A home-based business is one where a specific portion of your house is designated and used only for work-related purposes. The type of expenses you can deduct depends on the business structure and how you run your home-based business. Only the portion of your expenses related to your home based business is eligible for a deduction.

If you work from home occasionally but do not have a dedicated space for your business, you may still be eligible to deduct part of your costs associated with the space you use.

If you used a portion of your home for business, you can be subject to capital gains tax (CGT) when you sell your home. To calculate your deductions or CGT, maintain proper records. If you qualify, you might be able to use the small business CGT concessions to lower your CGT.

Home-based business expenses

• Occupancy expenses, such as mortgage interest or rent, council rates, land taxes, house insurance premiums.
• Running expenses, such as electricity, phone, decline in value of plant and equipment, furniture and furnishing repairs, cleaning.
• The cost of motor vehicle trips between your home and other locations, if the travel is for business purposes.

In case, personal services income rules (PSI) apply to your business, you may not be able to claim occupancy expenses. But, you can claim both occupancy expenses and running expenses if you have an area of your home set aside as a ‘place of business’.

Make sure you subtract the GST exclusive amount from your income tax return if your company qualifies for input tax credits for the goods and services tax (GST). A tax depreciation incentive, such as temporary full expensing, may entitle you to an instant deduction or an accelerated rate of value decay for depreciating assets.

The techniques used to determine running costs have recently changed as the temporary shortcut method came to an end on June 30, 2022. You might be able to determine your running costs for the 2022–2023 tax year using the revised fixed rate technique, which uses a fixed rate of 67 cents per work hour and includes the following usage expenses:

• electricity
• gas
• stationery
• computer consumables
• internet
• phone

You can’t claim an additional separate deduction for the expenses covered by the rate per work hour. For the loss in value of depreciating assets, such as laptops, cell phones, and office furniture, you can make a separate deduction claim.

Any additional operating costs that are not paid for, such as cleaning your home office, may also be deducted. You can deduct the exact costs you spend while working from home if you choose not to adopt the updated fixed rate approach. You should always keep thorough records for at least five years to support your claims.

For more details regarding claiming your home-based business expenses, feel free to contact our tax accountants at KPG Taxation.