Carrying on a business from home Part 2

HOME OFFICE EXPENSES FOR EMPLOYEES ONLY

  • Work brought home
  • Not normal work place or place of business
  • 4 week diary to determine business use
  • 34 cents per hour for heating, cooling, lighting, etc. This includes depreciation of office furniture
  • If you have purchased a desk, chair, filing cabinet, lamp, etc please provide details and receipts so we can gain the best tax advantage for you
  • 4 week diary to determine phone usage (unless there is a separate 100% business use line)
  • Specific study area for business use
  • Not adaptable for private use
  • Used 100% for business
  • Regularly visited by clients/customers.

Renting Home

Claim the following expenses according to floor area:

  • Rent
  • Insurance- Contents (consider separate policy for business equipment, etc.)
  • Water Usage
  • Heating
  • Lighting Cleaning
  • Cooling

Own Home

Claim the following expenses according to floor area:

  • Insurance—Building
  • Insurance—Contents (consider separate policy for business equipment, etc.)
  • Water Usage
  • Rates—Council and Water
  • Loan Interest
  • Bank Fees
  • Borrowing Expenses
  • Body Corporate Fees
  • Pest Control
  • Gas and Electricity
  • Phone applies as above but would recommend a separate line
  • Depreciation
  • Computer
  • Fax
  • Printer
  • Photocopier
  • Carpet
  • Filing Cabinets
  • Desk
  • Chair
  • Couch
  • Dried Flowers and Vases
  • Bookshelves
  • Calculators
  • Paintings
  • Bar Fridge
  • CD Player/Radio
  • Microwave
  • Lighting and Light Fittings
  • Crockery, Cutlery and Glasses
  • Kettle
  • TV—Private Portion (4 week diary) DVD Player—Private Portion (4 week diary)
  • IPads, IPhones, Tablets, etc. (4 week diary)

 

WHY DO I NEED TO KEEP A 4 WEEK DIARY?

A taxpayer who carries on a business from home or is required to carry out part of their employment duties at home may be entitled to claim a deduction for expenses incurred in performing these income producing activities.

To be able to claim a deduction for work/business related expenses, the expense needs to be used to aid in earning your income. This is what the ATO call a ‘nexus’ between the income and the expense.

Some of the more common types of work/business related expenses that may be deductible are internet, mobile and home phone, home office expenses and computer expenses. If you are wanting to make a claim in regards to these types of expenses what type of records will you need to be keep and how do you calculate the amount to be claimed?

Apart from keeping receipts the main supporting document that you will need to provide the ATO upon audit is a 4 week diary. The diary needs to show how you have used the above mentioned items for a representative four week period, recording both business/work and personal usage, to work out what business/work related % is to be applied for the entire year. You must keep a diary for each new tax year.

Home Office Expenses

If you wish to claim the set rate per hour for home office you will need to record how many hours over a 4 week period you have used your home office for work/business and personal related purposes. This set rate is used to cover the cost of heating, lighting, cooling.

 

Thanks for reading!

Purchasing a property with leverage in a SMSF

As property investors ourselves, we continually look at ways to enhance and propel our own wealth. As a Superior Accounting Solutions client, you too benefit from this vigilance because we always consider these opportunities from our clients’ perspective and how they might benefit you.

Many of our clients are active property investors, so we feel it is important to bring to your attention that Self-Managed Super Funds can be borrowed to purchase an investment property. We have already assisted many of our clients to purchase property in a Self-Managed Superfund.

HOW CAN SUPERIOR ACCOUNTING SOLUTIONS ASSIST?

You may be a traditional property investor much like ourselves. As all investors know, the expense of holding an investment property in your own name comes directly out of your back pocket.

This is a fantastic opportunity which will provide you with the possibility of purchasing another investment property, where the expenses of holding the property does not come directly out of your pay-packet.

You may ask who is funding these expenses … by setting up a Self-Managed Super Fund to purchase a property, it allows you to utilise employer super contributions you are currently accumulating in an industry Super Fund.

We encourage our personal Tax clients to carefully consider the possibility of establishing your own SELF MANAGED SUPER FUND.

WHY?? Because you can:

  • TAKE CONTROL…. just as you have with all your other wealth creating vehicles, and become the motivational force to ensure that you achieve your goal of obtaining another rental property, thus securing your retirement future and that of your children, as you can incorporate them in the journey.
  • Potentially access much HIGHER LEVELS OF LIFE INSURANCE to cover your growing property portfolio, business etc., thus providing your family with greater security.
  • Have absolute discretion with regard to your INVESTMENT CHOICE.

SO WHY DO WE PREFER PROPERTY AS OUR FORM OF INVESTMENT?
Investing in property allows you the power of using OPM … Other People’s Money.
Let’s say you have $140,000 in your Super Fund: If you invested in Shares = You would have $140,000 worth of shares

Make the most of this fantastic opportunity to purchase an investment property, pay less tax than a traditionally purchased rental property, and significantly INCREASE YOUR RETIREMENT WEALTH!

Carrying on a business from home Part 1

As a general rule, expenses associated with your home are private and you can’t claim a tax deduction for them. However, if you operate a business at or from your home, you may be able to claim a deduction for some of the expenses relating to the area you use for business purposes. These expenses are divided into Occupancy expenses and Running expenses.

 Occupancy expenses are expenses related to your ownership, rental or use of the home and are not incurred because of your income-earning activities. In other words, you would have these expenses regardless of whether you were carrying on a homebased business.

Occupancy expenses include:

  • Rent
  • mortgage interest
  • council rates, and
  • housing insurance premiums

Running expenses are expenses related to using facilities within your home for business. Carrying on a business at or from your home means that these expenses may be higher than if you were not doing so.

Running expenses include:

  • cost of using a room (such as electricity and gas costs for heating, cooling and lighting)
  • decline in value of plant and equipment (for example, desks, chairs, bookcases, computers, lathes and grinders)
  • decline in value of curtains, carpets, light fittings, etc.
  • cleaning costs
  • cost of repairs to furniture and furnishings.

 Does the area set aside have the character of ‘a place of business’?

 The area must have the character of ‘a place of business’. While this will depend on your particular circumstances, an area of your home is likely to have the character of a place of business if it is:

  • clearly identifiable as a place of business (for example, you have a sign identifying your business at the front of your house)
  • not suitable for private or domestic purposes
  • used almost exclusively for carrying on your business, or
  • used regularly by your clients.

How much can you claim?

Rent, mortgage interest, insurance, council rates

If eligible to claim occupancy expenses, you can claim the percentage of rent, mortgage interest, council rates and insurance that relates to the area you use as a place of business.

Utilities (gas, electricity)

If the business percentage is based on anything other than the floor area (for example, on actual electricity use) you will need to clearly document your claim to show how you arrived at the amount.

Where you don’t have an area of your home set aside exclusively for business, you can’t claim on a floor area basis as this area is also used for non-business purposes. In this case, you’ll need to show how you arrived at the amount you’re claiming for gas and electricity.

You’re allowed a deduction only where you incur additional running costs because of your business activities. For example, if you work in a room where other family members are watching television, you would probably not have additional heating costs as a result of that work activity.

Furthermore, the business use of the home work area needs to be substantial and not merely incidental. For example, you couldn’t claim 34 cents an hour simply because your fax machine is on 24 hours a day, 7 days a week, to receive business faxes.

Phone

If you use a phone exclusively for business, you can claim a deduction for the phone rental and calls, but not the cost of having the phone installed. This is because the installation cost is considered a capital expenditure. If you use a phone for both business and private calls, you can claim a deduction for business calls and part of the rental costs.

Business plant and equipment

If you use plant and equipment solely for business purposes, you can claim the full amount of depreciation. But if you also use equipment (such as a computer, printer, photocopier, grinder, circular saw) for non-business purposes, you have to reduce the depreciation deduction by an amount that reflects this non-business use.

Planning for the inevitable Part 2

What is a Power of Attorney and should I have one?

One simple analogy is that a Power of Attorney is like a “living will”, it allows you to empower another person or persons (called an “Attorney”) to legally take charge of your affairs whilst you are still living.

Appointing a Power of Attorney is useful in many day-to-day situations and is a precautionary safeguard.

There are many and varied circumstances, both Expected and Unexpected in which you may need to empower another person or persons to act on your behalf. Consider the following situations for example:

You are a sole Director Company or a Corporate Trustee

Appointing an attorney, enables your business to continue to operate in your absence or incapacity, that another person can manage your superannuation, receive or provide information to the Taxation Department and submit important documents on time.

You want someone else to be able to act

You’re a single parent, or have other responsibilities, and you wish to have the assurance that in an emergency, your financial and other affairs will not be “frozen”, that someone else can make decision as to your care, access your bank account to provide for your children’s immediate needs, pay the bills and otherwise keep your household or business running. You are expecting important documents or a contract to sign, but unavoidably you are going to be on an aeroplane for the next 24 hours and will not be able to sign when required. An attorney could sign on your behalf.

You are absent or unable to attend to matters yourself.

You are overseas/interstate and you decide to sell up your Australian/Victorian assets or an emergency requires you to access Australian funds in a hurry, and circumstances do not allow you to do this yourself – An attorney could do this for you.

 You are injured or confined.

A motor vehicle accident or a hospital confinement or other physically incapacity may disrupt you managing your own affairs unless you have appointed an Attorney to act on your behalf.

You become ill

 Illness may mean that you are unable or are going to be increasingly unable to go about your normal day to day business – an Attorney could act for you.

You become mentally incapacitated

 Advancing age or certain health conditions or an accident may rob you of your ability determine matters for yourself, unless you have prepared in advance medical/health-care directions which detail the decisions that you want made by your Attorney if and when you are unable to do so for yourself.

The following are examples of health care decisions that you can make in advance that will be carried out by your attorney, should you become mentally incapacitated: What medical treatment you will and will not accept; Whether or not you want to be resuscitated by heroic means; Whether or not you consent to a termination of pregnancy; Whether or not you consent to removal of tissue while you are still alive for donation to someone else, or Which nursing facility you wish be admitted to if it becomes necessary.

Since we all have many responsibilities and accidents and illness can strike without warning it is sensible to appoint another person to legally act on your behalf for financial matters and/or personal matters including health care. This appointment can be for a specific purpose only or can be of a general and continuing nature, depending upon your needs.

What are my Options?

There are various options to choose from and the right choice or combination for you depends upon your individual needs.

 The main types are:-

Enduring Powers of Attorney.

They are used if you want to appoint an attorney for personal matters (including health care) and/or financial matters (can be different attorney for each) and it is intended that the power continues even if you should subsequently lose mental capacity.

General Power of Attorney.

These are used if you want someone to be able to act on your behalf ONLY while you have full mental capacity and ONLY for financial matters. You would use a General Power of Attorney if you wanted to appoint an attorney for financial matters and for a limited time or specific purpose.

Please contact our office if you don’t have a current solicitor and we can recommend one.