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Home-based business deductions

Businesses that operate from home can claim deductions for expenses incurred when carrying out income-producing work.

Business owners can claim deductions for a number of expenses including:

Room utilities

The cost of a room’s utilities, such as gas and electricity, can be claimed but must be apportioned between business and private usage. The claim must be based on actual usage; anything other than the floor area must be clearly documented.

Business phone costs

Telephones used exclusively for business can be claimed for the rental and calls but not the installation costs. If a telephone is used for both private and business purposes, the business calls can be claimed as a deduction.

Decline in value

Decline in value (depreciation) can be applied to office equipment such as desks, chairs and computers. If equipment is used for private purposes the claim must be apportioned. Decline in value is also applicable to curtains, carpets and light fittings.

Occupancy expenses

Occupancy expenses can include rent, mortgage interest, council rates, house insurance premiums and so forth. You can claim the portion of these costs that relate to the room which is used for business. The most common method of working this out is using the floor area as a proportion of the whole home.

Motor vehicle expenses

Motor vehicle expenses incurred when travelling between your workplace and home are private expenses and therefore are non-deductible. However, home-based businesses can claim deductions for travel between your home and other locations, if the travel is business-related. For example, travelling costs such as visiting a client, delivering a document and driving to your tax advisor could all be claimed as a deduction.

While home-based businesses do not qualify for the main residence exemption that ignores a capital gain or loss when the home is sold, they are entitled to a partial exemption. Therefore, it may be prudent to get a valuation of a home when it is first used for business purposes to avoid paying unnecessary capital gains tax (CGT).

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