The ATO is reminding taxpayers who have home-based businesses of the impact this can have when it comes to accessing the main residence exemption and the small business CGT concessions.
Eligibility for the main residence exemption may be impacted if an individual’s home (or part of it) represents a place of business and they are able to claim a deduction for some of their home occupancy expenses (eg, interest expenses).
Taxpayers may be eligible for a partial main residence exemption if:
- An area of the home is set aside and used exclusively as a place of business (i.e. running a home-based business)
- They are able to claim occupancy expenses
- Aside from running a home-based business, they satisfy the main residence exemption eligibility conditions.
The main residence exemption does not apply to any capital gain or loss that relates to the portion of the home that is used in the home-based business. The amount of the capital gain or loss that the exemption does not apply to is the same as the percentage for which they would have been able to claim a deduction for mortgage interest, which is generally apportioned based on the floor area of your home set aside for business.
However, even if the taxpayer isn’t able to claim a full exemption under the main residence rules on disposal of the property, the ATO indicates that this doesn’t necessarily mean that the property will be treated as an active asset for the purpose of applying the clarifies that in most cases, merely running a home-based business will not be sufficient to meet the eligibility criteria to apply the small business CGT concessions if they are selling the home.
The active asset test is applied to the property as a whole, and not only the portion that is used in the business. The ATO’s latest guidance in this area indicates that even if part of a property is used for business purposes, this won’t be an active asset if the business use is merely incidental to the overall private use of the property.
