Since the pandemic, we are seeing several business owners deciding to downsize and move their business to a home-based business as well as individuals wishing to start a business choosing to minimise their risks. However, while the environment may be different to utilising commercial premises there are still several obligations and considerations that you need to be made aware of.
Here we highlight just a few:
What is a home-based business?
A home-based business is one where your home is also your principal place of business. That is, you run your business at or from home, and have a room or space set aside exclusively for business activities.
A home-based business can have two divisions:
At home: this is where you set up a separate place in your home where you exclusively run all the activities that pertain to your business.
From home: that is, your business doesn’t own or rent a separate premise. An example is a mobile therapist who visits clients to provide their services but does all their record-keeping, and stores all their products and equipment at home.
If your home is not your principal (or main) place of business but you do some work from home, you may still be able to claim a deduction for some of your expenses relating to the area you use.
Want to set up your business at home?
Before you decide to set up your business at home it is strongly advisable to contact your local council and ask for their guidelines and regulatory requirements, as there will be both structural requirements as they relate both to health regulations, as well as advertising restrictions by way of signs you are permitted on not permitted to display if you live in a housing zone.
If you are performing skin penetration procedures, such as skin needling or cosmetic tattooing, you will most likely be required to attain a license or the local council may need to inspect your premises. Each council has its own rules from suburb to suburb and state to state, so it is important to reach out to them and discuss your intention prior to making any final decisions, as there may also be zoning restrictions that may prohibit you from setting up your business at home.
If you own your own home, it is also advisable to discuss with your accountant the implications of your capital gains and tax. This may affect you at a later stage when you decide to sell the house.
Working from home during COVID-19
The government understands that due to COVID-19 your working arrangements may have changed. If you have been working from home, you may have expenses you can claim a deduction for at tax time. Tracking these expenses can be challenging, so the Taxation Office has introduced a temporary shortcut method. It is a simple way to calculate these expenses with minimal record keeping requirements. The shortcut method was initially applied from 1 March to 30 June 2020, however, it can now be applied up until 30 June 2021.
You can use the shortcut method to calculate your working at home expenses for the period between:
· 1 March to 30 June 2020 in your 2019–20 tax return
· 1 July to 30 June 2021 in your 2020–21 tax return.
The ATO may extend this period, depending on when work patterns return to normal.
In most cases, if you are working from home as an employee, there will be no capital gains tax (CGT) implications for your home.
To claim a deduction for working from home, ALL the following must apply:
· you must have spent the money
· the expense must be directly related to earning your income
· you must have a record to prove it.
This means you can’t claim a deduction for items provided by your employer, or if you have been reimbursed for the expense.
If you are not reimbursed by your employer, but receive an allowance from them to cover your expenses when you work from home, you:
· must include this allowance as income in your tax return
· can claim a deduction for the expenses you incur.
If you work from home, you can claim a deduction for the additional expenses you incur. These include:
· electricity expenses associated with heating, cooling, and lighting the area from which you are working and running items you are using for work
· cleaning costs for a dedicated work area
· phone and internet expenses
· computer consumables (for example, printer paper and ink) and stationery
· home office equipment, including computers, printers, phones, furniture, and furnishings – you can claim either the full cost of items up to $300 or decline in value (depreciation) for items over $300.
At this time, the way you operate your business may have changed, splitting your time between home and your business premises, or you may have moved your whole business to your home.
In such instances, your deduction may have also changed. It is therefore important to discuss this with your accountant. Additional assistance is also available through the ATO website.