When running a family day care business from home, you are entitled to claim tax return deductions for expenses related to the home.
There are two broad categories of deductions relating to home expenses that may be allowed as a deduction on your family day care tax return; namely running expenses and occupancy expenses.
What are “running expenses” ?
Running expenses are costs incurred in RUNNING a family day care from home and includes:
- cleaning costs
- telephone rental and call charges related to the family day care business
Also included in this category is:
- repairs to furniture
These expenses generally include a business and personal portion and will therefore need to be apportioned. Only the business portion can be claimed as a tax deduction.
You can claim these running costs in the following ways:
- Use the following formula provided by the ATO:
Cost per unit of power x average units used per hour x total income-producing hours
- Base your claim on a reasonable percentage of the household annual electricity / gas or cleaning bill. This percentage is based on a TIME / SPACE formula.
- Claim your running expenses at a rate of 45 cents per hour that the family day care business operates.
The most common used method is #2 however you can use the formulae that gives you the best outcome.
We will discuss occupancy costs in a follow-up blog.
The above are thought provoking suggestions only and should not be construed as advice. Please contact us to discuss your specific circumstances as deductions on a home could give rise to capital gains tax.