How to maximise business deductions



Last financial year was a year like no other. Since many people found themselves working from home, the government brought out a new, temporary way to claim tax deductions related to the home office. This applies to PAYG individuals, as well as businesses. But while claiming 80 cents out of every hour worked sounds like an attractive proposition, it may not be the most cost-effective way for everyone, according to financial adviser and author of On Your Own Two Feet, Helen Baker. She told MPA there were three different ways that workers could claim their working from home expenses.

The Shortcut method

The first is the above-mentioned shortcut method, whereby a worker claims 80 cents of every hour worked from home. This method covers all work from home expenses, including internet and phone. According to the ATO, it also covers the decline in value of equipment and furniture, as well as the cost of electricity and gas for heating, cooling and lighting.

“That makes sense for somebody who is pretty much admin and doesn’t have a lot of extra expenses,” said Baker. But since the worker can’t claim deductions for any equipment purchased on top of this, it may not be the best method for everyone.

The existing fixed rate method

Another way of claiming work from home deductions is by using the fixed rate method. This enables a worker to claim 52 cents for every hour they worked from home. According to the ATO, this covers:

  • The decline in value of home office furniture and furnishings such as desks
  • Electricity and gas for heating, cooling and lighting
  • Cleaning your home office

In addition to this, the worker can claim the work-related portion of other expenses, such as the cost of using the phone and internet and the decline in depreciating assets other than home office furniture.

“If you use a lot of internet or phone then that one will probably give you a bigger tax deduction,” said Baker. “So, it’s more likely better for a mortgage broker or someone who’s running a business.”

Read more: Five common money mistakes of time-poor business owners

The actual cost method

This method involves working out the actual costs incurred while working from home. According to the ATO, this may include the following expenses:

  • Decline in value of depreciating assets like home office furniture and furnishings, phones and computers
  • Cleaning expenses, if you have a dedicated work area
  • Heating, cooling and lighting
  • Phone and internet
  • Computer consumables and stationery, like printer ink

This method is best for workers who have a dedicated home workspace and are very much based at home all the time for work.

Other deductions to remember

Baker said there were several other ways broker business owners could maximise their business tax deductions for the 2020-21 financial year.

“With COVID, there were a lot of opportunities to instantly write off assets that were purchased which would normally be depreciated,” she said. “If they had a good year, it’s probably good to clean all that out in one hit and lower their taxable income for the year. They may be entitled to grants and things that they should check on as well.”

Read more: Federal Budget Part 1 – business opportunities for brokers

Other things to remember include:

  • Income protection insurance and financial adviser ongoing fees – these are both tax deductible expenses, but it’s important to consider whether to claim them against the business or personal income depending on the tax bracket and company structure involved.
  • Superannuation – often business owners won’t make super contributions in favour of investing back into their business. Catch up legislation enables those who have had a good year to go back and complete unmet contributions from previous years. Baker said it’s important to seek financial advice before deciding whether to do this.
  • Spouse contributions – a business owner with a spouse who isn’t working in the business may be able to get a tax rebate of $540 by making a $3,000 contribution into their spouse’s account.
  • Course fees – a lot of people undertook educational courses last year through the lockdown. Baker said the cost of some courses may be claimable as tax deductions if they were related to career development.
  • Donations – it could be better to make donations to charities by card or bank account in order to get a receipt and claim them as deductions, said Baker.

Kate McIntyreKate McIntyre is an online writer for Mortgage Professional Australia. She has a wealth of experience as a storyteller and journalist for a range of leading media outlets, particularly in real estate, property investing and finance. She loves uncovering the heart behind every story and aims to inspire others through the artful simplicity of well-written words.
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