When you’re running a business or working from home the line between business and personal expenses isn’t always as clear as you might think.
You might use your car for work, have a dedicated home office or pay for expenses that help you do your job. But that doesn’t necessarily mean the whole cost is tax deductible.
Where something has both work and personal use, you generally need to work out the portion that genuinely relates to earning your income. And that’s where things get a little tricky.
Using your car for work
We recently worked with a client who was unsure about the difference between their work-related and private kilometres when using the logbook method.
Even though their vehicle had travelled a significant number of kilometres, what mattered was the percentage genuinely related to work. If your work-related percentage is low, the amount of your eligible car expenses you can claim may also be relatively low.
Your logbook should also reasonably align with things like your work diary or roster, and unusually high work-related kilometres may need further supporting evidence.
Most importantly, keep your logbook clear and accurate, without deleting or overwriting entries.
What about working from home?
Home office expenses are another area where we often see confusion.
One client believed they could claim household running costs based simply on the percentage of floor space occupied by their home office. For example, if the office takes up 10% of the home, claiming 10% of certain expenses might seem reasonable.
But floor space isn’t necessarily the whole picture.
Depending on the method being used, the amount of time you actually work from home can also be relevant. If you work from home for 15 hours a week, for example, simply applying a floor-area percentage to your entire household bill may not accurately reflect your work-related use.
It’s an area where it pays to be careful about how your claim is calculated and what records you keep.
Not sure where the line is?
Cars and home offices are just two examples of expenses that can cross over between work and personal use.
Verliyah Chartered Accountants can help you work through what applies to your circumstances, make sure you’re claiming what you’re entitled to and have the right records to support it.