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[Music] everyone and welcome to this month's webinar firstly I need to apologize for this shirt I didn't realize how much strolling you be but tell I learn these things so this month we're going to be talking about Home Office deductions I get a lot of people talking to me about Home Office and what they can claim and what they can't claim and things like that so I've gathered up all those questions I'm going to try and answer them in today's webinar all right Who am I that's Derrick Nolan is my name I'm the owner of twelve child accountants I've been doing these webinars for a number of years now I really enjoyed doing them so if you haven't watched any of them in the past go back and have a look at our our website ww-well calm you and have a look at all the other great ones we've done so moving on today so what we're going to talk about today is home office deductions and home office expenses and what you can claim and all those other really good things to start with we need to make a distinction between a couple two really important things the first thing is what the tax offers consider on running expenses for your home office now these things are others I guess an easy way to explain other small things you know we're talking about a little bit of electricity cooling air conditioning lighting cleaning expenses and things like that but just the running costs small amounts everyday deductions the other type of deductions the tax office making a distinction for is the occupancy expenses now this is when you own your property or you're renting it and in a way they're the bigger deductions they're the things like your the interest on your home loan your rent your home insurance is your council rates your land tax the rent you pay and things like that a lot bigger deductions and and we'll explain what that why the tax office have taken this view really important to understand the difference between the running costs and the occupancy costs because as we go through this webinar you'll see what things are clickable to to what type of business you're in and if you're a salaried wage and working from home and things like that so the other thing we're going to make a distinction today is between salary and wage earners because I know there'll be plenty of people watching this who are selling wage earners I want to know what can I claim as a home office deduction if you can and the other people are the people who are business owners so as you can see I'm going to talk about both those today it's been probably a bit more time on the business owners but we will be spending a bit of time on the seller majors first so it's selling wage earners so again the most important thing to understand here is there's two types of categories of people who are selling wage earners and working from home the first one is people that work from home and have a dedicated work area go back go to that for that in a second what a dedicated work area actually beats the second one is people that actually worked from home but have no dedicated work area so basically people that have a proper home office set aside it used exclusively I'll get to the definition a second for your home office for those compared to those people that don't have an office where they'll just come home even work on the kitchen table or in the lounge room or the dining room table or something like that so that's what we mean by a dedicated and a dedicated area and attack tax ups are really clear on this even though they're very clear on their made the rules very specific most people go will help how the tax office actually no it's very unlikely for them to come and look at your home I've never in all the time I've been doing okay I'm never that happen but it could but anyhow it comes out there the rules I just pass you on the rules so if you're a selling wage earner you will fall into one of those two categories either got a designated area and has to be used exclusively we'll get to that in a second they say this dedicated work area the work area must be used exclusively for work and what the tax others means there is literally that it can't be the spare bedroom where you know half the year it's used as a home office and the other half a year it's used for guests to to stay or like my office I had a perfectly good office at home until my older son Stone doing his HSC this year he took it over so but it's still an office and where the tax office care they probably don't yeah but that's the important thing it must be exclusive and it must be dedicated it must be does nothing separate from the house but does need to be a defined area now you might even have the spare bedroom at home and half of it you could say well half it's a bedroom and the other half in the middle somewhere is the office that's no problem as long as it's dedicated that desk area only a tiny little desk I'm gonna get to that in a second why that wouldn't really be that great but needs to be dedicated and exclusive that's what you need to do now with home ops again we ain't on that selling wage earners here they're all the types of expenses that we can have I'll go through those a little bit more detail but running expenses have you talked to that before they're all the electricity air conditioning cooling lighting cleaning do those from little running expenses that we talked about other things work-related phone and Internet yeah there could be a portion of your home phone home like internet or your mobile phone and things like that the declining value you your computer so probably when this was written most people had desktops so you know you've got a desk at home and there's your computer nowadays most people have laptops or tablets or work from their phone so it's probably not as important this one as it used to be but of course if you have a designated area you've got to have a good pewter scene there and therefore you have to depreciate it now the depreciation rules have even changed over the last few years as well so depending on the expense of your computer where they actually depreciate or not the other thing there is the decline in value your office equipment and your furniture so you obviously couldn't meet your printers your scanners a few other things like that your furniture on your desk in your chair and your lamp and your other things that you are you're having your home office rugs carpet and things like that and down the bottom there is the occupancies expenses they're the ones we talked about before you rent your interest payment your council rates your land tax your water rates and things like that now if you'd line them all up so the first one is this is the people selling wages we're talking about here who have a dedicated work area they're the things that they can claim in their tax return as home office expenses so the running costs the phone interred expenses the depreciation on their computer or complete write-off write-off the depreciation on their equipment and their furniture and things like that what they can't claim is that occupancy expenses and pretty much this there's no way the tax office will allow people who are selling wage earners to be able to claim any occupancy expenses so that is those things those days have finished the tax office was very clear in 2012 they had a real blitz on home office and as a result of the information they put out was that occupancy expenses will not be able to be claimed as a deduction for anyone who he's working as a selling wage earner now I get a lot of pushback on that pills are what about this what about that and there's fairly written about but what they don't understand is when you read on the Internet and anything else like that they start to in that home office well yeah you can they talk about running expenses yeah the electricity the cleaning and things like that and you phone all those other things are there but they're not specifically talking about the rent and the interest and the land tax and the council rates and all those sorts of things so be a hundred percent clear on that one moving on working at home but no dedicated area so there's still some things you can claim people think well if I've got no dedicated area I probably can't claim anything but there's a few things you can the difference there of course you can't claiming running expenses because there's no designated area so you can't really apportion and you get costs or anything like that but you can claim your work related phone and internet expenses because usually that's not based on floor space or anything like that you to use them or you don't you can use a time basis or well I would say if they're if they're required for working you do use them for work well you can probably claim close to a hundred percent of those those related costs the other thing you can claim is obviously the depreciation on your computer but that would probably come under a work-related adduction anyhow not not a home office the things you can't claim though is the depreciation on your office equipment furniture because you don't have a designated area the other things of course you can't claim are your occupancy expenses but you couldn't claim that if you had a dedicated area anyhow so we just leave it that so they're the two different areas but the main thing as you can see there under home office expenses for selling wages neither can claim the occupancy expenses which is sort of like I said very beginning that was the big deductions okay so I hope it runs clear with those things for selling wage earners okay now moving along this is very good little bit more interesting which is the business owners well what do they claim and we sort of will be talking about different types of businesses here that there'll be some which is the sole traders some with companies some of them quite large um businesses so again we've got two different categories of self-employed people or business owners now the difference here is what we call the place of business so as you can see there's a place of business at home with a dedicated work area the other one of course is there's a place of business at home but no dedicated work area so very very similar to what we had for selling wages the difference being place of business now I really love the stuff that the tax officers put out and may in turn change the word place of business to principal place of business now the word principal place is used a lot when we start talking about capital gains tax and things like that but you'll get to a little bit later on but your principal place of home or principal place of business to me I'm not using that because the press will only gives you one place so there's many businesses that have multiple places of business so you use the word principal place of business well what that's implied so you only complain the expenses for one place of business where the other ones who may not be the principal but still just as important you can't claim anything so I don't think that's quite right the tax office so I'm going with the original deductions where if you look at the massive tax code and things like that as opposed to just what the tax office are putting up on me they're public domain they use the word place of business which is really important then we make that distinction and give 200 calories so you've got one with a dedicated work area and one without kaylynn work area so place of business we talked about this before so what is the place of business what it is this actually carries on a business from home so if you are a business owner the tax office will ask do you actually carry on part of your business from your home and what does carry on mean my understanding of it are people tax others understanding owners as well is are you generating revenue from home so what you do at home you're actually going to either raise money for it build it to the customer or anything like that some of these things would be a doctor with your surgery at home or an accountant who sees clients at home with a you know a sign at the front saying accounted tax returns done here fairly obvious because he's seeing customers and you actually generating work or income at home another one will be a trades person who has a workshop at home now I do it alone work for tradesmen but they don't really have a workshop at home they may have a place where they park video work vehicle they may have a place where they do their invoices for their customers but the tax office would say well really are you actually generating work income from that now to me the most important part of business is getting paid and sending out your invoice is a really important part of that but the tax of like to say well no you're not actually doing anything it's just the admin work in that situation if someone says as it is a tradesman I know I don't actually have a workshop at home I just do my invoicing my bookkeeping at home the tax office wouldn't let you call that a place of business because the word business is doing something ok that's really really important so again how does the tax office know a tradesman doesn't have shop at home well they probably will never know another perk now that really important thing here is it cannot be for personal convenience so that's the worst thing is that and ice and this is what I say to people in most cases like I have a perfectly good office at home it was until my at my older son took it over to do he's agency but it finished a few weeks ago so I'd get it back now I've got a perfectly good office at home now I don't see customers at home I may do a bit of work in the evenings but I'm not actually I'm the reason having a home office I have a perfectly good office here in someone but I take work home and do it because I want to come back here and do it so I'm actually doing it out of my convenience and the tax time so well that's fine you can do that but the taxpayers aren't going to pay you for your convenience they're not because effective you get a tax deduction for something the tax office are reimbursing you or funding or your deductions and they're saying well we're not going to pay for your personal convenience so that's that's a good way of understanding it now if I if I didn't have a place here in southern and did all my work at home and stuff I know it wouldn't be a different story but because I've got an office here now there's nothing stopping me having multiple offices I could have one in Brisbane and one in Hurstville at one of the CB and one in someone again all those places of business is what we talked about before you don't have to talk about your principal place of business we're not confusing people with this one but really comes down to every situation needs to be dealt with separately but the number one thing you need to understand is this place of business is very very important and the tax office will use that for the first hurdle because you don't get over this first hurdle the place of business all the other deductions don't matter okay moving on so the home offers again for small business just explained to you this there's two main listings between cost and the occupancy expenses so occupancy expenses this is the types of things we can really make a difference to your tax return you know particularly got a large mortgage what you're paying a fair bit of rent and your land taxes and your council rates and all those other things become quite a significant deduction so again looking at that matrix that we had before so comparing if you've got a place of business at home with a dedicated work area basically and claim all those things the difference we've talked of it for those two categories the other was the place we don't have a dedicated work area where you don't get the occupancy expenses so if you if you compare the one with no work no dedicated work you know it's very similar to a selling wage person with a work area so but the main - you're trying to get of course is all those occupancy expenses they're very important things so you need to look at that on that place of business first which is fantastic now talking about occupancy expenses well these are the main things this is this is the way the big numbers are so obviously if you've
got rent you're paying $1,000 a week rent we'll get to how you proportionate in a second but a fair portion that can be claimed as a deduction obviously the interest on your mortgage payments not the full mortgage payment so if you're paying principle of interest what's only interest portion of it not the principle well obviously property insurances land tax rates water a lot of other things you've probably claimed haven't gone into any detail about the depreciation on the building but that's another thing you look at if you've got a fairly new building there's some depreciation rules or some capital allowance rules where you might spend $500,000 in building your house and say 20% is used for your home office well 20% of those $500,000 can be depreciated and that can also be a deduction very significant deduction as well what I should mention though if you haven't watched my webinar on personal services income should do that because when we talked about that particular people who are very small business owners we've really does yourself a lot of people say well I'm a small business owner I've got a company you're a sole trader and I don't have an office anywhere so my home is where I do my work now one of the clear distinctions if you will not personal services income you can claim rent and home office as a deduction but if you designate a being or income as personal services income or one of the clear things if you watch my webinar and this one I did last month you won't be on a claim home office if you don't pass the personal service income rules okay so make sure you watch that one throw throw that one in okay so how to claim your expenses and this is to do with the occupational the occupancy expenses and most of the time it comes down to your percentage of your floor space it's like a ratio so basically calculate your office expenses basically get your floor plan out and you allocate your portions of what your dedicated area is so it might be one bedroom there might be yeah some Hill are very generous in their calculations but might be 10% 15% 20% depends if you got a workshop out the bag especially garage where you store your own where you park your work-related cars you have a be shared and who knows the percentage can be fairly fairly flexible but once you've allocated that percentage then that percentage gets applied to your electricity your council rates your water rates your rate your what so that percentage is the important thing that gets applied to all those things so it's pretty simple and most people get this most people get this in poor things too well who's eligible to claim these deductions so that's the common method there I just throw as an example they say pretty pretty basic design there that was a case you've got one here at your house that's used I get out your ruler work it out and that might work out about 20% so that we claim 20% or your occupancy costs pretty straightforward okay what I want to do was talk about most most times it's fairly straightforward you're a sole trader and a lot of people don't have an office they're just working from home a lot of people are those who are watching this are those types of businesses and it's pretty straightforward because you've got to have somewhere to call home and whether you've got a dedicated area or not let's just go in it however there are business a little bit larger and particularly ones I've got a company involved this is where it gets a little bit tricky you've got to follow me on this one because it saw sticking to the the way the tax office would view it is that measure you've got a company not a sole trader but a company now a company doesn't own the house that you live in I hope that anyhow if it does talk to me about because that shouldn't be happening so you've got a company and what we can do though is the company can actually rent space from you own the house what happens though of course is that you then have to declare that rent as income okay I understand what's happening so what happens then is you now you understand that there's a company and you're normally an employee of the company you get that so this is very similar what happens then you have to declare the income in your personal tax return I probably that at all company this deduction you declare the income then of course it's you that get to claim the running costs and the occupancy expenses and things like that everyone gets that because you know it's almost like a rental schedule anywhere's owned a investment property will understand that part of the attacks return is yet rent coming in and you could claim all the expenses very very similar to that in the only difference is that your rental schedule is just your house but you show it as a rental shuttle and you show your incoming yet the company is paying you and you get to claim all the normal deductions at whatever percentage like it might work that's 20% so you show your income and 20% of all those expenses including depreciation and things like that so that's actually how it works in your tax return and then of course it's quite simple then in the company is the company just claims a deduction for the rent so it's pretty straightforward now what this does it gets me pretty excited because what you can do here and you don't have to be a company I'm thinking I'll start thinking about this morning is they don't actually need to be a company to do this arrangement you can replace the company there is just as you as a sole trader as long as you pass the psi rules that's probably the important thing here and you can charge yourself rent through your home if there's a home office now in most cases that and the reason I go inside about this well it's a company or a sole trader probably easier in a company is the home is normally owned by two people two spouses usually sometime is actually owned by the spouse which is very very interesting because what happens here is that the person that owns the home is who earns the income so it's a 50/50 arrangement husband and wife owned the home so therefore the rent coming in is almost like a partnership or like before investment property that's owned 50/50 by two people and that situation both share the income both share the deductions now depending on what your spouse's income is if this spouses income is relatively low and your incomes relatively high you can ramp up the rent pay $500 a week in rent thousand dollars a week in rent the tax office can't tell you how much to charge in rent they can't tell you so what you can do is you ran up the rent a bit after you inductions and stuff like that you probably still have a reasonable profit of which half goes to you because you're off it except oh and the property but the other half goes to your spouse if they're on fairly low income they can actually you know show income there which helps you in the long run because reduces your income see what I'm talking about and that could also work for a company as well it could also work the other way where if your spouse is on fairly high income and you're on fairly low income you can ramp up the rent but actually lower the rents have all the deductions and actually becomes a negatively geared property and obviously half those losses then goes to your spouse on the higher income drops their income and what's really well pretty excited about all that when I am I understand that was going to be part of slides today all right so if you didn't follow any of that watch it again or they can give me a call it's pretty pretty interesting but most people get that it's like a rental schedule and they show the income and the deduction actually Falls that's all exciting however there's a sting in the tail always is and that's called capital gains tax and you knew this was coming you knew this was coming now this is only applicable to those people that are claiming the occupancy expenses so it's really nothing to do with selling wage people you don't need to worry about anything because you can't claim those occupancy expenses and to do with the people who are claiming as occupancy so it's so there's a tax capital gains and it's limit on the profit on the sell your property or in this now everyone gets the Hugh O'Neill investment property and you sell it one day you have to look at the capital gains and if there has been a capital gain so you bought same for $3,000 sell for $400,000 $500,000 gain the tax office are very interested in it and they'll go and take a portion of that as capital gains tax the home office deductions if your claim is at home office that's exactly the same and the tax office wall viewing that as a capital gain when you sell your property so if your home has been your place of business capital gains tax made probably will apply when you sell your home okay again talking about investment properties and capital gains and all that sort of stuff again I've talked about before I've actually building up quite a good library of webinars on my my website from my monthly ones so again another one go and have a look at this one if you've got any investment property and you're worried about the capital gains tax go watch this one because probably not as bad as you think there's a number of methods to calculate the capital gains okay WW 12.com today you'd go under the webinars banner so game ettercap of games through your home office so if your home is your place of business you're not entitled to the full main residence residency exemption so the great thing about your home the great thing is the great capital gains tax exemption because you're not only paying tax on most other things that you buy whole for some time and then sell but your home isn't your home is not subject to capital gains tax different to other places around the world so it's the great exemption however if you're using it as your place of business you don't get the full exemption will be a part exemption at all to do with that percentage that you're applying so go back to the example where we had before word 20% of your floor area you're claiming that as you'll place a business well that's the that's the procedure we're dealing with with the capital gains because basically saying that 20% of your property was income producing so therefore it's subject to capital gains tax life and rental property so it's that percentage that was set aside and it's also important to understand the period of time you might own the place for 17 years but the eight of those years you have it as your principal place of business so you don't have to do it for the whole period you need to sort of work out what period you did what you're doing or what the market value is or I'll go through an example in a second the other thing important thing there is that if you if you start using your home after 1996 the 2000s 1996 that's when you're allowed to use the market value method before then it was just a straight percentage of time but now is actually two ways of calculating the capital gains so when when you actually start using your place as a principal port as sorry as a place of business you need to get a market value appraisal for that day really important to do that and again the other great thing is that if you bought your house prior to 1985 there is no capital gains because that's when capital gains tax Kami now I remember 1985 wasn't that long ago but unfortunately now that it actually is becoming a long time ago and there's not too many people that are probably still in business that owned that property before 1985 so it's probably one of those things that that they prey on even teach it in universities now about this the pre 95 capital gains era they're the important things so I'll go through a couple of examples so this is the first method so you imagine you owned a house and you're purchased me in 2001 for $400,000 now facts of the case here is you start using the place the home or portion of it as your place of business in 2010 so 2010 to today that's eight years and in 2018 you sold this property for $1,000,000 so just going through the numbers thing you've owned it for 17 years and for eight years you used it for a place of business and just for simplicity the area used was ten percent and you consistently if you buried a facility any particular reason the tax office will always take the highest percentage okay so the calculation on that is the capital gain so you take the difference between $1,000,000 that you sold it for and $400,000 which you purchase it for you take 10% of that which is the floor space and then you multiply that by 870s because you used it for work for a place of business for eight of the 17 years so therefore it comes to a fairly small number well relatively of twenty eight thousand two hundred thirty-five dollars now with capital gains tax everyone probably understands you get a fifty percent general deduction for any capital gains so you take that away so it brings it back to that fourteen thousand dollars and then just using an average tax rate of thirty nine percent you drove over 90 thousand dollars that keeps in the actual capital gains tax in this example is five thousand five hundred and six dollars so if you think about it's not that bad so the Unseld plays for a million dollars five thousand dollars that needs begin with the tax offers for capital gains tax now if that's the reason why people aren't claimed in the home office I don't want to claim home office I heard I'm gonna get stung with capital gains tax well it's not that bad you'll save in tax over those eight years I'm pretty much guaranteed more than five thousand dollars okay I've done this many many times for people and and this is only if you sell it [Music] you'll sign $5,000 so don't be too too alarmed there's another method method number two same numbers but this is different we're in 2010 when you start using the property assume that property was worth five hundred and twenty thousand dollars on that day okay border for four hundred announce five twenty exactly the same situation studies using 2010 sold four million dollars in 2018 with this calculation you get to use the market value method so the difference there is between the million dollars you sold at four and the five hundred and twenty thousand dollars worth of value in start using it again multiply by ten percent but the difference is you don't then multiply it by eight 70s because it just is the difference between when you start at the market value and when we sold it so in this situation we know about forty eight thousand dollars using a general fifty percent deduction and the tax rate it works out at nine thousand three hundred and sixty so what the tax officer lady do is do the both methods and take the lower one why wouldn't you so it may actually work out the other way was different the method two depending what the market value increase was because the Bellamy you probably made gone up massively when it wasn't your place of business lately though it's probably been the other way round so you might have to go back to the first one that's how you work them again nine thousand dollars has not the end of the world by a long way now obviously if you if your area was twenty percent it would be double the eighteen thousand dollars it was if it was forty percent in a beo a lot more fifty thousand dollars or standing it up a little bit anyhow so but your deductions oh those usually much better okay so anyhow that was my message there was not the end of the world when you have to start doing the capital gains tax at the end of it okay I think we'll leave it there I think this is giving people a lot of things to have to think about particularly my main message was if you're selling wage earner now don't shoot the messenger the tax I was basically are only allowing people on selling wage some limited deductions on your running costs and a few other little things like that nothing on your occupancy like if you're a sales rep and you never go to the office you do all your work at home sorry the tax on say no no you know you all you like but that's where they've taken the stance on that okay all right I might leave it there and thank you very much for listening again make sure you look at my other webinars go and have a
look at WWE 12 comm delay you drop me a line let me know how what you thought of this one and thank you very much for watching and good bye for now [Music] you [Music]
