Many of us, both employees and business owners, perform some of our work related duties at home.
In doing so, we may incur expenses which directly relate to the earning of income, and may be deductible when lodging our tax return.
There is one important difference in claiming “home office” type expenses…and that relates to the difference between running costs and occupancy costs…and whether or not you are an employee or are earning business income.
Depending on your circumstances. you may be entitled to claim a tax deduction for home office expenditure:
- As an employee, running costs may be deductible, however occupancy costs are generally not deductible
- Business owners who run some or all of their business from home and have an area set aside and used exclusively for business purposes, may be entitled to a deduction for both running and occupancy costs
Running costs relate to expenses such as light and power, repairs to office furniture, telephone calls and rental, cleaning expenses and home office equipment (such as computers, printers and telephones).
Occupancy costs relate to expenses such as rent or mortgage interest, council rates and premiums for home insurance.
There is a great calculator on the Australian Taxation Office (ATO) website which can help you determine if you meet the criteria for claiming a deduction for home office expenses, you’ll find it here. Alternatively, your accountant can assist you in calculating your eligible deduction.
I spoke on Friday about Intaxication…if you missed it, you can read that post here.
But I was thinking over the weekend, and having a discussion about the topic with a friend…and I thought it was probably a good idea to suggest that you wait until you actually HAVE your tax refund in your hot little hand (ie: your bank account…) before you actually spend it!
I know the excitement that builds at the prospect of how much you might get back, but it’s not a tax refund until it’s actually been refunded!
For taxpayers who are in business, or have otherwise untaxed income (such as rental income, interest and dividends – where tax is not paid as you earn), I always recommend putting a little bit aside throughout the year so that you have enough to pay your tax liability, or to give yourself a “tax refund”, even if the Australian Taxation Office (ATO) don’t…a bit like forced saving!
For myself, I’ve done some calculations for the financial year just ended, so I have a good idea what the outcome will be when I complete my tax return…but I can assure you that I won’t be spending any refund until I actually receive it…I’ve got some ideas on what I want to do, but no action will take place!
It’s Frivolous Friday!
A number of years ago I came across a “funny” in an accounting magazine (I think that’s the definition of an oxymoron…but I digress!!)…
Intaxication: The euphoria at getting a tax refund, which lasts until you realise it was your money to start with.
I’ve met with a few people recently who are suffering from “intaxication”…at this point I notice that my spell check wants to change “intaxication” to “intoxication”…I know a few people who’ve suffered from that recently too (again…I digress!)!
A reminder to everyone that the tax system in Australia, from an employee’s perspective, is designed so that the correct amount of tax is withheld from your wages and no amount should be payable (or refundable) upon lodgement of your income tax return (of course this depends on your personal circumstances).
Those of us who have expenses related to our employment which are allowable deductions, will save an amount equivalent to our marginal tax rate for every dollar we spend – for most people this is likely to result in a refund at tax time and the onset of the above mentioned “Intaxication”…
Enjoy it while it lasts!
It’s not uncommon these days for home owners to move to a new property and retain their original home as a rental property.
In this instance the rental income is assessable and the interest on an existing loan becomes deductible to the owner…now landlord!
Quite often there are some repairs that need to be undertaken to make the property more attractive to potential tenants, however many home owners make the mistake of conducting these repairs before earning rental income, and then cannot understand why their accountant is unable to claim a straight out tax deduction?
A landlord is only entitled to claim a deduction for expenses incurred (including repairs and maintenance), if the property is held or used for income producing purposes at the time the expense was incurred.
If the landlord incurs the expense before the property is genuinely available for rent, the Australian Taxation Office (ATO) will not allow a deduction for the amount.
If possible, the landlord should delay conducting any repairs to their former home until it is rented to tenants or genuinely listed with a real estate agent.
PS If you do decide to rent out your former home, please make sure you get a valuation at the time for Capital Gains Tax purposes!