Do you run a business from home?

The ATO may classify your home as a ‘Place of Business’. This means that when it’s time to sell your house you may incur Capital Gains Tax (CGT) based on the duration you ran the business from home and % of home used.

There’s many things to consider and several options. CGT may not even apply in your situation.

What is Capital Gains Tax?
CGT is a tax payable when a gain is made on the sale of a capital asset. Eg. Your home.

Generally the sale of your home is CGT exempt. However, when it comes to running a business from your home the CGT exemption may not apply to some of the capital gain. You can read more here.

Home office deductions and CGT
Below is a table from the ATO that provides an example of the deductions that can be claimed depending on what your working from home situation is.

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The last deduction type on the table, occupancy expenses, is what can result in CGT. To know if you are entitled to claim these deductions you must pass the ‘interest deductibility test’. Generally, to pass this test, you must have part of your house set aside exclusively as a place of business and it must be clearly identifiable as such.

There are several methods to claim the other expenses in the table, operating/running expenses. Claiming running expenses ordinarily would not result in CGT. You can read more here.

What next
If CGT could be applicable to your situation, it would occur at the time of sale of your home. It’s best to be prepared, even if you will only be claiming running expenses and you don’t believe CGT is applicable. Here’s some suggested actions:

  • Obtain a valuation of your house at the time you start using it to run your business from home.

  • Obtain a valuation of your house at the time you cease using it to run your business from home.

  • Maintain receipts and records of any capital improvements made do your home. These could be used decrease CGT.

  • If using floor area to claim expenses, make sure it’s accurate and can be supported with real measurements.

  • Tax isn’t everything. A separate area to run your business may be imperative regardless if it results in a capital gain.

If you will be using OAK Business Services to assist with your income tax returns, we’ll obtain all necessary information from you and work with our Tax Agent to determine the best outcome for you.

As always, if you have any questions please get in touch.

Regards

Jamie

Please note that the information contained in this communication is general in nature and may/may not apply to your circumstances. Please seek professional advice for your specific circumstances.

Jamie Jaworski