Home-based businesses can take advantage of one particularly lucrative taxdeduction to soften the negative financial effects of COVID-19, according toAustralia’s leading supplier of tax depreciation schedules.
Depreciation, the natural wear and tear of property and assets over time,can’t be claimed on a principal place of residence – except in cases where abusiness also operates.
BMT Tax Depreciation Chief Executive Officer, Bradley Beer, said that thedepreciation available for home businesses could make a significant differenceto cash flow.
“The average first year depreciation claims for tax depreciation schedules wecompleted for home-based businesses in FY 2019/20 came to almost $8,000,” saidBradley Beer.
Mr Beer said the company completes tax depreciation schedules for a variety ofhome-based businesses.
“We have prepared tax depreciation schedules for start-ups, freelancers,trades, accountants and other self-employed professions where all they need isdesk space and technology.”
Mr Beer said that capital works deductions, claimed on the structuralcomponent of the property including the home office walls, doors and windows,made up the bulk of these claims. Plant and equipment accounted for a smallerproportion.
“Of this average, capital works deductions accounted for about $6,650 andplant and equipment around $1,275,” Mr Beer explained. “The plant andequipment deductions would have been for assets like computer equipment,office furnishing and tools.”
Home-based business owners can also claim depreciation on other areas of theproperty unrelated to the business’s operations, like the kitchen.
“Pro-rata deductions allow them to claim depreciation on these areas,”explained Bradley Beer. “The deduction is based on an apportioned value of thespace, being the percentage of time it’s used for conducting business,compared to personal use.”
Mr Beer also suggests that these numbers are set to rise in this, and thenext, financial year.
“With the temporary full expensing policy in place until the close of the2021-22 financial year, businesses can instantly deduct any eligible plant andequipment asset,” Mr Beer said. “For example, if they purchased a work ute for$40,000 this year, the entire amount could be claimed as a deduction at taxtime,” he concluded.
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