The proportion of any capital gain or loss you take into account for tax purposes is an amount that is reasonable having regard to the extent that you would be entitled to a deduction for interest. In most cases this would reflect the proportion of the floor area of your home that is set aside to produce income and the period you use it for this purpose.
Example: Using part of a home for business for part of the period of ownership
Ruth bought her home under a contract that was settled on 1 January 1999. She sold it under a contract that was entered into on 1 November 2002 and settled on 31 December 2002. It was her main residence for the entire four years.
From the time she bought it until 31 December 2001, Ruth used part of the home to operate her photographic business. The rooms were modified for that purpose and were no longer suitable for private and domestic use. They represented 25% of the total floor area of the home.
When she sold the home, Ruth made a capital gain of $8,000. The following proportion of the gain is taxable:
Capital gain
X
percentage of floor area not used as main residence
X
percentage of period of ownership that that part of the home was not used as main residence
=
taxable proportion
$8,000
X
25%
X
75%
=
$1,500
As Ruth entered into the contract to acquire the home before 11.45am (by legal time in the ACT) on 21 September 1999 and entered into the contract to sell it after that time, and held it for at least 12 months, she can use either the indexation or discount method to calculate her capital gain. The indexation method doesn’t apply to assets acquired after 11.45 am on 21 September 1999.
The 'home first used to produce income' rule (explained below) does not apply because Ruth used the home to produce income from the date she purchased it.
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