Home business tax deductions

B2B Editor1 June 2013

Home business tax deductions

With so many businesses now being run from home, the ATO is eager to ensure that those claiming tax deductions do so correctly.

Understanding the rules.

A home-based business may use the home as the principal place of business (such as a hairdresser, a doctor or a dentist), with clients coming to the home.

Alternatively, the business can comprise of a home work area, such as a study or lounge which is set aside exclusively for business activities. If neither applies, a home based business can still claim some deductions if there is at least some business activity conducted at home.

The responsibility for keeping invoices and records for a home office is the same as that for any other business expenses you are claiming. Invoices for these expenses must be retained.

Occupancy expenses.

Business owners that are conducting their business at home may be entitled to claim a portion of their rates, house insurance and mortgage interest for income tax purposes.

The amount of these deductions is generally calculated and based upon the percentage of the home area that is used for business purposes, but there are some special circumstances.

Interest costs can generally be deducted for income tax purposes where the interest costs are directly attributed to a place of business. Whilst this may depend on particular circumstances, specific indicators include that the place is clearly identifiable as a place of business; it is unsuitable for private purposes; it is used exclusively or almost exclusively as a place of business and is used regularly by clients. Tax payers who satisfy the interest deductibility test may have to pay capital gains tax on part of any capital gain that is made when the house is sold.

Running expenses.

Running expenses are the increased costs of running facilities within a home as a result of running a business. These expenses include electricity, cooling, telephone and cleaning costs. Tax payers may claim the additional expenses incurred from running a business from home, however the method to work out these additional expenses must be able to prove that the claim is reasonable and not of a personal or private in nature.

Business owners of home based businesses may claim depreciation for the decline in value of depreciating assets.

These include items such as computers, photocopiers, furnishings and tools. Assets used for both business and personal activities must have the deduction reduced for non-business purposes.

For more information, please contact Dominica Rossi, Manager at

RSM Bird Cameron, on 6217 0321 or [email protected].