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AJML Accountants Update – May 2021

Home-based business – Part 2

Decline in value (depreciation) of business assets

  • You don’t separately claim the depreciation of your home-based business furniture and furnishings if you claim running expenses using the fixed rate of 52 cents per hour, as this is included in this rate.
  • If you use assets for both personal and business use, you can separate your business deprecation expenses from personal based on your pattern of use.
  • You can claim some expenses based on your ‘pattern of use’, which you can work out by keeping a diary for a representative four-week period each financial year. If you can’t show a regular pattern, you need to keep detailed records.

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’ (including if most of your business is conducted online). 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
  • used regularly for business visits by your clients.
  • If you’re eligible to claim occupancy expenses, you can also claim running expenses.

You usually calculate occupancy expenses based on the proportion of the floor area of your home that is a place of business and proportion of the year it was used for business.

Trusts and companies

If you operate your home-based business as a trust or company the business should have a genuine, market-rate rental contract (or similar agreement) with the owner of the property. This will determine which expenses the business pays for and can claim as a deduction. If there isn’t a genuine rental contract, there may be tax implications for you and the business.

If you are an employee of the business and the business 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. Your business will be subject to fringe benefit tax (FBT) if it pays or reimburses you for the 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.

Records you need to keep

You need to keep records to substantiate your claims for all of your home-based business expenses. This includes written evidence, tax invoices or receipts for:

  • purchase and repairs of furniture and equipment used for your business
  • utility bills and cleaning expenses
  • mortgage interest, rent, insurance and council rates (if you claim occupancy expenses)
  • rental contract between homeowner and business (if you claim occupancy expenses)
  • how you separate your business and private use (for example a diary over a representative four-week period or records of how you calculated the percentage of your floor plan dedicated to your business).