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  • #979119
    Noob
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    Hi, I’m looking at starting a business at home but somewhere I think I’ve read that I could incurr capital gains tax on the value of my house when I come to sell it. I’d prefer to keep the house out of the equation and not claim any expenses. Have I read this correctly and would I be better renting an office and taking work home?

    #1112037
    ntgd
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    Hi Nicole321,

    What kind of business are you running from home?

    Have a read on the link below from the ATO

    http://www.ato.gov.au/businesses/content.aspx?menuid=0&doc=/content/43191.htm&page=4&H4

    In general if you are claiming occupancy expense then CGT will apply when you sell your home. If you are claiming running costs then CGT won’t apply.

    #1112038
    bmd
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    Hi Nicole

    I run my business from home and had the same concerns.

    But as long as you are not charging yourself “rent” then it is fine.

    The reason is your house is not producing any income so you will not pay cgt when you sell!

    I also don not claim for air conditioning or electricity as my accountant said the ato are looking at this as well and I did not want to be caught out if they back date it etc.

    Matt

    #1112039
    James Millar
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    Sorry guys but the test for main residence exemption and associated reduction when the home is used as a place of business is actually a notional interest deductibility test.

    The law says that if you “would be” eligible for an interest deduction then you are required to reduce your main residence exemption – even if you don’t actually have an interest expense.

    Its considered a notional test and has nothing to do with whether you are in fact claiming home office or whether your home is deriving rental income.

    Harsh but true.

    Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900
    #1112040
    bmd
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    JamesMillar, post: 125124 wrote:
    Sorry guys but the test for main residence exemption and associated reduction when the home is used as a place of business is actually a notional interest deductibility test.

    The law says that if you “would be” eligible for an interest deduction then you are required to reduce your main residence exemption – even if you don’t actually have an interest expense.

    Its considered a notional test and has nothing to do with whether you are in fact claiming home office or whether your home is deriving rental income.

    Harsh but true.

    James

    That would mean every person in australia who sells jams etc a fates, sells online via ebay or has a small home business would pay CGT under your interpretation??

    I guess the questions is “would you be eligible” my understanding from speaking to the ATO is that as the business does not trade from my home then no CGT is applicable unless I claim expenses like rent for a spcae

    Matt

    #1112041
    James Millar
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    Hi Matt

    Sect 118-190(1)(c) of the ITAA 1997 (the tax law relevent to CGT exemption and if your dwelling was used for the purpose of producing assessable income).

    (1) You get only a partial exemption for a * CGT event that happens in relation to a * dwelling or your * ownership interest in it if:

    (c) if you had incurred interest on money borrowed to * acquire the dwelling, or your ownership interest in it, you could have deducted some or all of that interest.

    It’s well established that this is a hypothetical test and that no interest actually needs to have been incurred.

    The only point I will clarify is that the home need to have the character of a place of business (IT2673). This may extend beyond the average home office but it is most certainly intended to apply to anyone that’s running a business from home. ie space set aside and identifiable as area of business. My reference to “home office” in previous post is probably misleading in that it won’t affect an employee working from home for example. Alternatively if you are running a business (not hobby) selling Jams on ebay and it’s your place of business then yes you would technically fail the test and have your main residence exemption reduced.

    Your point about the broader implication is on the money. As we understand it, compliance with this provision is probably very low (it doesn’t help that many accountants and ATO advisers don’t fully understand the law).

    Be careful taking advice from the ATO. Get a call reference number and get things in writing (it helps – even though they are not actually bound by everything in writing.). Better yet, get a good accountant.

    Helping build better businesses and better lives with expert financial and taxation advice. [email protected] www.360partners.com.au 03 9005 4900
    #1112042
    bmd
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    JamesMillar, post: 125829 wrote:
    Hi Matt

    Sect 118-190(1)(c) of the ITAA 1997 (the tax law relevent to CGT exemption and if your dwelling was used for the purpose of producing assessable income).

    (1) You get only a partial exemption for a * CGT event that happens in relation to a * dwelling or your * ownership interest in it if:

    (c) if you had incurred interest on money borrowed to * acquire the dwelling, or your ownership interest in it, you could have deducted some or all of that interest.

    It’s well established that this is a hypothetical test and that no interest actually needs to have been incurred.

    The only point I will clarify is that the home need to have the character of a place of business (IT2673). This may extend beyond the average home office but it is most certainly intended to apply to anyone that’s running a business from home. ie space set aside and identifiable as area of business. My reference to “home office” in previous post is probably misleading in that it won’t affect an employee working from home for example. Alternatively if you are running a business (not hobby) selling Jams on ebay and it’s your place of business then yes you would technically fail the test and have your main residence exemption reduced.

    Your point about the broader implication is on the money. As we understand it, compliance with this provision is probably very low (it doesn’t help that many accountants and ATO advisers don’t fully understand the law).

    Be careful taking advice from the ATO. Get a call reference number and get things in writing (it helps – even though they are not actually bound by everything in writing.). Better yet, get a good accountant.

    Hey James

    Some great information – thanks!

    Is a very interesting part of the tax law – will chat to my acocuntant some more about this

    Thanks again

    Matt

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