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Home-based business and CGT implications

If you used any part of your home for business purposes, you may have to pay CGT when you sell it.

Last updated 11 June 2019

Generally, when you sell your home CGT doesn't apply. However, if you used any part of your home for business purposes, you may have to pay CGT.

CGT won't apply if any of the following occurred with your home-based business:

  • You operated your business from a rented home.
  • You didn't have an area specifically set aside for your business activities.
  • You operated your business through a company or trust.

You only have to pay CGT for periods when you used your home for your business. For example, if you owned your home for 10 years, but only used it for business in the last two years, then you only need to pay tax on the capital gain in the last two years.

In most cases, the percentage of the capital gain that is taxable is the same as the percentage for which you could claim a deduction for mortgage interest. This is generally based on the floor area of your home you have set aside for business, for example 10%.

You may be able to apply one or more of the small business CGT concessions to reduce your capital gain unless the main use of the house was to produce rent.

See also:

Examples: Will CGT apply?

Olga (sole trader)

Olga runs a florist business from her home (which has a mortgage). Olga does most of her work on her kitchen table. She doesn't have an area set aside exclusively for her business and can't claim a deduction for any interest she pays on her mortgage. This means she doesn't have to pay CGT if she sells her home.

Blake and Chantal (partnership)

Blake and Chantal operate a life coaching business from their home. Because they are renting their home they don't need to pay CGT.

Harry (company)

Harry is a travel agent who runs his business as a company from his home. He is paying off the mortgage on his home. He does most of the work for his company in an office that was previously used as a bedroom.

Harry won't have to pay CGT when he sells his home as it is his company that uses his home to run the business, not Harry.

This means that Harry can't claim any deductions for the interest he pays on his home loan.

However, if Harry charges his company rent for using his home, he may have to pay CGT on the sale of his home.

End of example