More people than ever have decided to cross the line and take responsibility for their own future. They may have seen the "writing on the wall" and understand that a job that may previously have been seen as safe for the long haul, could disappear due to the technological revolution. Either way, it's time to become self-employed and take control, but there are a lot of issues to consider prior to setting up shop. If you're in this position, what do you need to know about establishing a business from home, from a tax perspective?
In many respects, it is best to remain as lean as possible from a start-up perspective and to avoid the need for a separate, "bricks and mortar" office during your new business set up. If you can set up your base at home, there are many advantages, one of which is the opportunity to claim some of your expenses against your tax liability.
To do this properly, you will need to have a dedicated area of the home that is only used for business purposes. If you have a spare room, then that is great, but just make sure that it's not equipped with a bed or other similar furniture as a standby for your visitors.
Note that the ATO can be very critical about this and will want to be sure that you are using this space exclusively for an active business operation. If you entertain clients from time to time in this room, that is an advantage, and if you have a sign outside your home to identify the location of your business, that should tick the box as well.
If you pass this test, then you will be able to proportion your rent or home mortgage cost to determine how much relates to the business activity. For example, if the new office is one fifth of the total area of the home, you can claim one fifth of your mortgage interest or rent, together with insurance, council rates and other utility costs. Remember that you will need electricity to cool, heat or light the office, and will need to use part of your Internet connection to go online. All of these items can be proportioned and included on your tax return.
You may also have to buy new furniture or other equipment (such as a computer) and you can depreciate major items each year on your return. Always look at this impartially and calculate correctly, because if you do get audited, the ATO will want to be sure that your claim is reasonable and not excessive.
Good luck with the new venture, but remember to keep the ATO on your good side and use the services of an experienced tax advisor, just to be safe.