What is the difference between a company and sole trader tax return if you work from home?
Hi all,
I was just wondering about the treatment about some home expenses. I know that if you work from home you can deduct expenses (gas, electricity, utilities) depending on the use or percentage of area compared to the whole house. What is the best way to calculate the area?
I'm a company, so does this differ at all to small business or the treatment is the same?
Also if I enter the home expenses to my personal tax return, is there anything else I need to enter in my company tax return or that should be fine?
And for laptops, I can write it off immediately if it's under $6500 as a company, but as an individual, I can only write it off if it's $300 or less? Does this mean it's better for me to put it in the company tax return? I'm just a bit confused between what I should put down on my personal return and the company tax return since I am both.
This is my first company year so feel free to let me know of anything else I should keep in mind. Thanks.
Hi Eric, There are lots of issues here.
- The area is to be separate from a living area such as it can be separately identifiable as an office used to run your Business. Then if that is a room you may use floor area% age or if room sizes are same Room/All rooms. say 1/3 or 1/4 but that would be an approximation.
- Your company will be a small business if your annual turnover is < than $2m.
- Expenses must be allocated as a percentage of your Business, Personal for Income producing activities and Private expenses. Business will be allocated to your company, Personal for income producing activities will form part of you personal tax return. Private portion is what is left non deductible.
- Laptop bought in company name immediate write off. If bought in personal name, then depreciation if value is > than $300.00
- Company and you are separate legal entity so please do not mix up the incomes and expenses.If it is PSI then all the profit will be attributed to you.
anything else please feel free to ask....
From the sound of it , i believe that your business from company is a PSI- Personal services income.Which means although you are working as a company, the income is yours.So any profit from the business will be attributed to you and will form part of your tax return. in thisa case you may allocate expenses to your company. But please this is a general advise from the facts i have understood,dont rely fully on it., you may still need to consult your tax accountant or otherwise I can help you.
I think @Apurv Bhalla CPA has listed some great answers.
My perspective may not be as applicable as here in the United States things are a bit different (and to some degree can even vary state to state).
One of the biggest differences here between personal and company is your liability protection. If you are just a sole trader (sole proprietor) then your assets (finances, home, investments, etc.) can be subject to penalty whereas if you are a specific corporate entity (C Corp, S Corp, LLC, LLP, etc.) than your personal assets have more protection as long as you aren't comingling your personal and business finances (separate bank accounts).
You can still write off a home office, but similarly, it has to be separate (have a door to separate it from the rest of the house/apartment). Assets can be wholly written off or depreciated over multiple years, typically the method chosen depends on what will be (or is forecasted) to be more favorable from a tax perspective.
Utilities can be a bit tricky to calculate. You can use percentages, but it would likely be hard to prove that they were correct if audited.
Here you can also write off mileage (from a sole trader perspective).
You might be able to write off other items such as a cellular plan if that phone and its usage were strictly for business purposes.
The best advice I can give is to talk to a knowledgeable tax professional. They will be able to give you better guidance on what to avoid and potential write-offs you may have overlooked on your own.
Would love to get your thoughts on this @Amanda Hoffmann - Certified Bookkeeper, BAS Agent @Ian Harris @Mark Chapman @Hitesh Mohanlal @Jef Lippiatt @Stuart Reynolds @Kirsty Fox @Lisa Ormenyessy @Leigh Cummings
Eric Phuah, Director at Hystericalz Pty Ltd
Thank you for your answer Apurv! Really helpful and detailed. I only really have one question after reading your answer: how will I know the difference between a business and a personal expense for income producing activities? For example, I spend all of my working time in my study room, if I find out the percentage of time I use it and the area of the house, I can calculate the percentage I use the electricity for work. But do I put this in the company return as a business expense or on my personal return as a income producing activity?