Many business owners claim a home office as a tax deduction at tax time. Even if we have business premises, the reality for small and medium-sized business owners is that working from home from time to time is a necessity – not just because small business owners tend to be ‘on call’ at any time, but sometimes it’s just great to get away from the team and work through numbers or risk scenarios and other detailed business planning.
But even so, more and more corporate employees are on flexible work arrangements too, that enable some time working outside of the office, usually from home, and for this group, claiming a home office is also possible.
“The ATO is generally very accepting of claims for home offices and there are a range of acceptable deductions,” says Paul Rattray of ATB Partners, tax accountants in Paramatta, Sydney.
Effective from the start of this current financial year (July 1, 2018) the hourly rate you can claim for deducting home office expenses for individual taxpayers increased to 52c per hour (from 45c per hour).
This is a standardised rate set by the ATO, and if you choose to use this method to work out what you can claim against your tax, then you don’t need to keep note of all the costs involved in running and maintaining your office, you just need to keep a record of the number of hours that you’ve worked within it over the course of the year, like you would keep a log book of mileage and trips for a business vehicle.
“Many people prefer this method, because it’s pretty simple and straightforward – it’s just a basic calculation, but there is also another way you can claim a home office, and that is against what you actually spend annually,” says Paul.
“This second way requires keeping much more detailed records and all invoices and receipts that relate to the office, but it means that you do get a more accurate deduction, and when it comes to tax, it’s important to minimise your liability as much as possible.”
“It can be a time-consuming exercise, because you need to portion out what you spend on items like internet usage, the air-conditioner and the electricity bill and it takes some time to figure out what belongs to the ‘household’ and what it actually related to ‘working from home’,” he explains.
“Really, if you’re going to claim this way you need an accountant so you can work through the detail properly,” says Paul.
If you’re claiming actual costs, there are numerous things you can potentially, claim.
• Home office equipment, including computers, printers and phones. You can claim the full cost (for items up to $300) or the decline in value – the depreciation, for items costing $300 or more.
• Work-related phone calls (including mobiles) as well as phone rental / landline charges.
• Heating, cooling and lighting.
• You can claim set up costs for office furniture and ongoing you can also claim repairs to furniture and fittings.
• You can also claim office cleaning expenses.
“It’s important that you invest in a home office for a few good reasons – you want to make sure that you’ve got a good ergonomic set up, and that you can easily connect via the internet with the office when you need to – whether it is accessing your files in the cloud or enabling a video meeting/conference call,” says Paul.
“You also need to consider the correct ergonomic set up – just as you would for your employees in the workplace, to make sure they don’t sustain injury from sitting at an awkward angle or not having a good chair.
“These things not only affect your comfort, productivity and output working from home, they can affect your health over the long term too, if the setup is not right for you, so it’s critical not to be a scrooge. Configuring a home office can be expensive, but it’s worth it in the long run, because it will give you freedom and flexibility, which is usually the whole point of starting your own business to begin with.”