For business owners and employees
Working from a cabin in your own backyard has more benefits than escaping traffic and enjoying a slower morning routine, as a separate home office space could be 100% tax-deductible. Small business owners can use an instant asset write-off scheme and the employees working from home can also claim expenses related to their work.
Instant asset write-off for Business
Update after Federal Budget 2020 release. There will be no cap on each asset cost previously limited to $150,000 and extended till 30 June 2022. We will update the information below when the Government sources will be updated.
The Australian Government is supporting Businesses through COVID-19 by increasing the threshold for each asset to $150,000 (up from $30,000) until 31 December 2020.
So, if you have a business with an aggregated turnover of less than $500 million and if you can prove your asset is:
- work-related and
- costs less than $150,000 and
- Purchased, installed and ready for use from 12 March until December 31, 2020.
You are eligible to use simplified depreciation rules and claim the immediate deduction.
As this Tax scheme excludes buildings, for a cabin to be classed as a ‘Plant and Equipment’, it would have to be a free-standing unit attached to the premise only for the cabin’s temporary stability. Building a cabin as a demountable or non-fixture structure will have no implications on Capital Gains Tax (CGT) in the future when you sell your home.
Update 6 Oct 2020: Capital Gains Tax exemption for Granny Flats set to commence on 1 July 2021, provided legislation passes Parliament.
Most of YZY Kit Homes backyard cabins in sizes of up to 20 m² will fit this tax scheme costing as low as $14,800 for a small cabin kit or fully installed 20m² cabin within $58,000 price range. As well as an office, cabins can also be useful for business-related storage shed, a workshop, maybe a portable gallery or space as a work-related purchase. Talk to your nearest cabins builder about the many possibilities. But before making enquiries, check with your accountant for professional advice first.
If you own a small business and need more space to improve your business, building a backyard cabin could be justified just like the other six most surprising items businesses claimed under the scheme. As long as you can adequately explain the usage of the item is work-related, even the latest Xbox, PlayStation and Nintendo games consoles, children’s pillows, doona covers and pyjamas, decorative wall hangings, bedding and night lights can be legitimately claimed.
It is a good chance to benefit from the tax incentive as the $150,000 threshold will reduce to $30,000 from 31 December 2020.
Tax deductions for employees
If you are an employee and are working from your backyard home office, work-related expenses may be claimed to reduce your income tax. Work-related expenses include the cost of using equipment and utilities. If you have an outdoor cabin built as a demountable structure, it may be classed as a piece of equipment and depreciated over time.
When using your separate backyard home office space for work only, you may be able to fully claim costs of the decline in value of other equipment and furniture in your workspace. Also, other expenses such as electricity and gas for heating, cooling and lighting, phone and internet and other running expenses, including computer consumables (such as printer paper, ink) and stationery.
But first, get professional advice specific to your circumstances to make sure you can reduce your tax with having a home office built in your backyard.
Instant asset write-off expansion: https://business.gov.au/news/instant-asset-write-off-expansion
Instant asset write-off for eligible businesses: https://www.ato.gov.au/Business/Depreciation-and-capital-expenses-and-allowances/Simpler-depreciation-for-small-business/Instant-asset-write-off/
Businesses given beefed-up asset write-off in $300m expansion: https://www.smh.com.au/politics/federal/businesses-given-beefed-up-asset-write-off-in-300m-expansion-20200608-p550j3.html
Home office expenses you can claim: https://www.ato.gov.au/Individuals/Income-and-deductions/Deductions-you-can-claim/Home-office-expenses/
Employees working from homes: https://www.ato.gov.au/uploadedFiles/Content/IND/Downloads/Working-from-home.pdf
Capital Gains Tax exemption
CGT exemptions set to apply to granny flat arrangements: https://www.accountantsdaily.com.au/tax-compliance/14904-cgt-exemptions-set-to-apply-to-granny-flat-arrangements
Information in this article is a general in nature and does not take into account your situation, is not a substitute for professional advice. You must not rely on the information in this article as an alternative to legal advice from your accountant, registered tax agent or other professional legal services provider. Please consult with a professional tax agent before the purchase.
Media release: 16-September-2020