Posted on July 15, 2020 by Kelsi Keep
If you decide to earn some extra cash during these difficult times by renting out part of your home this can impact your tax return in the year you earn the income as well as the tax treatment of your residence on sale of your property.
Income and expenses
The rental income you receive is generally regarded as assessable income. This means you:
- must declare your rental income in your income tax return
- can claim deductions for the associated expenses that you incur personally, such as interest on your home loan, rates and taxes, etc
Good and services tax (GST) doesn’t apply to residential rentals, as such you are not liable for GST on the rent you charge.
If you are only renting part of your home, for example a single room, you can only claim expenses related to renting out that part of the house.
As a general guide, you should apportion expenses on a floor-area basis based on the area solely occupied by the renter (user) and add that to a reasonable amount based on their access to common areas.
If you use the room in any capacity when it is not occupied, for example for storage or as an office, you can’t claim deductions for this unoccupied period.
If you rent out all or part of your home at normal commercial rates, the tax treatment of income and expenses is the same as for any residential rental property.
If you rent out all or part of your home at less than normal commercial rates this may limit the deductions you can claim. For example, if you rent to a friend at a reduced rate, the deductions you claim in relation to this income cannot be excessive.
Note that payments from a family member for board or lodging are considered to be domestic arrangements and are not rental income. As this income is not assessable, you cannot claim deductions for expenses in relation to the earning of this income (interest, rates and taxes, usage costs, etc).
Capital gains tax
Generally, under the main residence exemption you do not pay Capital Gains Tax (CGT) if you sell the home you live in. However, if you have used any part of your home to produce income, such as renting out a room you are generally not entitled to the full exemption.
To work out the capital gain that is not exempt, we need to take into account a number of factors, including:
- the proportion of the floor area that is set aside to produce income
- the period you use it for this purpose
- whether you’re eligible for the ‘absence’ rule
- whether it was first used to produce income after 20 August 1996
You should keep a record of the dates your property is earning assessable income and advise us upon sale of your property. We can use this to work out the proportion of your capital gain that is exempt from capital gains tax. You can also contact us at any point during your property ownership to provide you with an estimate of the non-exempt portion of any gain on the potential sale of your property so that you are not caught off guard by an unexpected capital gain.
Share this:
Posted on April 7, 2020 by Kelsi Keep
Due to the COVID-19 outbreak there has been an increase in the number of people working from home, to assist taxpayers the ATO have announced a new Simplified Method for calculating your working from home tax deduction.
To claim a deduction for working from home, all of the following must apply:
- You must have spent the money.
- The expense must be directly related to earning your income.
- You must have a record to prove it.
This means you cannot claim a deduction for items provided by your employer or if you have been reimbursed for the expense.
There are three ways you can choose to calculate your additional running expenses:
Simplified Method
You can claim a deduction of 80 cents per hour you work from home due to COVID-19 between 1 March 2020 and 30 June 2020 as long as you are:
- working from home to fulfil your employment duties (i.e. you are not carrying out only minimal tasks such as occasionally checking emails or taking calls); and
- incurring additional deductible running expenses as a result of working from home
You do not have to have a separate dedicated area of your home set aside for working to claim this.
The shortcut method rate covers all deductible running expenses, including:
- electricity & gas for lighting, cooling or heating and running electronic items used for work
- the decline in value and repair of capital items, such as home office furniture and furnishings
- cleaning expenses
- your phone costs, including the decline in value of the handset
- your internet costs
- computer consumables, such as printer ink
- stationery
- the decline in value of a computer, laptop or similar device.
If you use this method you cannot claim a further deduction for any of the expenses listed above.
You must keep a record such as timesheets, diary notes or rosters to show the number of hours you have worked from home as a result of COVID-19.
If you are working from home only due to COVID-19, you cannot claim:
- occupancy expenses such as mortgage interest, rent and rates
- general consumables your employer may otherwise have provided you with at work, such as coffee, tea, milk, etc.
The ATO will review extending the period as the COVID-19 situation progresses.
Fixed Rate Method
You can claim a deduction for:
- a rate of 52 cents per work hour for heating, cooling, lighting, cleaning and the decline in value of office furniture,
- the work-related portion of your actual costs of phone and internet expenses, computer consumables, stationery; and
- the work-related portion of the decline in value of a computer, laptop or similar device.
To claim using this method, keep records of either:
- your actual hours spent working at home for the year
- a diary for a representative four-week period to show your usual pattern of working at home.
You can then apply the four-week representative period across the remainder of the year to determine your full deduction amount. However, if your work pattern changes you will need to create a new record.
You need to separately work out all other work area expenses, such as:
- phone and internet expenses
- computer consumables and stationery
- decline in value on computers or other equipment.
Actual Cost Method
You can claim the actual work-related portion of all your running expenses if you have a dedicated work area, which you need to calculate on a reasonable basis.
Further information on what is considered reasonable can be found using the following link:
https://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/Home-office-expenses/#Actualexp
We are here to help
Trying to think of everything you need to do keep your team and customers safe and healthy right now as well as run your business is tough.
We will continue to keep you informed of all government stimulus and other measures and how they apply to your business and are here at any time of the day to give you advice on your business continuity plans and cashflow.
Please call us on (08) 9316 7000 if there is anything we can do to help you.
If you need us outside of work hours, please call one of our Directors:
Andrew Sullivan on 0407 680 698
Chris Grieve on 0417 967 539
Ashley Dawson on 0438 014 318
We are here for you and together we will all get through this.
We will all come out the other side with more resilience, more compassion and more empathy. Until we do, please look out for each other.
Share this:
