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Home-based business running expenses - accounting for

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Newbie

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I have a home-based business and do my own book keeping using small business accounting software. I rely upon the accounting software to help me lodge my personal tax return. I can claim home office running expenses (heating, cooling and lighting) by one of two methods:

  • By splitting my energy bills into business and personal use amounts. The business use amount is based on the proportion of the floor area I use for business related activity and the proportion of the year that I used it for the business.
  • By using the fixed rate of 52 cents an hour for each hour that I operate my business from home - based on either actual use or a pattern of use.

If I decide to use the first method, accounting for these expenses in my accounts is reasonably straight forward. But what do I do if I want to use the second (fixed rate) method? How do I account for these expenses so that there is a link to the (fixed rate) expense tax deduction?

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Best answer

Community Support

Replies 0

Hi @lampet,

 

Thanks for getting in touch!

 

We can provide general information here about tax and super topics, however we can't advise how to record information for specific accounting methods in your bookkeeping.

 

You can find information about calculating the two methods for running expenses for a home office on our website, alternatively you may wish to seek further advice from other bookkeepers or registered tax agent on how you choose to report.

 

Thanks, JodieH.

3 REPLIES 3
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Taxicorn

Replies 2

@lampet 

 

Not really clear what you are asking...

 

Are you asking how do I record the number of hours that I work?

 

If so, then record 4 weeks worth each financial year and multply that by number of weeks worked and then muliply that by 52 cents.

 

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Newbie

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I'm just getting confused about the role book keeping plays in preparation of the tax return. I suppose I'm try to do the job of a tax accountant! Please correct me if I'm wrong, but if I pay my home electricity bills out of my personal bank account and part of that expense is business related (calculated in accordance with the floor area method of calculation), I can do a journal entry to debit the electicity expense account and credit the owners equity account. The increase in expenses shows up on the profit & loss statement and the increase in equity shows up on the balance sheet.

 

When it comes to tax time, I can just look at my accounts and the amount I can claim for electricity expenses is right there on the detailed profit and loss statement.

 

However, if I decide to use the fixed rate claim method, the way that I keep track of electricity expenses in my accounts seems irrelevant. The amount that I claim has no traceability back to my accounts.

 

I can see similar conundrums arising with motor vehicle expense claims, where the claim is based on the set rate per km method.

Highlighted

Best answer

Community Support

Replies 0

Hi @lampet,

 

Thanks for getting in touch!

 

We can provide general information here about tax and super topics, however we can't advise how to record information for specific accounting methods in your bookkeeping.

 

You can find information about calculating the two methods for running expenses for a home office on our website, alternatively you may wish to seek further advice from other bookkeepers or registered tax agent on how you choose to report.

 

Thanks, JodieH.