Working from home is growing ever more popular; many people operate ‘after hours’ freelance businesses or simply work from home full time running a home based business.
To be eligible to claim business expenses, the ATO requires you to prove that the income derived from your business is classified as ‘personal services income’ otherwise known as PSI.
This is when 50% of the income is generated via you using your expertise, knowledge, skills or labour. E.g. you are offering a professional service from within your home, whether it be in person or over the internet for others. This is essentially what freelancers and stay at home businesses do, thus the classification is quite easy to adhere to and will cover 99% of ABN holders.
Like any business, it’s imperative that you keep organised tax records to help boost your tax refund (or minimise paying tax) come June 30th.
Here are a few things to consider when it comes time to do your tax return when operating a stay at home business.
What can you claim as a business expense when working from home?
Claiming electricity, gas and cleaning costs of your home
If you wish to claim a portion of your electricity, gas or cleaning costs – you will need to seperate your working space from that of your personal space.
Once this is separated, you need to calculate what % of the house this occupies. For instance, if you have an apartment that is 100SQM and your office is 25SQM, 25% of your home is used to conduct business.
Keep copies of your electricity, gas and cleaning costs (via official invoices) so that you can provide these to your accountant to help recover 25% of the total costs. Your accountant can guide you on exactly what you can claim, as the rules are normally a little more complicated – but this logic is a good rule of thumb to help you claim the fundamental (and often most expensive) running costs of your home business.
Claiming home office expenses
If you are conducting business from home, you should be able to claim (or depreciate each year) the costs of:
- Stationary (pens, paper, etc)
- Computers (laptop, keyboard, computer bag, monitor and mouse)
- Printers (ink, the printer itself, paper you use)
- Computer chairs and desks
- Office furniture used to conduct business
Like the electricity costs above, the ATO will want to know that any home office expenses are not also ‘personal expenses’ thus it’s quite important to keep receipts and evidence that the home office expense is directly related to your home business.
It can often be easier to have dedicated business computers and printers to showcase that your expenses are specifically for work; however it’s still OK to use your personal computer and printer but you must again showcase the % of running costs that are business expenses versus personal running costs.
Claiming car expenses when working from home
If you need to use your car to carry out your business, the costs of running the car will likely be tax deductible.
You should be able to claim (or depreciate each year) the costs of:
- Petrol (what is used to drive to clients or meetings)
- Parking (when visiting a client or going somewhere for work)
- Servicing and tyres
In order to claim these car expenses, you need to keep a logbook to prove your usage and how it relates to work. This will again help you ascertain the % of private versus business usage. Your accountant is better placed to help you maximise your tax claim by guiding you on how to best prove how much you use your car.
The trick is to speak with your accountant in July, so that the following June you have all required receipts and evidence of usage to maximise your tax claim.
Claiming your superannuation contributions
If you are running your own business, it’s important you don’t neglect your Superannuation.
Many small business operators (or freelancers) opt not to contribute to Superannuation as it’s not compulsory for ABN holders to do so.
To incentivise you to make voluntary payments to your Super, the ATO makes it possible to potentially claim these contributions against your earnings to reduce your tax payable.
For more information, see the ATO’s website on voluntary payments.
Claiming taxis and transport when running a home business
Like other forms of businesses, if you work from home or freelance and need to catch taxis or public transport to client meetings or work related activities; the cost of doing so is tax deductible.
Simply keep every taxi receipt that is related to your business to ensure you can easily justify and explain why you had to expense a taxi or public transport to carry out your business.
A good tip is to write on the back of the receipt the purpose of the trip, so you can remember come June 30th.
Claiming your mobile phone and home internet when working from home
The costs of your mobile phone, home phone and home broadband are all tax deductible. Again, you will need to ensure you have all invoices printed and ready in a folder come tax time.
Similar to the above tips, you need to apportion a % of these costs to business versus private. This will then give you the % of which you can claim with your tax return.
The most important tax tip for running a home business?
Increase your tax refund by working with an accountant. Take their professional advice, keep strong evidence of all expenses and play a straight bat so you can sleep at night knowing you are running a good, ethical business that claims what it deserves.