CGT and selling your home
If you make a capital gain when you sell your home, you may have to pay tax on part of the gain if all of the following apply:
- you bought your home on or after 20 September 1985
- you used part of your home to produce business income at some time while you owned it
- you were entitled to claim a deduction for any interest you paid on money you borrowed to buy the home, that is, you satisfy the interest deductibility test; see Interest deductibility test.
You may have to pay CGT even if any of the following apply:
- you do not claim deductions for occupancy or running expenses; see Occupancy expenses
- you have never claimed a deduction for any interest on money you borrowed to buy your home
- you owned your home outright before you started using any part of it to produce income
- you have started a business from home but have not yet made a profit.
How much capital gain is taxable?
In most cases, the portion of any capital gain on your home that is taxable is the same as the portion for which you could claim a deduction for interest. Generally, this is based on the floor area of your home you have set aside for business, for example 10%.
You do not have to pay CGT for those periods you did not use your home for your business.
There are three ways to work out a capital gain:
- the indexation method
- the discount method
- the 'other' method.
The method you can use depends on when you bought the house and when you first started using it to operate your business.
The 'other' method is the simplest of the three methods. You must use the 'other' method to calculate your capital gain if you have bought and sold your house within 12 months. In these cases, the indexation and discount methods do not apply.
Generally, to use the 'other' method, you simply subtract your cost base (what the asset cost you) from your capital proceeds (how much you sold it for). The amount of proceeds left is your capital gain.