciation in the value of the equipment, such as computers, laptops, printers, mobile phones, etc.

Calculating Your Claim

Your bookkeeper will help you to calculate your claim using the following methods:

  • Shortcut Method– Businesses in Melbourne, which have been forced to work from home due to the COVID-19 pandemic, can take advantage of the shortcut method of calculating home office expenses between 1 March and 30 September 2020. It extends the benefit of claiming a rate of 80 cents for every hour for all the additional running expenses. These include electricity and gas bills, a decline in value or repair and restoration cost of equipment and furniture, cleaning expenses, phone and internet, stationery and equipment consumables.
  • Fixed Rate Method – This method uses the figure of 52 cents per hour for hours spent working from home. If you are an employee, then you cannot claim the occupancy expenses while using this method for calculation. The fixed rate method can be used for the financial year 2013-14 to 2019-20 by the bookkeeper.
  • Actual Expenses Method – It involves claiming the additional running costs that are incurred while working from home in Melbourne, such as electricity, phone and internet, cleaning and decline in value of furniture, equipment, and computer consumables. It can be done within minutes using the home office calculator with the help of all the records maintained by the bookkeeper.

Capital Gains Tax

Usually, any house owner selling his property is exempted from the capital gains tax because of the main residence exemption.

However, when the house is being used for operating a business without any other office in existence, then the owner will be eligible for only partial exemption. Thus you must get your property in Melbourne evaluated when you start using it as your primary office.

It will allow the bookkeeper to clearly define the capital gain or loss at the time of selling the property. Therefore, you will not end up losing money by paying extra capital gains tax. If you are an employee, then you will not have to deal with the capital gains tax.

Things To Remember

  • The shortcut method already includes the drop in the value of equipment, furniture, etc. Thus you do not have to calculate the depreciation separately. Your bookkeeper will be aware of these details, so you don’t have to worry about it.
  • Your bookkeeper must keep all the records of purchases made for the acquiring office equipment in Melbourne to calculate the decline in value.
  • He must also secure the records of usage all the assets for business purposes, such as phone calls made to clients and employees.
  • If you are an employee, then you must keep a record of the work hours spent at home for the year or a diary showcasing a four-week time frame that displays the normal pattern of your work from home routine.
  • You must have a defined area for business activities at home in Melbourne. However, you must separately calculate the work hours spent in the room to gauge the use of electricity and other running expenses. You cannot claim 24 hours of electricity usage just because the fax machine is working round the clock. Your bookkeeper will help you to make accurate claims.

Conclusion

The times are changing, and so are the ways we operate our businesses. Whether you have been working from home due to COVID-19 pandemic or have a small business set up in your home, you must be aware of the tax deductions which you can claim. Bookkeeping services in Melbourne can help you with the calculations so that you do not end up making false claims that incur penalties. 

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