People running a business out of their home gain the flexibility of working from home and also the freedom of being their own boss.

Tax impact 

Many small businesses are run from the business owner’s family home, making it their principal place of business and principal place of residence. However, please be aware that this only applies if your home is the principal place of business. If you have an office in another location in the same town and you just do some work from home out of hours, it is therefore not the principal place of business.  When this occurs you can claim a deduction to the extent of the income producing aspect.

Examples of tax deductions that you can claim:

– Cost of using a room’s utilities – generally calculated on actual usage

– Business internet and phone costs

– Depreciation on office furniture and equipment – must be apportioned between the private and business use

– Depreciation of fitting and fixtures in the room allocated to business use

– Occupancy expenses (Eg. rent, interest on home loan, insurance, rates) – Generally calculated using the floor space used for the business divided by the total area of the house.

If your income includes personal services income you cannot claim occupancy expenses. For further clarification on what is Personal Services Income refer to the ATO website or contact us.

Capital Gains Tax Implications

If you run your business from home and decide to sell your primary place of residence you will not be exempt from paying CGT on the sale of your home. There are a number of factors which need to be taken into consideration when determining the amount of CGT you will be up for, some of these include:

– Portion of floor space used for income producing activities

– Duration of time you used the house for the business

Tip: It is a good idea to get a valuation on your house when you begin to use it as your place of business so you don’t end up paying more capital gains tax than you have to.

At Nitschke Nancarrow, we’re happy to help. Call our Adelaide office on (08) 8379 9950 or send me an email.

– Kym Nitschke

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