Most active small businesses are start-ups, independent contractors or sole proprietors where people are increasingly operating a business at home or out of their home.
A home-based business will commonly be:
- the base for a business e.g. a tradesperson working out of their home base and onsite at the client’s premises
- the place of business e.g. a hairdresser working mainly at their own home
- a consultant or contractors with a home office, often visiting clients
- the base for an online business.
Key points to consider when starting a home-based business or home office for your business:
- suitability for clients, employees, neighbours and neighbourhood
- planning permits, licences and zoning
- business and WorkSafe insurance
- claiming tax deductions for work related home expenses
- lease agreements
- Occupational Health and Safety (OHS) at your house
- hours of operation
- contact and address details for your clients
- how to still network with other businesses?
Check the Events Calendar for Starting a Business Workshops for small and start-up businesses that cover some of these topics.
The ideal setup when running a business from home is a separate room or even a separate building. Large sheds and garages can make ideal workspaces. You'll also need to consider if your clients need a separate entry and if you have to present a professional look.
Registrations and licences
When working from home some businesses require special registrations or licences, as well as a council planning permit. Use our Australian Business Licence and Information Service (ABLIS) to search for the permits, registrations and licences you need.
Contact your local council for further advice on planning permits and other local requirements.
Insuring a home-based business
A common misunderstanding among home-based businesses is, because they’re operating from home, they are adequately covered by a domestic Home and Contents insurance policy. Some important tips:
- read more about Business Insurance to better understand what policy you will need.
- public liability insurance is recommended
- Worksafe Injury insurance is compulsory if you have employees
- private sickness and accident insurance for home businesses that do not qualify for WorkSafe.
Tax deductions for a home-based business
There are two types of deductible expenses: running and occupancy expenses. The Australian Tax Office (ATO) allows you to claim two these two types of expenses normally associated with running your home. If you set aside a specific work area then you can claim both. If you haven't set aside an area just for the business, then you can only claim running expenses.
Home-based business running costs include: electricity, printer consumables, cleaning, phone costs.
Home-based business occupancy expenses include: rent, mortgage interest, insurance premiums, council rates.
The ATO website has a range of online guides and calculators to assist small businesses with their tax obligations. Home-based businesses should use the tax guide booklet, Carrying-on a business at or from your home, and the deduction claim tool, Home office expenses calculator. Read more about tax deductions in our
Claiming car expenses: the cost of travel for business purposes is usually deductible, so you may be able to claim the cost of trips between your home and other places if the trips are business related.
Beware of Capital Gains Tax
Be aware that if you use part of the home for a business, you may have to pay capital gains tax when you sell the house, even if you didn't claim any deductions for mortgage interest or occupancy costs when you ran the business. Check the details on the ATO website or a tax professional.
Address and contact information for your home business
You will need to provide contact information for your clients, suppliers, invoices and receipts. If you do not have customers and clients visiting then you may want to avoid providing your home address. Address options include:
- PO Box set up a post office box or locked bag with Australia Post. Aus Post also offers a paid notification service, Mail2Day™, so you'll be updated when mail needs to be collected
- private mailbox services you will receive a street number address if you want to avoid offering a PO Box as your address
- virtual office this option can simply provide a street address and answering service, but can also provide printing, copying and courier services as well as boardroom and meeting room hire. There are many business centres offering virtual office facilities throughout Victoria.
You may also need to organise an extra phone line for business calls. A separate phone line helps keep business costs separate for taxes and reporting. An answering service can help provide a professional appearance if you are busy with a client or on the road and unable to answer your phone.
When the business grows – moving to an office, shop, incubator
When your home business is ready to expand a financial adviser or small business mentor is a valuable source of business experience and often the best way to avoid costly (often hidden) planning errors. Some accountants also offer business coaching. Small Business Mentoring Service is also helpful when planning changes to your business.
When you're ready to expand your business, you have several choices:
- extend the house. This adds value to your house, but traffic, noise and parking might be a problem
- move to a different house
- lease premises, share an office or work space. See Leasing Retail or Commercial Premises
- find a local business incubator. Typically, they provide space for a number of businesses under one roof with business support including capital, coaching, common services, and computer networking connections. A business incubator’s main goal is to produce financially sound firms.
Council websites often provide a good overview of business activity in their area and support for home-based businesses. This can be helpful to identify your competition and plan how you will market your products or services. Go to Find your Local Council for complete details of all Victorian councils including their websites.