There are some often debated tax topics between friends or when you’re down at the pub… Working from home and claiming home office expenses we’d say would be one of the most common and often misunderstood.
The big thing to note is that the rules are very different if you work for someone (and do a few hours each week from home) to whether you run a business from home.
In this article, we’re focusing on business owners who run their operation from home.
Claiming Your Car Expenses
If you run your business from home, you’re bound to use your car a fair bit for a variety of reasons. Running down to the post office, picking up stationery, going to client meetings and networking events – there’s always something to get out of the house for.
While there’s many methods of claiming car expenses, we recommend that you use the logbook method. This requires that you keep a log book for 12 weeks of the financial year, and determine the percentage of kilometres that are business related. It’s worth noting too that you only have to complete a log book once every five years, should your circumstances not change dramatically.
You must also keep a record of all your expenses when you’re claiming the log book method. To make this easy, you can implement a cool piece of cloud software called Receipt Bank. All you do is take photos of all your receipts and then throw them in the bin! Receipt bank looks after the data entry and receipt storage, leaving you very little to do – and it even integrates directly with Xero! (It’s worth noting that every single business client of Inspire CA uses Receipt Bank!)
Claiming Home Office Expenses
In the context of having your place of business at home, you can generally claim a percentage of what the ATO refers to as ‘occupancy’ expenses, such as rent, council rates, house insurance and interest on your mortgage.
You can also claim the running costs of your home office, such as the electricity, water, gas, phone, internet and portions of furniture and equipment that you use.
If you are looking to claim your home office expenses, it’s worth noting that you may also be liable to pay Capital Gains Tax (or “CGT”) when you go to sell your house. (This is simply because your house has been used to earn income.)
Claiming Coffee Meetings
This one doesn’t just relate to business owners who work from home… Even those with an office separate to their humble abode often trip up on this nasty piece of tax ruling…
Very simply, client entertainment is not tax deductible.
Any meals you consume are not tax deductible either, as it is seen to be personal. (Except in the case where you’re travelling on business, away from your home.)
On the other hand, refreshments are seen to be tax deductible (as opposed to bigger meals or a 7 course degustation with your best clients). An example would be your takeaway coffee and a muffin on the go, in between client meetings.
It’s a grey area when comes to the ol’ coffee meetings. We’d recommend erring on the side of conservative here.
Summing it all up, the best thing to do would be to talk with your accountant about your own particular circumstances. They will also be able to guide you in a bit more detail on how to keep records for the above expenses too!