Are Coworking Spaces Tax Deductible: Maximising Benefits

Curious if coworking spaces are tax deductible?

Yes, coworking spaces generally qualify for tax deductions in Australia and several other countries. But understanding the principles and regulations is important before taking further steps. 

Our guide will cover the tax implications of using a coworking space for freelancers, entrepreneurs, and businesses of all sizes to ensure your finances are optimised.

What Expenses are Deductible in a Coworking Space?

Coworking tax deductions apply to expenses related to workspace rental and amenities. 

It’s important to note that not all expenses incurred at a coworking space are tax deductible. 

Always differentiate between expenditures directly linked to professional use and those related to your personal needs, come tax time.

Travelling

You might also be eligible for a deduction for travelling to your coworking space!

This depends on how often you travel to the coworking office, and the percentage of time spent there will also influence this.

Who Can Claim Coworking Space Deductions?

Not everyone is eligible, so check if you qualify for these benefits.

Self-Employed Individuals

Self-employed individuals, including independent contractors, are often eligible for tax deductions related to coworking spaces. To qualify, they must demonstrate that the coworking space is used exclusively and regularly for business purposes. This means using the space as a primary location for meeting clients, conducting work-related activities, or managing administrative tasks.

For example, a law firm might rent a desk in a shared office to meet with clients or have access to technology can be considered valid reasons for claiming these deductions.

Limited Companies and Partnerships

Similarly, limited companies and partnerships can also claim tax deductions associated with coworking spaces. Once again, the key criterion is demonstrating that the workspace is used solely for business operations on a regular basis.

Whether you’re hosting meetings, working on contract projects, or using the shared space for team collaboration, these activities contribute to meeting the eligibility criteria for claiming tax deductions.

Businesses should maintain accurate records of their usage of the coworking space to support their claims during tax assessments. These records may include invoices from the coworking provider detailing rental payments and any additional services availed within the shared workspace.

Keep in mind that it’s best to consult with a professional if you are unsure of the specifics or speak with your coworking space provider for assistance.

As always, receipts are important.

How To Calculate Tax Deductions for Coworking Spaces

Calculating the Allowable Portion of Expenses

This involves determining the percentage of time and space within the coworking area that is dedicated to conducting work-related tasks.

This is generally straightforward, as most employees and businesses use coworking spaces for professional purposes only.

Example: If you rent a private desk solely for the purpose of business-related work and client/team meetings, then you can deduct the complete cost.

By maintaining detailed records of all expenses related to the use of coworking spaces, individuals can substantiate their claims when filing taxes.

These records may include receipts for membership fees, rental charges, utilities, and any other relevant costs incurred while utilising the shared workspace.

Methods for Calculating Tax Deductions

Understanding the methods available for calculating tax deductions is essential when utilising coworking spaces. Individuals can choose between two primary methods: simplified or actual expense method.

The simplified method offers a flat rate per square foot of the workspace used exclusively for business purposes, simplifying the calculation process significantly.

On the other hand, opting for the actual expense method allows individuals to deduct specific expenses associated with using a coworking space, such as rent and utility costs directly attributable to conducting business activities.

We recommend examining both methods to determine which one will maximise deductions.

Documenting Your Coworking Expenses

Compliance with Documentation Requirements (Essential!)

Every country has its own rules and regulations regarding tax deductions.

Warning: Inadequate records or odd claims could lead to deductions being disallowed.

For example, when claiming coworking deductions in the UK, it is essential to comply with HMRC guidelines. This involves keeping accurate records of all expenses related to the coworking space, including receipts and invoices.

The Australian Taxation Office (ATO) has specific guidelines on deductions for home office expenses, which can also apply to coworking spaces. It's essential to check their website for the most up-to-date information: https://www.ato.gov.au/

These documents serve as crucial evidence when submitting tax returns and claiming deductions. Without proper documentation, it can be challenging to account for coworking expenses and may lead to potential issues during tax assessments.

It's important to note that failing to adhere to documentation requirements can result in the disqualification of coworking deductions, leading to financial implications for individuals or businesses utilising these spaces.

Understanding Industry-Related Regulations

In addition to general HMRC guidelines, individuals should also consider any specific industry-related regulations that could impact their ability to claim coworking deductions.

Certain professions or sectors may have unique rules governing expense claims or allowable deductions related to workspace costs. For instance, freelancers in creative industries might have different criteria compared to professionals in finance or legal services.

Learn more about shared workspaces from our ultimate Coworking Space Guide.

Frequently Asked Questions