Work sweet work: Tips to run a home-based business

For many small to medium business owners, running a home-based business is a viable and straightforward alternative to the leasing of a separate premises – and with very little downsides. Here we explore the advantages, considerations and practicalities of running your business from home in Australia.

A welcome guest

For one, prepare to drastically renovate your work-life balance. Gone is the commute, the bane of nine-to-five work. Running a home-based business means you can work when you work best in a familiar environment, while keeping an eye on family or home-life. That homely vibe makes for a strong team culture, especially in the early days.

But it’s important to have some division from home life – setting up a separate workspace, designating hours in a day is a good way of creating some semblance of professionalism for clients and employees alike.

What’s more, running a home-based business unlocks a whole stack of tax benefits and deductions you can claim come tax time. These include a higher percentage of utilities, phone and Internet costs, depreciation in home-office equipment, light fittings, curtains and carpets than you would otherwise be able to claim, as well as a portion of occupancy expenses such as rent, mortgage interest, home and contents insurance and rates.

A common method of calculating these deductions is to work out what percentage of your total floorplan is used for work purposes, and use this as the percentage of total home expenses you can claim.

The ATO has another rule of thumb – claiming 34 cents per hour based on actual use, calculated on the average energy costs and value of common furniture items used in home work areas.

Some housekeeping

Before you rip up your lease agreement, there are a few considerations to keep in mind when running a business from home.

First, your home and business must be on the map. Home-based businesses need to be properly registered with the appropriate licenses and permits to operate. As each industry, state, territory and local area has its own terms, it’s best to contact your Local Council or Planning Authority about the boxes you need to tick. You can also use the Australian Business Licence & Information Service (or ABLIS) for this purpose.

It’s important to clamp down tight IT and recordkeeping practices, as small business owners have certain obligations around these. Backup off-site or cloud-based storage is a good solution, and accounting software options like Xero can stop the paperwork from overtaking your home.

Be aware too that you may not receive the full main residence exemption of a capital gain or loss if your home is your principal place of business. This means that when it comes time to sell your house, you may only be entitled to a partial exemption on any capital gains made. A number of factors can affect this, such as the floor area dedicated to business, the length of time your home was used for work and your residence throughout. Keep these records up to date.

A home-based business may have certain implications on your home and contents insurance policy, so double-check with your insurer before setting it up. 

There’s also a fine but important distinction to make between ‘running a home-based business’ and ‘working from home’. The two aren’t interchangeable, the former has to be registered and can claim depreciation on property value as an expense, the latter does not and cannot. The ATO offers more advice on the distinction here.

Many hands

If you’re thinking about setting up your own home-based business, the ATO has a number of resources to help you out. A general overview of the subject can be found here, as well as an in-depth guide here which gives good detail on considerations like the Capital Gains fine-print mentioned above.

Once set up, a home-based business is an easy, lucrative way to run your day job – do your groundwork and no trouble should come a-knockin’.