The following information applies where your home is also your principal place of business – that is, you run your business from home, and a room is set aside exclusively for business activities. Examples include:
. a small business operator whose main office is in their home
• a tradesperson or craftsperson who has their workshop at home
• a doctor or dentist who has their surgery or consulting room at home.
What deductions you can claim
Where your home is also your place of business, you can claim deductions if you carry out income-producing work at home and incur expenses in using your home for that purpose.
You can claim a deduction for the following:
• The cost of using a room’s utilities, such as gas and electricity – these must be apportioned.
If the business portion is based on anything other than the floor area
(for example, on actual electricity usage) you will need
to clearly document your claim.
• Business phone costs – if a telephone is used exclusively for business, you can claim
for the rental and calls, but not the installation costs. If the telephone is used for both
business and private calls, you can claim a deduction for business calls.
• Decline in value of office plant and equipment (for example, desks, chairs, computers) –
if the equipment (such as a computer) is also used for non-business purposes,
your claim must be apportioned.
• Decline in value of curtains, carpets and light fittings.
• Cost of owning or renting the house (such as rent, mortgage interest, insurance, rates).
You can claim the portion of these costs that relates to the room or workshop you use
as a place of business. A common method of working out how much to claim is the floor area
(as a proportion of the floor area in your whole home).
If your employer has an office in the city or town where you reside, your home office will not be a place of business, even if your work requires you to work outside normal business hours.
If your income includes personal services income (PSI), you may not be able to claim a deduction for occupancy expenses.
Capital gains and the main residence exemption
Generally, you can ignore a capital gain or loss you make when you sell your home or main residence – this is called the ‘main residence exemption’.
However, you can’t obtain the full main residence exemption if your home is your principal place of business, although you are probably entitled to a partial exemption.
To work out the capital gain that is not exempt, you apply the same apportioning process you would for claiming a deduction for interest on your home loan. In most cases, you can use the:
• proportion of the floor area of your home that is set aside to produce income
• period you use it for this purpose.
• If you first used your home as your place of business after 20 August 1996,
the period before you first used your home to produce income is not taken into account
in working out the amount of any capital gain or capital loss. Instead, you use
the market value of your home at the time you first used it to produce income.
• It’s a good idea to get a valuation of your home at the time you first use it
as your place of business, so that when you come to sell it you don’t pay more
capital gains tax than necessary.
Capital gains tax applies
Generally, you can ignore a capital gain or loss you make when you sell your home. However, you may have to pay capital gains tax (CGT) when you sell your home if you have used any part of it for business purposes.
CGT is the tax you pay on any capital gain you make. There is no separate tax on capital gains; rather, it is part of your income tax and you include it in your annual income tax return. You are taxed on your net capital gain at the marginal tax rate that applies to you.
CGT will not apply if any of the following apply:
• you operate your business from a rented home
• you do not have an area specifically set aside for your business activities
• you operate your business through a company or trust
