Mixing Business and Pleasure – Claiming CGT Small Business Concessions for the Home

April, 2011

The sale of the Family Home is not always exempt. For example, a taxable capital gain may arise where the home:
1. is on land exceeding 2 hectares (e.g. fringe metro areas);
2. is not in an individual family member’s name who resides in the home (e.g. in the name of a company or trust, possibly for asset protection or some other historical reason);
3. is on land that is subdivided and sold separate to the dwelling. The exemption applies only to land that is sold with the dwelling;
4. does not qualify as the main residence for its entire period of ownership.

Other CGT concessions may apply if the home, or land adjacent to it, is also used for business purposes. For example, a part time surgery, after hours home office for patients, clients or customer drop offs or for storage of business vehicles and equipment. Some properties are often used for farming purposes in addition to being the family home. These business uses may be sufficient to make the home and adjoining land an “active asset” and potentially qualify for the generous CGT small business concessions.

Importantly, it is an active asset if it is “used” in a business (by a person or entity connected with the land owner) and has not been used primarily to derive rent. Such business use need not be the primary use or even a substantial use. It may be primarily used for personal use. Business use merely has to be one of the uses of the asset to some extent, but not a trivial or incidental use. Mills Oakley recently tested this view with the ATO via a private ruling application.

The land had been subdivided and part of it profitably sold separately to the home so it did not qualify for the CGT main residence exemption. However, the home had been used in a small business, and customers used the adjacent land for parking prior to its sale. The ATO confirmed that this business use (i.e. parking) was sufficient to treat the adjacent land as an “active asset” despite it also being used for personal use in conjunction with the family home. If you have clients that own a home and also run a business, it is worth checking whether there has been some business use of the property as this may be sufficient to qualify for generous CGT small business concessions, especially where the main residence exemption is not applicable.

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