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Tax Question re rent expense

Discussion in 'Accounting & Tax' started by B-Mac, 15th Jul, 2015.

  1. B-Mac

    B-Mac Well-Known Member

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    Hey Guys,

    Looking for some advice on my current scenario:

    Renting 1 bed + Study apartment. Study is used as home-office (therefore, 25% of floor space is used for work purposes).
    I work 4 days from home & 3 days in my office.
    How much of my rent expenditure, running expenses (e.g. electricity, gas) is tax deductible?
    My current structure at work is PAYG base salary + commissions.
    If needed I can establish Sole Trader ABN & contract to my employer? This is the plan long term for me anyways, however will probably establish Pty Ltd company.
    Any help appreciated.
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Are you self employed?

    How often do clients come to your office?
     
  3. B-Mac

    B-Mac Well-Known Member

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    I am not self employed...yet. I am payed a wage by my employer plus commisions. I have the option to go self employed & basicaly contract to my employer at any stage if i want to. Hope this makes sense?

    Clients never come to my home-office.
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    In that case I think you could only claim part of the heating, electricity etc related to the room
     
  5. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    And a employer cant lead you to have a ABN and be considered in business. You would not be entitled to a ABN. The contracting entity would still be liable for your super, payroll tax, workers comp etc...A sole trader cant "contract" to their employer as such. A employee is a employee. Sham contracting ? Read what Fair Work Australia have to say.

    A company may have the exact outcomes. Personal Services Income rules don't allow the company any extra deductions than you have now.
     
  6. thesuperman

    thesuperman Well-Known Member

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    My account recently told me that if rienting a studio room & using it part of it as a home office then you can claim 40% of expenses, eg. 40% of rent, electricity, internet, etc.
     
  7. Simon Hampel

    Simon Hampel Founder Staff Member

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    I think 40% would be a bit of a stretch.

    https://www.ato.gov.au/Business/Inc.../Home-based-business/?page=6#Running_expenses

    Generally the ATO expect to see a separate office area dedicated to your home office for which you claim a percentage of the expenses based on the percentage of overall floorspace that your office takes up. This is what I do - I claim 10.8% of my expenses because my dedicated home office is 10.8% of the floor space of the house we live in.

    However, they do say that you can choose to calculate expenses in another way, if it is reasonable:

    I'm not sure how your accountant came up with a figure of 40% for a studio apartment - but I'd like to see his justification and whether it would stand up to an audit.
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    This is just plain wrong. Unless you are running a home based business - massage services?

    can't be an office if you are sleeping in it.
     
  9. thesuperman

    thesuperman Well-Known Member

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    Share trading in a studio room.
     
  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Don't think you could justify claiming much in this case.
     
  11. thesuperman

    thesuperman Well-Known Member

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    Ok I'll relook at what might be more reasonable. I'm thinking around 20-25%? Don't want to get too high if it will bring problems later on.
     
  12. Simon Hampel

    Simon Hampel Founder Staff Member

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    You don't need to justify it to us - you need to be able to justify it to the ATO when they audit you.
     
  13. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I would think more like 0%. But Sim is right.
     
  14. thesuperman

    thesuperman Well-Known Member

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    Wow really 0% claimable? You're working from home as a full time share trader & can't claim any rent, electricity or internet? Would a share trader need to rent a commercial office & operate from there to claim anything?
     
  15. Simon Hampel

    Simon Hampel Founder Staff Member

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    I think you could probably get away with something over 0% ... but have a look at that ATO link I posted earlier - it gives some examples of other approaches to calculating the proportion you could claim if you can't use the floor-space ratio of a dedicated office.

    For example:

    Note also that this doesn't cover items such as rent or interest payments - you'd need to use a different method to calculate that.
     
  16. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    You could claim a percentage of running expenses, but I don't see how you could justify any part of the rent as this is a private expense.
     
  17. thesuperman

    thesuperman Well-Known Member

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    Ok thanks for both of your contributions, I'll look into that link further :)
     
  18. thesuperman

    thesuperman Well-Known Member

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    Actually, it says "you can claim a deduction of 34 cents per hour based on actual use or an established pattern of use. This rate is based on average energy costs and the value of common furniture items used in home work areas"

    So if you live overseas in a cheap country where electricity is cheap then you can still claim 34 cents an hour & it will end up a lot higher than your actual electricity bill? If so, that's cool :D

    34 cents x 10 hours in front of a computer x 5 days x 4 weeks = $68

    But your monthly electricity bill is about $50/month
     
  19. Simon Hampel

    Simon Hampel Founder Staff Member

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    Umm ... if you live overseas, your tax situation will be completely different.
     
  20. Investig8

    Investig8 Well-Known Member

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    From memory Terry isn't there a CGT issue on a PPOR if you have used it as a home office and claimed a deduction for the space you use, not the services which are a running expense but when people claim a floor space percentage against the PPOR?