Private ruling: Home based business deduction
Published: March 2012
Ruling period: Year ending 30 June 2012.
Date scheme commenced: 1 July 2011.

Ruling: Q1: If the activities constitute businesses, can the company use the floor area method and include the business use areas in so doing, to determine the "business use percentage" of the property? | A1:  | Q2: If the activities constitute businesses, can the company use the floor area method and include the business use areas in so doing, to determine the "business use percentage" of the property for the income tax deductions for running expenses, depreciation expenses and other capital costs? | A2:  | Q3: Will Part IVA of the Income Tax Assessment Act 1936 (ITAA 1936) apply to quash any benefits that might otherwise accrue to the company and if so, which, how and to what extent? | A3:  | Q4: As the property will be a dual purpose property, can the company therefore claim for any costs of improving or maintaining front and rear entrance doors, walls, doors and windows that separate business and personal areas and windows that separate business and personal areas and other common items such as alarm systems, power meters, sewer lines etc, to the extent of the business use percentage? | A4:  | Q5: If the individuals sell their personal ownership interest in the property, will they be entitled to the full capital gains tax (CGT) main residence exemption? | A5:  | Q6: Will Part IVA of the ITAA 1936 apply to quash any benefits that might otherwise accrue to the individuals in respect of the CGT main residence exemption? | A6:  | Q7: Being non-habitable spaces, when calculating the business use area per the stated intended calculation method in the JPSA, may the company exclude any and all fully or partially enclosed garages, carports, sheds, patios and pergolas etc, plus any or all uncovered outdoor areas from the total floor area of the property, if these are not required as business use areas? | A7:  | Q8: If the company wishes to segregate any such individually nominated areas into private and business use areas, may it then claim its costs (ie use these to calculate the business use percentage)? | A8:  | Q9: In cases where the company is or later becomes GST registered, will the GST then apply to the company's component as realised from a possible future sale of the property? | A9:  | Q10: Without increasing the Company's taxation obligations under any of the relevant provisions noted in the procedure, can It conduct concurrent operations at other locations, ie have one or more "branches" situated in other suburbs (e.g; in Perth, it is common for businesses to have branches both north and south of the Swan River), whereby any employed shareholders or working directors subject to the Joint Property Sharing Agreement, may possibly divide their working time between the different places of business or alternatively, other employees not party to the Joint Property Sharing Agreement may run the business at the other locations? | A10:  | Q11:  | A11:  | Q12: If in future, the company should complete building extensions as a Business Use Area and use these to earn its assessable income, can it fully claim building deprecation expenses in respect thereof? | A12:  | Q13: Can the company claim full depreciation expenses on the fixtures and fittings within all business use areas? | A13:  | Q14: Providing at all times that: · the company runs a business from the subject property · the shareholders treat the property as their main residence for tax purposes, and · the existing methodology for calculating the BUP is consistently applied: · do any other considerations need to be given for the purposes of ascertaining the company's property based expense deductions specifically because from time to time an applicant shareholder might move into or out of the subject property as a place to live? | A14:  | Q15: Providing at all times that: · the company runs a business from the subject property · the shareholders treat the property as their main residence for tax purposes, and · the existing methodology for calculating the BUP is consistently applied: · do any other considerations need to be given for the purposes of ascertaining the company's property based expense deductions specifically because from time to time, BUA's and PUA's change their characteristics sufficiently to become that of the other? | A15:  | Q16: Is there a tax law or any other authority that limits the amount and times and frequency that a PAU and a BAU might change their character and subsequent use to the other and if so, please describe its effects on this procedure? | A16:  | Q17: Aside from declaring as assessable income, any interest the company might pay to the applicants in respect of any funds possibly loaned to the company so it could acquire its interest in the property, do any corresponding taxation implications arise? | A17:  | Q18: In case the applicant company might occupy more floor space as a BAU relative to its financial interest in the property, does this mean: It is not entitled to claim its expenses against income to that higher extent? The applicants must include as assessable income, any increase in expense payments as made by the company whether those expenses were met by payments directly to the supplier or via the applicant? A CGT liability accrues to the applicant should a sale of the property result in a capital gain? A CGT liability accrues to the company should a sale of the property result in a capital gain? | A18:  | Q19: Further to the description of the scheme, rather than replacing their current main residence, if the applicants instead ran the new home business from their current main residence, setting aside BUAs as described and employing the same calculation formula for the BUP, however, where the company did not acquire an interest in the property, does this mean: The company is not entitled to claim its expenses against income to that higher extent? The applicants must include as assessable income, any increase in expense payments as made by the company whether those expenses were met by payments directly to the supplier or via the applicant? A CGT liability accrues to the applicant should a sale of the property result in a capital gain? A CGT liability accrues to the company should a sale of the property result in a capital gain? | A19: b) Yes, for occupancy expenses. c) Yes. d) No, the company doesn't have an interest in the property. | Q20: Aside from those raised, which other relevant provisions exist (if any), of the full scope of taxation law, to increase the taxation obligations and liability of the participant's of the procedure? | A20: The question is too general to provide a private ruling, it is not about the operation of a specific taxation provision.

Relevant facts and circumstances: A private company intends to run several businesses from the home of the shareholders.

Relevant legislative provisions: Income Tax Assessment Act 1997 section 8-1. | Income Tax Assessment Act 1997 section 118-190 . | Income Tax Assessment Act 1936 Part IVA.


Please check this edited version to be sure that there are no details remaining that you think may allow you to be identified. If you have any concerns about this ruling you wish to discuss, you will find our contact details in the fact sheet. | Answer: No, unless this was found to approximate a reasonable representation of the additional usage for particular costs. | Answer: No, costs would need to be considered individually for a reasonable business use proportion. | Answer: Not applicable, as the main residence exemption will be reduced as discussed in the reasons for decision for question 5. | Answer: Unenclosed areas attached to the house would be excluded from the total floor area of the dwelling. Enclosed areas attached to the house such as the garage would be included. | Answer: The Commissioner declines to rule, as at this stage operating from other sites is not in serious contemplation. | Question 11: Can the company claim building depreciation expenses on the business use areas in accordance with the Business Use Percentage? Answer: No. | Answer: The Commissioner declines to rule, as at this stage building extensions are not in serious contemplation. | Answer: The Commissioner declines to rule as there are insufficient fact to determine deductibility. | Answer: The Commissioner declines to rule as at this stage individuals moving in and out of the property is not in serious contemplation. | Answer: Yes, the percentages will need to be recalculated each year where this is the case. | Answer: No. However, frequent changes may indicate that an area does not have the character of a place of business.