What are my tax claiming options with starting a business from home?

I am wanting to start up my own freelance graphic design business from home. To do this I need to update my computer and software. I’d like to know what my options are regarding claiming this on my tax – do I need to earn a certain amount before I can claim, are there any rebates, am I better of renting what I need or buying it all out right?

You can claim an immediate deduction on expenses incurred in the course of carrying on your business provided they are not of a capital or domestic nature. Expenditure on computer and software would be capital in nature and therefore you cannot claim an immediate deduction on the expenditure. Instead, you claim a deduction over the useful life of the assets, referred to as depreciation deduction.

You do not have to earn income to be able to claim a deduction. However, where you incur a tax loss from the business activities, there are non-commercial losses rules that may prevent you from claiming the loss to offset against other source of income if you fail to meet one of the commerciality tests, being assessable income test, profits test, real property test and other assets test. For example, to pass the assessable income test, you need to earn assessable income of $20,000 or more from the business. The losses are not lost but simply deferred to a later year when you meet one of the tests.

Whether it is better to rent versus purchase, a computer system depends on the cost, your cashflow and also your preference. From a tax perspective, rental expenses can be claimed as an immediate deduction when incurred whilst if you purchase a computer outright, you can only claim depreciation expenses.

The entrepreneurs’ tax offset (ETO) may be available to you. The tax offset is equal to 25% of the income tax payable on your business income if you have an aggregated turnover of $50,000 or less. If your aggregated turnover is more than $50,000, the ETO is phased out so that the offset stops once your turnover reaches $75,000.

With the tax loss the entire amount must be utilised to offset against your assessable income in this year’s tax return. You do not have a choice to only claim part of the loss in this year.

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