DETERMINING IF YOU HAVE AN "EXCLUSIVE AREA" IN YOUR HOME
The first step in determining whether you are entitled to claim a percentage of your mortgage interest or rent (Home Occupancy Costs) is to determine whether you have any exclusive area(s) of your home or property. It is important to note that just because you use an area of your home for day care does not automatically entitle to you to claim these expenses.
The key to determining your ability to claim these expenses is to look at how you use the different areas and rooms of your home and determine whether in fact they are exclusive areas, or just shared areas of your home.
Generally speaking if an area is used for day care activities during the day, but then used for private purposes outside of day care hours it will be a shared area. For an area or room to be exclusive it's use must be more than just an incidental result of running your day care business from home.
The tax office determines that an area of your home is an Exclusive Area for tax purposes if it meets the definition of a "Place of Business". In the situation of a Family Day Care Educator these criteria include:
The area is used regularly by both family day care children and their parents.
The area is used exclusively, or almost exclusively for family day care activities.
The area is separate and distinct from your normal living areas. This would generally be a separate section or room of your home which is not regularly used by you or your family when not caring for day care children.
The area is clearly identifiable as being used for your family day care business. As well as the physical appearance of the area itself, it may also include having signage out the front of your home identifying your home as a business.
The area is not readily adaptable for private or domestic purposes. This is where permanent installations and fixtures make the area impractical for private purposes.
If an area is not an Exclusive Area it may be classed as a Shared Area. This means it cannot be included in calculating your Home Occupancy Costs. It may however be used to calculate running costs of things such as electricity, cleaning, repairs and maintenance and other additional costs you incur as a result of running a family day care business from your home. For this reason you should ensure that both your Exclusive and Shared Areas are measured and recorded so that you can claim all the deductions you are entitled to. We have included some charts below for your reference.
EXCLUSIVE AREA - PLACE OF BUSINESS
Exclusive areas are rooms or areas which are regularly used by children (or general business activities) and are either purpose built , set up or otherwise used only for day care and never (or very rarely) accessed and used by you and/or members of your family for private purposes.
Common Examples - Converted garage space, purpose built extensions or separate and exclusive down-stairs areas or sections of your home.
A shared area is a room or area which in addition to being used regularly by children (or general business activities), is also utilised/shared by family members during regular day care hours, or by yourself and/or family members outside of day care hours for private purposes.
Common Examples - Kitchen, family/shared bathroom, laundry or living and dining areas utilised by children in care.
If parts of your home meet the definition of a Place of Business, you will need to work out the business floor area percentage of your home in order to calculate your claim percentages and determine what area may be subject to Capital Gains Tax.
If no part of your home meets the definition of a Place of Business you are not entitled to claim Home Occupancy Expenses and your home will not be liable for Capital Gains Tax. You will however be entitled to claim your home running expenses.
IMPORTANT NOTE: If your home meets the definition of a Place of Business, your home will be subject to Capital Gains. This is the case even if you do not claim your Home Occupancy Expenses.
EXAMPLES OF ROOMS AND AREAS OF A HOME AND PROPERTY USED FOR FAMILY DAY CARE
The following table outlines general principles on how to classify particular areas of your home and whether it should be classed as exclusive or shared. If an area does not meet the criteria and is never or very rarely used for providing care, then it will be classed as a private area.
The kitchen or kitchenette is separate or in addition to your regular private/family kitchen and and is only used for the preparation of day care meals.
You use your regular kitchen for preparing meals for day care during work hours, and also use the kitchen for family/personal meals outside day care hours.
Bathrooms and Toilets
You have a separate toilet and/or bathroom in a day care area which is ideally customised and used exclusively for day care children.
The toilet and/or bathroom is in a common area of your home and used by day care children during work hours, but also used by you or family members after and outside of day care hours.
Living, Rumpus, Dining, Sun Rooms and Similar Areas
The room is separate from the rest of your home and is not used for private purposes. Ideally it should be able to be closed off and access restricted when children are not in care and meets general criteria for an exclusive area.
Area is used by children, during work hours, but used for general living or private purposes when not providing day care. Where a section of a living area has been separated, petitioned or set apart from the general living area, but is only a section of a larger common area or room used for private purposes, it will likely be considered a shared area only.
The bedroom is not used for yourself and/or family members for sleeping or other private purposes. The room may also have permanent fixtures or other attributes which would restrict it being used easily for private purposes.
Bedroom is used by day care children during work hours but is used, or could be used, readily as a private bedroom.
Cupboards and Storage Areas
The cupboard or storage area is used exclusively and dedicated solely to store day care items. No private items are stored in the space/area.
The cupboard or storage area is part of a common area where day care items are stored alongside private items. The space is used regularly to store items, such as on weekends or other times when children are not in care.
Garages and Carports
The garage has been setup or renovated for day care and meets the criteria as set out for living, rumpus and similar areas. If you have a vehicle used 100% for day care and have a logbook to demonstrate this, you may be able to include the area where your car is parked.
You use part of your garage area to provide care, but no area is set aside exclusively for day care. You store your vehicle which is
used for day care, however the vehicle has private use.
An exclusive driveway will usually be a second or an additional and separate driveway located at your home that is used exclusively by parents when dropping off and picking up children, or by your exclusive day care vehicle.
A shared driveway will be the standard driveway built on the property for access by vehicles and others to your garage, carport, or home in general. It is used as a regular thoroughfare for accessing your property both for yourself and for parents when dropping off and picking children.
Other Buildings & Structures
You have a separate area or room which is not part of your regular home building or structure - such as a granny flat - or other structure permanently attached to your land and meets the criteria set out in the general criteria for an exclusive area.
The structure is used for day care on a regular basis, but is also used outside day care hours or holiday periods for private purposes.
Decks, Patios, Verandas and Permanent Outdoor/Open Structures
The area and structure is permanently attached to the land or your main home. The area is separate from the rest of your home and is not used for private purposes. It is physically separated and closed off from the rest of the private outdoor area(s) by a permanent fence or other physical barrier.
The structure is used regularly during day care hours, but is also used by you and family members when not providing day care.
Front Yard, Back Yard, Gardens and Other Outdoor Areas
The area has been setup exclusively for day care use. It is separated from the rest of the yard/other outdoor areas with a fence or other clear or distinct boundary or permanent structure. The area is clearly identifiable as a place of business and can not practically be used for private purposes (eg soft fall area or other permanent day equipment installed).
The backyard which is regularly used by day care children but cannot be separately identified, or separated from the general backyard. Vegetable and other types of gardens used for day care activities and teaching purposes.
HOW DO I MEASURE MY HOME AND DETERMINE PERCENTAGE OF DAY CARE USAGE ?
Included as part of our Initial Consultation service we have created checklists that will help to calculate running costs and determine your percentage of day care usage. You also get to ask a qualified accountant questions you may have, like how best to prepare for tax time, how to maximise your deductions, accounting software choices and how our online/telephone accounting service works.
To book an Initial Consultation Click Here
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