Impact of claiming home office on tax

[Carl]

Hi all

Random question about tax.

If i am able to claim home office deductions for working in my study, what flow-on effect will this have on the property? I heard that by claiming my study as a home office for tax reasons(and hence claiming a portion of interest, bills, etc.), that it will impact on my CGT if/when i sell the place and complicate things greatly? Any ideas...

Cheers

-Carl

 

[geoffw]

That will have an impact on CGT, AFAIK.

So if you claimed 10% of your home as office over the entire period you owned it, when you sold, you would have to pay CGT on 10% of the amount of capital gain, as it's no longer CGT exempt as principal place of residence (PPOR).

It's up to you to decide if you prefer the deductions now vs tax to pay later.

In my circumstances, looking back, I've done OK by not claiming (assume I decided to sell now). I've had some huge growth, with a lower income. But that was during a period of some pretty big gains. And I had income during the earlier part of the loan so that I wasn't pushing for every $.

You need to look at your own circumstances, and probably talk to somebody who knows what they are talking about. As distinct from myself

 

[LynnH]

Carl

If you just claim for cost of office lighting and heating, depreciation of office furniture, computer equipment etc, then there are no implications for CGT.

If you claim for pro-rata insurance, interest, rates etc, then you may well have a few headaches down the track trying to calculate CGT - IMHO, it's not worth it.

But everyone's situation is different and I obviously don't know whether you have a huge home office or something more modest. Or how long you've owned your home and what sort of growth you've had - GeoffW's post makes a very good point re CG!!

Why don't you have a chat to your accountant and see what s/he thinks?

Cheers
LynnH

 

[pennyk]

we have also been advised not to claim rates, interest etc. but furniture in that room, internet costs, phone costs related to business etc are OK. But the room needs to be clearly set aside for business purposes.
Pen

 

[Buddybee]

Our home is where we conduct our full time business which uses 2 rooms plus part of a garage. (Hubby and I both work in the business) We claim the business's actual costs - about 15% of gas and electric bills, 100% of phone/internet costs. We also claim 50% of a house cleaner. The furniture/equipment used in these rooms was purchased specifically for the business so they are also deductable. We also claim a nominal amount for staff ammenities - tea, coffee etc fo about $45 per month, which is justified given we have 2 people working FT.

We don't claim interest, insurance, rates or water usage, and we don't charge the business rent to avoid CGT creeping into the equation.

I'd be interested to hear what others claim.

Cheers
Buddybee

 

[julia]

buddybee,

If you are in business and your home meets the description of a place of business you are saddled with CGT whether you claimed a deduction or not. The concept that you could forgo deductions now in return for no CGT was put forward by the ATO in a draft ruling but didn't make the final.

Not to worry anyway because if it is a place of business and you qualify as a small business then it would be considered an active asset so you can use all those small business CGT concessions to eliminate the CGT anyway.

 

[Buddybee]

Thanks Julia. We operate a company and trust arrangement, so from my understanding of the ATO home based business guide our setup is fine as long as we don't charge rent/claim interest....but now you have me wondering, I'll have to dig up the ATO doco and check.

Cheers
Buddybee

 

[Carl]

thanks for your help/advice.
i finally got through to my accountant (he was out of the office for a few days) and he basically repeated all that you guys said!! Claimed the internet and phone bills as well as both computers and printers though, so that helps.

 

[julia]

Buddybee
If you operate the business in a trust that is a bit different because it is not the owner of the home that is using it to produce income so as long as you don't charge the trust rent then you won't be exposed to CGT but if you don't charge the trust rent you lose the ability to claim some of the interest rates etc as a tax deduction. So still consider charging the trust rent but as the home is used in a business by an associate you could use the Active Asset concessions to avoid the CGT. By this I mean the 50% CGT discount then the 50% active asset discount then the remaining 25% can be rolled over into another active asset or use the retirement exemption to put it tax free into super or just take the cash if you are over 55. Note retirement exemption can only have $500,000 in a life time.

 

[coastymike]

Just need to ensure that you comply with SMSFR 2008/D3 when applying the Business Real Property test in relation to Self Managed Superannuation Funds.

The ruling gives some wonderful examples of what is defined as BRP and what is not for the purposes of SISA93 and SISR94.

http://law.ato.gov.au/atolaw/view.htm?DocID=DSF/SMSFR2008D3/NAT/ATO/00006

 

[julia]

Coastymike,

I am not talking about rolling the house into a SMSF this could not be done unless it was solely used for business purposes. I am talking about selling the house and applying the small business CGT concessions to the capital gain atributed to the business and using the retirement exemption to put some of the cash proceeds from the sale into super totally free of tax or using rollover relief to buy another active asset to use in the business.