Starting a home business

Your home may be the most convenient and manageable location to start your new business, to minimise start-up costs and help you refine your processes and procedures before moving to a dedicated business premises.

You may run the entire business from your home, or you could have a dedicated office space or area within your house that is used for your business activities.

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There are various businesses that may be suitable to operate from home, for example:

  • a tradesperson that has a home-based office for administrative activities and client visits
  • a hair stylist or beauty therapist that has a home-based studio
  • a consultant with a home office who also visits clients
  • an online business that operates from a home office
  • a personal trainer or yoga instructor that operates a home gym
  • a dog grooming service with a home-based studio.

Advantages and disadvantages of a home business

Running a home business will not be suitable for everyone and won't suit every type of business.

For your business idea, you should consider both the advantages and disadvantages.

Advantages

  • Overheads (high rental and lease costs) and long or inflexible agreement periods are avoided
  • Less need for a traditional shopfront business due to technology advancements
  • Time savings (e.g. time spent on commuting to and from an office space)
  • Greater flexibility (e.g. setting your own hours, using shed or studio for your business needs)
  • Possibly deduct part of your home loan interest
  • Eligibility for tax deductions

Disadvantages

  • Council and government regulations may apply to your business activities
  • Feelings of isolation from limited contact with other people
  • Long or inconsistent working hours which may have negative effects on relationships with friends, family and neighbours
  • Distractions (e.g. family and other household members, deliveries, pets)
  • Capital gains tax when you sell your home
  • Limited or no courier services depending on your home address
  • Tax deductions or concessions for residential property may be affected

Home business considerations

If you decide that a home business is right for you, consider how this decision will affect you more broadly.

When setting up your home business, you may need dedicated rooms or separate spaces for storing supplies and materials or spaces to complete different activities (e.g. shed or granny flat). Other businesses may only require a small working space (e.g. a desk or office space within a shared room in the house).

  • Does your home business need to be accessed by customers?
  • Could you conduct your business online?
  • What parking is available for customers and clients?
  • Will couriers easily be able to find your address?

A home business will affect you, your household and your neighbours. Effects could include signage and advertising, street parking, noise or other emissions (e.g. dust, vibration, waste water or products, lighting).

You should note all possible effects your business might have on others, then plan how to overcome or limit them and discuss with your household and neighbours.

You may need specific permits, registrations and licences to operate legally. Make sure you check with the registering bodies and your local council before starting your business. Australian Business Licence and Information Service (ABLIS) is also a useful resource.

You should get advice from your accountant or financial adviser about tax and financial matters before starting your home business.

Suitability checklist for your home business

Use this checklist to help you consider if starting a home business is right for you.

  • Will my home be suitable for my business idea?
  • Is there enough space for a home office with a door, separate from other parts of the house?
  • Will the business operate inside the main dwelling or in another building (e.g. garage, shed, salon or studio)?
  • Is my home or other building safe and suitable for staff?
  • Do I have adequate storage facilities for supplies and materials?
  • Will I need to store any hazardous supplies and materials?
  • Will I be able to work without distractions?
  • Is my home accessible and suitable to meet with customers and suppliers?
  • Is my home easy for people to find?
  • Is there adequate parking?
  • Will my business negatively affect my neighbours?
  • Will my business create noise or any pollution (e.g. dust, light)?
  • Will couriers pick up from my address at an acceptable cost?
  • Do I have the appropriate business insurance, including cover for customers or employees when they are at my premises?
  • Do I need approval from my landlord or mortgage provider?
  • Can I acquire the right business licences, council approval or permits?
  • Can I claim home loan interest and other tax deductions?
  • Do I need to pay capital gains tax when I sell my home?

Home business financials

You need to have good financial systems and processes in place to help you succeed and meet your financial obligations.

You should differentiate between your personal and business finances—combining your finances can confuse financial reporting. Instead, set up a separate business bank account and financial structure for your home-based business with your accountant.

Read about how to plan your business finances.

It can help to speak to your financial adviser about the accounts, products and services you need to run your home business, then ask your preferred banks for a competitive package.

There are various tax exemptions or deductions that home businesses could be eligible for relating to the space in the residence that is used for business purposes. This can have other tax implications in the future, so discuss with your accountant to make sure that all potential impacts and options are considered.

Financial planning and record keeping

Financial planning and record keeping are key parts of running a successful home business. Without good financial planning and records you risk:

  • combining personal and business finances and causing confusion or inaccurate business financials
  • negative tax implications, fees and fines associated with poor or missed records
  • misunderstanding the payroll requirements for staff and contractors
  • missing out on allowable tax deductions
  • receiving penalties, fines or going into bankruptcy due to not meeting your financial obligations.

How to limit financial risks

To limit these potential risks, you should:

  • create a financial plan – you can do this yourself using our business templates or you could engage a professional to help you
  • get professional help from an accountant, bookkeeper or tax agent
  • subscribe to the Australian Taxation Office (ATO) Small Business Newsroom for regular updates on tax changes and requirements
  • consider outsourcing your financials – a part-time bookkeeper could assist in keeping your records up-to-date
  • schedule time to review financial plans, budgets and records – keeping your finances up-to-date can help you meet your obligations or respond to issues as they arise.

Tax considerations

The tax implications for a home business can be complex. Discuss the following with your accountant or financial adviser:

  • tax deductions (e.g. you may be able to claim certain expenses)
  • financial reporting (e.g. there may be specific reporting obligations for expenses and income)
  • capital gains taxes (e.g. you may be required to pay if you sell the property where you have operated a home business)
  • property exemptions and concessions (e.g. there may be concessions or exemptions for properties that are also used for a home business).

Learn more from the ATO about:

Tax deductions for home businesses

Tax deductions are expenses that you can subtract from your income to lower the amount that is taxable.

There are several common home business expenses that you can list as tax deductions:

  • occupancy, for example
    • mortgage interest
    • rents
    • rates
    • house insurance
    • land taxes
  • running, for example
    • phone
    • internet
    • electricity
    • decline in value of equipment
    • furniture
    • cleaning and repairs.
  • motor vehicle expenses, for example, trips for business purposes i.e. from your home office to meet a client.

Some common expenses that cannot be claimed as tax deductions include:

  • general household items that your employer may have provided at work (e.g. coffee, milk, tea, toilet paper)
  • child and educational costs (e.g. educational equipment, online learning, school fees)
  • items that you are reimbursed (e.g. phone and internet).

Learn more about deductions for home-based business expenses.

You can also use the ATO home office expenses calculator.