Running a business from PPOR, but not claiming any costs - CGT?

Long time since my last post, great to see the form still so active.

A friend of mine has been running a business from his home for many years. He has a shed in his back garden which has been converted into a small office and that's the sole office for the business.

He's been very careful not to claim a single occupancy cost, including any costs that wouldn't need apportionment, such as the dedicated telephone number for the business.

So he's relying on the complete lack of deductions to maintain his PPOR exemption.

My concern, when I was considering his situation, is that when you look at a whole host of facts, it is abundantly clear that the business has been run from his house, so does that impact the exemption, irrespective of whether you've actually claimed any costs?

He's held this house for 30 years and he's sitting on a capital gain of over $1m, so rather serious for him, although in terms of floor space the office would literally make up only perhaps 3% of the overall floor space, so on an apportionment of gain it wouldn't be disastrous.

Any cases or references would be appreciated.

Cheers
Jonathon
 
From that link above:

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.

Any, not all, being the operative word.

For me, having a company structure I'd be paying no CGT.
 
He's been very careful not to claim a single occupancy cost, including any costs that wouldn't need apportionment, such as the dedicated telephone number for the business.

To maintain CGT exemption of your PPOR (assuming purchased after 19.9.85) -
do not claim any occupancy costs e.g. mortgage interest, rates, insurances.

Excess running costs are OK to claim if the business portion is properly documented. These do not affect the CGT exemption.
 
The CGT exemption is partially lost regardless of whether any occupancy costs are claimed.

The issue is eligibility to claim notional interest.

s.118-190(1)(c) ITAA97

Cheers,

Rob
 
The CGT exemption is partially lost regardless of whether any occupancy costs are claimed.

The issue is eligibility to claim notional interest.

s.118-190(1)(c) ITAA97

Cheers,

Rob

The solution is then to buy PPOR in spouses name and run your business from there.
 
Would the ATO really pick up on it if he hasn't made any claims on the residence? Not sure how good their data matching is as lots of people run businesses from home. It would be ludicrous to suggest that someone like me who does a lot of things from home would now have to pay CGT on my residence.
 
Would the ATO really pick up on it if he hasn't made any claims on the residence? Not sure how good their data matching is as lots of people run businesses from home. It would be ludicrous to suggest that someone like me who does a lot of things from home would now have to pay CGT on my residence.

I guess there are less than 1,500 residential property sales each week in Australia? Perhaps 200-300 of them have the potential for a significant capital gain, for example where the property hasn't been previosuly sold for many years.

Forget about super duper data crunching, it could simply be a junior at the ATO doing some old school googling of each property address as it's sold to see if there are any ususual factors. One member of staff, in a department of thousands, could prepare a hit list very easily, for auditors to follow up.

I've got no idea if they do this, indeed I have no knowledge of how the ATO handle their data, but it seems plausible.
 
Would the ATO really pick up on it if he hasn't made any claims on the residence? Not sure how good their data matching is as lots of people run businesses from home. It would be ludicrous to suggest that someone like me who does a lot of things from home would now have to pay CGT on my residence.

Hmmm ... registered business address, address of business tax return etc.

Oooh look, this address has been logged as a residential property disposal under the data matching program.

100% main residence exemption claimed ... maybe audit time ?

However, merely doing a lot of things from home does not necessarily entitle claims of occupancy costs.

Cheers,

Rob
 
The small business CGT concessions will most likely kick in anyway.

In some cases this will provide an effective total exemption.
 
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