CGT and the small business home office – big tax mistakes
The amount of Capital Gains Tax (CGT) you will be required to pay when you sell your home is calculated by multiplying the gross capital gains on the sale of your home by the percentage of business use over the period of ownership. To illustrate, if your home is sold for $800,000, but you invested $600,000 between acquisition costs and repairs – and you have deducted 5% of the costs of the home for your “business use” over a period of the 5 out of 10 years you have held the home – then your assessable capital gains will be calculated as follows: [($800,000-$600,000) x 0.05] x [10/5] = $5,000.
Caution needs to be had when opting to claim business expenses in respect to your home, via your annual business tax return. Although you are able to claim back a portion of your interest costs and other hold costs for the percentage of business use in your home, the loss of capital gains exemption for that part of the home may not justify the short term savings.
The ATO provides helpful tools for business owners to assist in assessing their personal circumstances and capital gains. Please click the following link to check out the tools offered by the ATO: ATO planning templates and tools.
Nautilus Law Group assists business owners in assessing and designing business and personal wealth structures, and consideration of capital gains tax is one of the services we offer.
If you are running a home office and have questions about your structure, please do not hesitate to contact our team to arrange a conference by emailing info@nautiluslaw.com.au or phoning our enquiries manager – Vicki on 07 5574 3550.
