*
*
*

PKF Australia

Accountants and Business Advisers

Managing home office costs

Managing home office costs

Posted 12 Sep 16

Working from home offers a plethora of lifestyle benefits. Being cognisant of tax benefits and implications will ensure a smooth transition.

The key question is whether you maintain a home office (ie you work from home) or your home is your place of business (ie the residence is the core of your business). The practical and tax implications of these two options vary significantly.

Generally speaking, we recommend all costs associated with earning income/working should be claimed inside the business however, certain costs (such as home office) should remain in personal returns due to being part business part private.

1. Home Office

If you are working from home (no matter whether or not you have a room designated for work) the ATO will generally accept the following expenses to be deductible:

  • Home office equipment used – computers, printers, telephones, stationery (only if the cost of each item is below $300 – see next point) if not claimed inside business
  • Depreciation of home office equipment used (if the items are above $300)
  • Repairs to furniture and fittings used for home office purposes
  • Home phone/Internet expenses (subject to reasonable basis apportionment)
  • Heating, Cooling and lighting expenses (subject to reasonable basis apportionment)
  • Cleaning expenses (subject to reasonable basis apportionment)
  • Contents component of Insurance (subject to reasonable basis apportionment)

The method for calculating the reasonable basis apportionment is usually via floor space but can be any method you believe accurately represents the amount incurred in maintaining the home office. This last statement can be subject to interpretation so we usually assess the risk profile on any method of assessment on a case by case basis.

2. Place of business

If your residence is your principal place of business, which as stated above refers to the core business being operated of the residence then the scope of expenses available to deduct widens significantly. In these circumstances the ATO will generally accept the following:

  • Heating, cooling and lighting (still subject to reasonable basis apportionment but percentage is likely to be a lot higher)
  • Home phone/Internet expenses (subject to reasonable basis apportionment)
  • Home office equipment used – computers, printers, telephones (only if the cost of each item is below $20,000 if small business)
  • Depreciation of home office equipment used (if the items are above $20,000 if small business)
  • Occupancy expenses (subject to reasonable basis apportionment but generally floor space)
    • Rent
    • Mortgage interest
    • Insurance
    • Rates

If you are able to satisfy this criteria then you will be able to access a greater amount of deductions but unfortunately there is a offset to these tax benefits, these are as follows:

  • Capital Gains Tax

    Whilst any profit you make on the sale of your principal residence is generally fully exempt a residence that is partly used for operating a business is not. Upon sale, consideration would need to be given to your capital gains tax exposure taking into account how long and how much of the residence has been used for business purposes.

  • Land Tax

    Further to the capital gain tax exposure, the State Revenue Office will need to be notified on the proportion of the property that is being treated as your place of business and from what date. Subject to exceeding the minimum thresholds you will receive a land tax assessment assessing you proportion of the residence that is used for business purposes.

Click here to contact our Business Advisory team for more information


Comments

Retype the CAPTCHA code from the image
Change the CAPTCHA codeSpeak the CAPTCHA code
 

Get in touch

For more information on how our services can help your business get in touch.

* *
*