Over the last three months this column focused on the income tax issues relating to using your home to produce assessable income. This month the discussion will focus on the possible subsequent exposure you may have to capital gains tax when you sell your home if you have reported income earned from running a business out of home, renting out part of your home or operating an Airbnb from your home.
This discussion will be particularly relevant to Airbnb homeowners now that the ATO has advised that the platform is now required to share information with the ATO relating to your hosting activity from 1st January 2019 onwards.
No Exposure to CGT
If you purchased your home before 20st September 1985, you will not be subject to CGT regardless of whether you used your home to earn assessable income.
If your home was purchased post 20 September 1985 and it has been your main residence you will only have exposure to CGT for the periods you generated assessable income from your home.
If you have a home office and choose to undertake work at home for convenience you will not have exposure to CGT as a consequence of the link to not being entitled to deduct interest on your mortgage.
Time Period Exposure to CGT
If you operate a business from home, please review the September article, or if you rent out part of your home, please review the October article, as you will have an exposure to CGT. Your exposure time period includes both the time periods you operated a business from home or generated rental income and also includes the time periods when your facility was advertised as available for rent or registered as available on the Airbnb platform.
Home Area Exposure to CGT
CGT exposure only applies to the proportion of the area in your home that is rented or available for access by your boarder or Airbnb client. The private portion would be CGT free under the main residence exemption.
Pre 20 August 1996 ownership
This date is relevant for calculating the amount of the CGT exposure depending upon when you first began using your home to produce assessable income.
If you first used your home to produce assessable income prior to 20 August 1996 you will need to calculate the portion of the ownership period the whole of your home was used for private purposes and the portion of the ownership period you rented out part of your house.
Home purchased 1st July 1990 and used 100% for private purposes.
Portion of the house first rented on 1st July 1994 with 30% of total floor space apportioned to tenant.
House sold 1st July 2019 for $600,000 with a cost base of $200,000 and a CG of $400,000.
Total days house was owned: 10,593 days.
Total days the 30% portion of the house was rented or available for rent: 9,131 days.
Calculation: $400,000 x 9,131/10,593 x 30% = $103,438 gross CG reduced by 50% discount to $51,719 net CG as ownership exceeds 12 months.
If the home is in joint names the net CG of $51,719 is shared reducing the net CG to $25,859 each.
Tax Planning Tip: Make a personal deductible super contribution up to the cap of $25,000 (inclusive of employer super guarantee contribution) to offset against the net CG.
Post 20 August 1996 ownership
If you first used your home to produce assessable income after 20 August 1996 then the calculation of the CG process differs as follows:
You are deemed for tax purposes to have acquired your property at the date it was first used to produce assessable income, instead of using your original cost base which would normally result in a larger CG. You will therefore need to obtain a market valuation at that date, preferably from a registered valuer.
Assume the same facts as in example 1 except:
The same portion of the home is rented for the first time on 1st July 2007.
The market valuation of the home at 1st July 2007 is $400,000 resulting in a CG of $200,000.
Total days the portion of the home was rented or available for rent: 4,383 days.
Calculation: 200,000 x 4,383/10,593 x 30% = $24,826 gross CG reduced by 50% to $12,413 net CG which could be offset by making a concessional super contribution.
Calculating the capital gain on the sale of any property that has been used to generate assessable income can be quite complex so you should consider seeking professional advice both before placing your property on the market and before attempting to prepare your own tax return.
The content of this article is not intended to be used as professional advice and should not be used as such.
Brian Spurrell FCPA, CTA, Registered Tax Agent, is Director of Personalised Taxation & Accounting Services Pty Ltd. PO Box 143 Warrandyte 3113. Mobile: 0412 011 946,
Email: firstname.lastname@example.org, Web: www.ptasaccountants.com.au