Where a business is operated from home there is the ability to claim as a tax deduction the expenses which relate to the proportion of the home used for business purposes.
For example, if a bedroom is set aside as an office for your 4Life business and the area of this room is 10% of the home, then this proportion of the expenses is a business expense. In this situation 10% of the following expenses would be deductible for tax purposes.
- Interest on your mortgage or rent paid.
- Repairs and maintenance.
The benefit can be shown in the following example:
Mr Smith earns $45,000 per year as a salaried teacher. In his first year of operating his 4Life business he nets $3,000 income after paying for the products. If he has used one bedroom as an office for the year, he is able to claim the following business expenses:
Interest on mortgage 12,000 x 10% = 1,200
Repairs & maintenance 600 x 10% = 60
Rates 1,400 x 10% = 140
Insurance 250 x 10% = 25
By not having a designated office, Mr Smith would pay tax on $3,000 which is $990 ($3,000 x 33%). By claiming the expenses on the designated office, Mr Smith pays tax on $1,575 ($3,000 – $1,425) which is $519.75 ($1,575 x 33%).
There is a tax saving of $470.25 ($990 – $519.75) by claiming the business portion of the home office expenses.
There is the ability to claim a proportion of the depreciation but the depreciation has to be brought back in as income if the business ceases or the home is sold.
Where you are GST registered, GST could be claimed on the repairs and maintenance, rates and insurance.
Also, there may be an ability to claim a proportion of airfares and accommodation when attending 4Life seminars or promoting your business in another city or country.