If your home is your principal place of business and you run your business from home, and a room is exclusively used for business activities.
- the home is the main office of a small business operator
- a craftsperson or tradesperson who has a home-based workshop
- a dentist or doctor who runs their consulting room or surgery from home
What are the deductions that can be claimed?
You can claim deductions if you carry out income-producing work at home and incur expenses in using your home for that purpose.
The following can be claimed as a deduction.
- The cost of using the room utilities (i.e. gas & electricity) – will be apportioned between private and business use, based on actual usage.
- Phone usage- if exclusive business use, you can only claim for rental and costs, not the installation costs. If used both for personal and business, can only claim the business calls as a deduction.
- Depreciation (decline in value) of office plant and equipment (i.e. chairs, desks, computers). Claim must be apportioned between business and private use if these are used for both purposes.
- Depreciation (decline in value) of carpets, curtains and light fittings.
- Occupancy expenses (i.e. mortgage interest, rent, rates, insurance) The portion of costs that relate to the workshop or room used as a place of business can also be claimed. You can use the floor area (as a proportion of the floor area in your whole home) as the basis to determine how much you can claim.
Your home office will not be a place of business if your employer has an office in the city or town where you live even if your work requires you to work outside normal business hours.
You may not be able to claim occupancy expenses as a deduction if your income includes personal services income (PSI).
The main residence exemption and capital gains
According to ATO, you can ignore the capital gain or loss you make upon selling a main residence or home which is under the main residence exemption. But if your home is your principal place of business you will not get the full main residence exemption although you may probably be entitled to a partial exemption.
You need to take into account these factors to work out the capital gain that is not exempt. First is the proportion of the floor area of your home that is set aside to produce income. Then the period you use it for this purpose. Third is whether you’re eligible for the ‘absence’ rule and lastly, whether it was first used to produce income after 20 August 1996.
ATO said that if after 20 August 1996, you first used your home as your place of business, 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. Rather, you use the market value of your home at the time you first used it to produce income.
To avoid paying more capital gains tax, it’s a good idea to get a valuation of your home at the time you first use it as your place of business.