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Running your business from home

Running your business from home

Running your business from home

The information in this section applies where your home is also your principal place of business – that is, you run your business from home, and a room is set aside exclusively for business activities. Examples include:

  • a small business operator whose main office is in their home
  • a tradesperson or craftsperson who has their workshop at home
  • a doctor or dentist who has their surgery or consulting room at home.

If you do only some business or work from home, in either a designated work area or another part of your home, refer instead to Working from home.

Deductions you can claim

Where your home is also your place of business, you can claim deductions if you carry out income-producing work at home and incur expenses in using your home for that purpose.

You can claim a deduction for the following:

  • the cost of using a room’s utilities, such as gas and electricity – which must be apportioned between business and private use, based on actual usage.
  • business phone costs – if a telephone is used exclusively for business, you can claim for the rental and calls, but not the installation costs. If the telephone is used for both business and private calls, you can claim a deduction for business calls.
  • decline in value (depreciation) of office plant and equipment, such as desks, chairs, computers. If equipment such as a computer is also used for non-business purposes, your claim must be apportioned between business and private use.
  • decline in value (depreciation) of curtains, carpets and light fittings.
  • occupancy expenses (such as rent, mortgage interest, insurance, rates). You can claim the portion of these costs that relates to the room or workshop you use as a place of business. A common method of working out how much to claim is the floor area (as a proportion of the floor area in your whole home).

If your employer has an office in the city or town where you live, your home office will not be a place of business, even if your work requires you to work outside normal business hours.

If your income includes personal services income (PSI), you may not be able to claim a deduction for occupancy expenses.

Capital gains and the main residence exemption

Generally, you can ignore a capital gain or loss you make when you sell your home or main residence (under the main residence exemption).

However, you don’t get the full main residence exemption if your home is your principal place of business, although you’re probably entitled to a partial exemption.

To work out the capital gain that is not exempt, you need to take into account a number of factors including:

  • proportion of the floor area of your home that is set aside to produce income
  • period you use it for this purpose
  • whether you’re eligible for the ‘absence’ rule
  • whether it was first used to produce income after 20 August 1996.

If you first used your home as your place of business after 20 August 1996, the period before you first used your home to produce income is not taken into account in working out the amount of any capital gain or capital loss. Instead, you use the market value of your home at the time you first used it to produce income.

It’s a good idea to get a valuation of your home at the time you first use it as your place of business, so that when you come to sell it you don’t pay more capital gains tax than necessary.

Ref: Australian Taxation Office

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Bottrell Group

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