The support measures released by the Government to help business during the Covid-19 crisis have caused some questions to be raised when it comes to completing Annual Income Tax Returns. Common questions have included which grants, cash boosts and payments are included in assessable income and how to claim for expenses incurred when a business is operating from home.

Assessable Income

There are a wide range of grants and payments that have been provided by State, Federal and Territory governments and not all of the them are assessable income for tax purposes, ie. included in your business’ Taxable Income.

The payments that are assessable include:

  • fuel tax credits or product stewardship (oil) benefit;
  • wine equalisation tax producer rebate;
  • JobKeeper payments (COVID-19);
  • Supporting Apprentices and Trainees wage subsidy (COVID-19);
  • excise refund scheme for alcohol manufacturers;
  • grants, such as an amount you receive under the Australian Apprenticeships Incentives Program;
  • subsidies for carrying on a business;
  • Small Business State Government Support Grant (COVID-19).

The cash flow boost received through the BAS for business’ with payroll is not assessable and is not included in Taxable Income.

Home Based Businesses

As a result of the COVID-19 pandemic, the ATO introduced a shortcut method for employees working from home, to assist in claiming for the additional running costs incurred. This option for expense calculation has also been extended to businesses, including SME, Partnerships and Sole Traders that operate home-based businesses. This shortcut option is only available for the period from 1st March – 30 June 2020.

The shortcut is a simple 80 cents per hour worked from home and it covers:

  • electricity for lighting, cooling or heating and running electronic items used for work (for example your computer), and gas heating expenses;
  • the decline in value and repair of capital items, such as home office furniture and furnishings including capital items that cost less than $300;
  • cleaning expenses;
  • your phone costs, including the decline in value of the handset;
  • your internet costs;
  • computer consumables, such as printer ink and stationery;
  • the decline in value of a computer, laptop or similar device.

If you choose to use this method, you cannot make separate claims for any of the above running expenses (including depreciation of work-related furniture and equipment) over and above the per hour claim.

As a result, using the 80 cents per hour method may result in your claim being lower than it could otherwise be.  As such, it will be prudent for you to consider your options before completing your 2020 Income Tax Return.

While the shortcut method covers the running costs of operating a business from home, it doesn’t cover the occupancy expenses, such as rent, mortgage interest, rates, land tax and insurance, which a home-based business may be eligible to claim.

In order to claim these costs, a home-based business needs to pass the interest deductibility test.

The interest deductibility test determines whether the space set aside for business has the character of a place of business. These indicators include:

  • clearly identifiable as a place of business, for example, a sign identifying the business at the front of the house;
  • not readily suitable or adaptable for private or domestic purposes;
  • used exclusively or almost exclusively for carrying on business;
  • used regularly for visits by clients.

It is important to note that if your business passes the interest deductibility test and you claim a portion of occupancy expenses, there may be capital gains implications if you sell your home in the future.

The Davidsons team is here to assist you navigate your 2020 Income Tax Return preparation and lodgement.  For more information contact your Davidsons team member. Alternatively call us on 03 5221 6399 or email us at info@davidsons.com.au for more assistance.

Disclaimer: The information that is provided in this article is factual in nature and objectively ascertainable and, therefore, does not constitute financial product advice. Importantly, the factual information that has been supplied does not take into account your personal circumstances, objectives or goals.