Do home office expense claims affect the main residence exemption?

Do home office expense claims affect the main residence exemption?

Due to the COVID-19 public health crisis, many taxpayers commenced working from home for the first time during 2020. Deductions for ‘home office expenses’ may be available under s. 8-1 and Div 40 of the ITAA 1997 (general deductions and depreciation respectively).

Types of home office expense deductions

Deductions incurred in working from home are available where:

  • an area of the home is used as a ‘place of business’;
  • a room is used as a ‘study’, ‘home office’ or other ‘work area’ as a matter of convenience; or
  • no particular area of the home is used, but work is performed at home.

Whether an area of a home is a place of business is a question of fact. A place of business is most likely to exist where an area of the home is set aside for carrying on a business by a self-employed person or for use as a taxpayer’s sole base of operations for income producing activities e.g. where no other location is provided to an employee by their employer.

An area that has been set aside in a home will, or is more likely to, have the character of a ‘place of business’ if the area is:

  • clearly identifiable as a place of business;
  • not readily suitable or adaptable for use for private or domestic purposes in association with the home generally;
  • used exclusively or almost exclusively for carrying on a business; or
  • used regularly for visits of clients or customers.

TR 93/30 sets out the Commissioner’s view on when an area of a home is considered to be a place of business.

Home office expenses fall into two broad categories:

  • occupancy expenses — relating to the ownership or use of a home which are not affected by the taxpayer’s income earning activities (e.g. rent, mortgage interest, municipal and water rates, land taxes, house insurance premiums);
  • running expenses — relating to the use of facilities within the home (electricity charges for heating/cooling and lighting, cleaning costs, depreciation, leasing charges, cost of repairs).

The Commissioner is of the view that in most cases the apportionment of expenses attributable to a place of business should be made on a floor area basis and, where the place of business only existed for part of a year, also on a time basis (TR 93/30).

The following table sets out when occupancy costs and running expenses may be deductible:

The CGT impact of working from home summary

  • where the taxpayer has a place of business in their dwelling and claims occupancy expenses — the taxpayer’s entitlement to the main residence exemption (MRE) will be reduced proportionately; and
  • where the taxpayer does not have a place of business in their dwelling and only claims running costs — working from home has no impact on the taxpayer’s entitlement to the MRE.

 

For any further questions related to this matter please get in touch with your accountant from PrimAccounting on 02 9415 1511 or email reception@primeadvisory.com.au.

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Download our JobKeeper 2.0 Guide Today!

Download our JobKeeper 2.0 Guide Today!

From 28 September 2020, the eligibility tests to access JobKeeper for employers changed, along with the amount of the JobKeeper payment for employees and business participants. To receive JobKeeper from 4 January 2021, employers will need to assess their eligibility again.

Download the Guide here

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Help for individuals

Help for individuals

Services Australia has an online payment guide that guides you through the payments available if you are impacted by COVID-19 and what you might be able to access.

Pandemic Leave Disaster Payment for Victoria
If you have to self-isolate or quarantine at home because of COVID-19 or are caring for someone who is, and cannot earn an income as a result, you might be eligible for a $1,500 payment.

Tightening of access to income support
From 25 September 2020, the assets test and the Liquid Assets Waiting Period (applies to those with assets such as cash savings worth over $5,500 for singles or $11,000 for singles with children and partnered people) will be reintroduced for access to income support payments.

In addition, partner income testing will resume from 25 September 2020, albeit with higher thresholds than those pre COVID-19. That is, you will not be eligible for income support if you are not earning an income but your partner earns $3,086.11 per fortnight or $80,238.89 per annum.

Job seeking requirements that were suspended from 24 March 2020 have been introduced from 9 June 2020. Some leniency has been provided for Victorians if you maintain contact with your employment service provider.

Coronavirus supplement
The Coronavirus supplement will continue, albeit on a reduced rate of $250 per fortnight (from $550), from 25 September until 31 December 2020 for eligible individuals.

27 April to 24 Sept. 2020 = $550 per fortnight
25 Sept. to 31 Dec. 2020 = $250 per fortnight

Your questions answered
During lock down I have had to work from home. I’ve set up a full home office with paintings, plants, a desk, computer equipment, a water tower and a sculpture. I presume I can claim everything I have purchased for this office and claim part of my mortgage and running costs?In general, home office expenses are designed for those who run their business out of home. If you are merely working from home and not running a business at home, then it’s unlikely you will be able to claim occupancy expenses such as mortgage interest or rent. Keep in mind that if you claim occupancy costs, this will impact on your access to the CGT main residence exemption.The water cooler is unlikely to be deductible as food and drink is considered to be private in nature. The items that beautify your office will generally only be deductible if they are displayed in open viewing areas in premises used for income producing purposes including reception areas, waiting rooms and foyers.If you are working from home and have set up a home office for this purpose, you can claim a deduction for your expenses based on the 80 cents per hour short cut method, the 52 cents per hour method (which excludes phone, internet, or the decline in value of equipment which are all claimed separately), or the actual method.

If you have any questions or need further support please get in touch via email reception@primeadvisory.com.au or call 02 9415 1511.

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Help for business

Help for business

The Government has announced further changes to the JobKeeper scheme. The good news is that employees that missed out on JobKeeper because they were not employed on 1 March 2020 might now be eligible. The proposed changes would enable employees employed on 1 July 2020 to receive JobKeeper payments from 3 August if they meet the other eligibility criteria. If you have employees impacted by this change, you will still need to work through the eligibility requirements including providing JobKeeper Payment Employee Nomination, but just remember that these changes are not yet law.

JobKeeper will also be extended beyond 27 September 2020. To receive JobKeeper from 28 September 2020, employers will need to reassess their eligibility with reference to actual GST turnover for the September 2020 quarter (for JobKeeper payments between 28 September to 3 January 2021), and again for the December 2020 quarter (for payments between 4 January 2021 to 28 March 2021).

Most businesses will generally use their Business Activity Statement (BAS) reporting to assess eligibility. However, as the BAS is generally not due until the month after the end of the quarter, eligibility for JobKeeper will need to be assessed in advance of the BAS reporting deadlines to meet the wage condition for eligible employees.

However, the ATO will have discretion to extend the time an entity has to pay employees in order to meet the wage condition.

From 28 September 2020 the payment rates for JobKeeper will reduce and split into a higher and lower rate. Whether an eligible employee can access the higher or lower rate will depend on the number of hours they worked during a 4-week test period. The higher rate will apply to employees who worked at least 20 hours a week on average in the four weeks of pay periods prior to either 1 March 2020 or 1 July 2020. Between 28 September 2020 and 3 January 2021, the higher rate is $1,200 per fortnight, and $750 for the lower rate. Between 4 January and 28 March 2021, the higher rate is $1,000 per fortnight and $650 for the lower rate.

JobKeeper payment rate 30 Mar to 27 Sept 2020 28 Sept to 3 Jan 2021 4 Jan 2021 to 28 Mar 2021
< 20 hours $1,500 $750 $650
> 20 hours $1,500 $1,200 $1,000

Cashflow boost payments

If your business received the first cashflow boost tranche, you will receive a further cashflow boost for the June to September quarters of the same amount. If you report quarterly, the cashflow boost will be paid in two equal payments for June and September. If you report monthly, the cashflow boost is provided in four equal payments.

The cashflow boost is applied to reduce any liabilities in the same reporting period with any excess amount being paid as a cash refund from the ATO.

Support for business employing apprentices and trainees

JobTrainer provides a 50% reimbursement to eligible employers for the cost of apprentice or trainee wages up to $7,000 per quarter. Originally only for small businesses employing less than 20 employees, the subsidy recently expanded to include businesses with under 200 employees.

For small businesses (under 20 employees), the apprentice had to be employed on 1 March 2020 or on 1 July 2020 for claims after this date (claims are open now). For medium sized businesses (under 200 employees), the apprentice had to be employed on 1 July 2020 (claims open 1 October 2020). To access the subsidy, you will need to provide evidence of wages paid to the apprentice.

The subsidy is also accessible to larger employers employing apprentices let go by a small/medium business where that apprentice was eligible for the wage subsidy.

The subsidy is scheduled to end on 31 March 2021.

State & territory based support

In addition to general waivers, reductions or rebates on some Government licensing and fees, each State and Territory has some form of support accessible to certain businesses impacted by COVID-19.

Australian Capital Territory

Support Description Closes
Rate deferrals Rate deferrals for commercial property owners affected by COVID-19. 1 April 2021
Payroll tax deferral All ACT businesses with Australia-wide wages of up to $10 million can apply to defer their 2020-21 payroll tax, until 1 July 2022.

New South Wales

Support Description Closes
Payroll tax deferral Option of deferring 2019-20 payroll tax to October 2020. Instalment plans can be entered into after October 2020.

Payroll tax threshold has increased to $1m for 2020-21.

Small business recovery grant Grants of between $500 and $3,000 to help small business reopen safely. 16 Aug. 2020
Export assistance grants Up to $10,000 for up to 1,000 eligible small or medium NSW export businesses that have experienced disruptions to freight channels or reductions in orders. Opening soon.

Northern Territory

Support Description Closes
Business hardship package A package of concessions including payroll tax waiver or deferral, council rates, utilities and rate concessions. 30 Sept. 2020

Queensland

Support Description Closes
Adaption grant Funding of up to $10,000 for regional micro and small businesses to adapt and sustain operations. When allocation exhausted
Payroll tax relief Payroll tax deferrals for the 2020 calendar year. 31 Dec. 2020

South Australia

Support Description Closes
Support when employing apprentices A range of grants and support when you hire an apprentice – up to $5,000 for hiring an apprentice, $1,500 on equipment reimbursement, and up to $5,200 off the Group Training Organisation charge out rate. Generally 31 Aug. 2020

Tasmania

Support Description Closes
Small business sustainability Grants of up to $5,000 for businesses with fewer than 20 employees to reopen and rebuild. 24 Aug. 2020

Victoria

Support Description Closes
Business Support Fund One-off grant of $10,000 for employers in metropolitan Melbourne and Mitchell Shire and $5,000 in regional local government areas. 14 Sept. 2020
Regional Tourism Accommodation Support Up to $225 per night up to a maximum of $1,125 per bookable accommodation for cancelled bookings during stage 3 restrictions. 19 Aug. 2020
CBD Business Support Fund $20m fund for CBD businesses. No details available as yet but register your interest.
Night-time economy support $30m fund for hospitality businesses. No details available as yet but register your interest.
Payroll tax deferrals Businesses with payrolls up to $10 million can defer their liabilities for the first half of the 2020-21 financial year.
Payroll tax refunds Eligible businesses can claim an emergency tax relief refund of payroll tax already paid in the 2019-20 financial year.

Western Australia

Support Description Closes
International competitiveness co-investment Matched funding of between $50,000 and $100,000 for existing exporters (under 200 employees) of food, beverages and services into Asia. 12 Aug. 2020
Payroll tax relief The tax-free threshold increased to $1m on 1 July 2020.

Automatic grants of $17,500 are being paid to employers with annual Australian taxable wages of more than $1m and up to $4m in 2018-19.

Support when employing apprentices A one-off payment of $6,000 for an apprentice and $3,000 for a trainee employed from 1 July 2020. 30 June 2021
Incentive to employee apprentices Incentive of up to $8,500 for employing an apprentice or trainee from 1 July 2019.
Local Capability Fund Fund to increase capability of SMEs for planning, improvements to internal infrastructure, plant and equipment and training. Current rounds include cost recovery for: PPE manufacturing (up to $500k) and feasibility (up to $20k), and general recovery and growth (up to $100k) for supply to certain industries. 30 June 2021

 

For further support please get in touch 02 9415 1511 or email reception@primeadvisory.com.au.

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NSW Government New $3k Grants for Small Businesses.

NSW Government New $3k Grants for Small Businesses.

From 1 July, the NSW Government will give further support to small businesses of between $500 and $3,000 to assist in safely reopening or upscaling their operations. These costs must be incurred from 1 July 2020. They can include business advice & continuity planning, cleaning products & additional cleaning services, fit-out changes, staff training & counseling, marketing, communications, and advertising.

This new grant comes as the NSW state government’s previous $10,000 grant comes to a halt at the end of the 2020 financial year. The first grant was taken up by 49,000 businesses totalling $490 million of support given by the NSW state government. This comes from a $750 million funding pool, in which the new grant will be funded.

Note if you have claimed the first $10,000 support grant previously you may also be eligible for this $3,000 recovery grant. To be eligible your business or not-for-profit will need to;

  • Have an Australian Business Number (ABN) as at 1 March 2020 registered in NSW
  • Have total Australian wages below the NSW Government 2019-20 payroll tax threshold of $900,000 as at 1 March 2020
  • Have fewer than 20 full-time equivalent (FTE) staff (including non-employing businesses) as at 1 March 2020
  • Have an annual turnover of more than $75,000 as at 1 March 2020
  • Have experienced a decline in turnover of at least 30% from March to July 2020 compared to the equivalent period (of at least 2 weeks) in 2019
  • Are in a highly impacted industry as at 1 March 2020
  • Have costs from 1 July 2020 associated with safely reopening or scaling up their business and can support these costs by providing invoices if required

If you are eligible, please apply online here.

Please note that the grant closes on 16 August, so if you need assistance in understanding if you are eligible for this NSW small business recovery grant, please contact us on 02 9415 1511 or email us.

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