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A ‘home-based business’ is one that is operated either:
There are three types of tax deductions that are only available to home-based businesses. They are:
Any home-based business can claim types 2 and 3 (above) if those types of expenses were incurred in the relevant tax year, but only those home-based businesses that pass the ‘interest deductibility test’ can claim type 1 (above).
Home-based business owners should also be aware that claiming occupancy expenses has Capital Gains Tax implications (whereas the other two deductions do not). If you are (or intend to) operate a home-based business and have not already done so, you should seek your own professional tax advice to confirm:
Claiming this type of deduction involves a two-step process:
A home-based business meets the ‘interest deductibility test’ if the home business area meets the following criteria:
If your home-based business passes this test, then:
Occupancy expenses are those that you pay to own, rent or use your home. Examples include:
There is no formula you have to follow to work out this percentage. A commonly used method is % floor area (that is, the proportion of the home-business area to the total area of your home). Alternatively, you can simply choose a method that is reasonable and based on accurate information.
Running expenses include:
A home-based business can only claim this type of expense as a tax deduction if extra costs were incurred as business activities were being carried out at home. The claimable tax deduction is only that amount which is incurred by reason of the business.
There is no formula you have to follow to work out this percentage.
A commonly used method is that outlined above. Otherwise, you can simply choose a method that:
To help you, the ATO has released details of different methods that are acceptable to them. They are:
The general rule about travelling expenses
The general rule (for all business owners) is that the cost of trips between home and work cannot be claimed as a tax deduction.
The exception for home-based businesses
The owner of a home-based business lives at the place where s/he works, thus any business-related travel can be claimed as a tax deduction.
Examples include travelling to:
You can access (for free) any of the following ATO publications (which are easy to understand and contain practical examples):
|Name of ATO publication||Reference number|
|Guide for home-based business operators – Home-based business||NAT 10709-05.2009|
|Income Tax: deductions for home office expenses||TR 93/30|
|Home office expenses||PS LA 2001/6|
|Tax Basics for Small Businesses||NAT 1908|
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