CGT &YOUR HOME OFFICE

By Abby Morphett – Director and Manager WFS Melbourne, Tax Accountant and Mortgage Broker

🏠💻👩‍💼We know we are entitled to claim a deduction when you work from home, but what are the CGT implications if you do?

🔌🪑📱 If you use the actual cost method, you may be entitled to a pro-rata deduction for the following costs:

⭐electricity and gas for cooling, heating and lighting;

⭐the decline in value of home office furniture (desk, chair) and furnishings;

⭐the decline in value of phones, computers, laptops or similar devices;

⭐phone expenses;

⭐internet expenses;

⭐cleaning;

⭐computer consumables and stationery – such as ink, paper

⭐interest on your mortgage or rent.

To use this method, you must have a dedicated workspace (not just desk in the lounge room). The apportionment is based on the percentage of your workspace/whole house (i.e. your workspace is 20sqm your house is 100sqm, the apportionment is 20%).

👩‍🏫Example – Actual cost method:

Tim’s total running costs, including interest on his mortgage = $25,000. Tim’s workspace is apportioned at 20%, meaning he would be able to claim a deduction of $5,000.

✋If you use the actual cost method, you may be liable for CGT on your home (this doesn’t apply if you rent you home). This cost is pro-rated, therefore I you claimed 20% of ownership costs for half the time you were living in the house then you would pay tax on 10% of the capital gain.

👩‍🏫Example – Capital Gains:

Tim purchased his house in 2010 for $500k and sold it in 2020 $100m. There is a 50% capital gain discount that applies to assets held for longer than 12months, reducing the gain to $250k

|Tim used his house as a home office for 5years. Therefore, capital gains is halved to $125k. He only claimed 20% of expenses therefore he will be charged 20% of $25,000.

🧮 In calculating the capital gains, add the $25,000 to Tim’s income. If Tim is on the highest marginal tax rate, he would pay $11,250 in capital gains. Using the actual cost method Tim was afforded $25,000 in deductions throughout the 5 years. So is it worth it?

😕Confused? Talk to your registered tax agent today.