Company addresses impact on PPOR and CGT

Discussion in 'Accounting & Tax' started by jomi, 13th Jul, 2019.

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  1. jomi

    jomi Member

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    Hi there, am hoping if any of the knowledgeable tax gurus could help clarify this for me. If I were to set up a company (proprietary limited) and had to put my PPOR address down as the address of the registered office as well as the principal place of business, how will this affect me if/when I do sell the PPOR?

    The business itself is not generating any income yet and is only being set up to secure the business name. I have no business premises per se and this might not happen for a few years yet, so have no choice but to put my PPOR address down for the above. A few different scenarios to consider for CGT implications:

    1) if I were to sell my PPOR without changing the company addresses and no income has been produced/generated. Would it be exempt from CGT as per normal PPOR rules?

    2) If I were to change the company address (both for registered office and principal place of business) before any income is generated and then sell the PPOR, would it be exempt from CGT as per normal PPOR rules?

    3) Also does the 6 year PPOR rule still apply should I convert the PPOR into an IP (still assuming the business is not generating an income)?

    Thanks for helping, these scenarios/questions have been doing my head in!!
     
    jomi, 13th Jul, 2019
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  2. Mike A

    Mike A Well-Known Member

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    It will have an impact so need to consider it when you eventually sell
     
    Mike A, 13th Jul, 2019
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  3. Scott No Mates

    Scott No Mates Well-Known Member

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    Can you use your accountant's address?
     
    Scott No Mates, 13th Jul, 2019
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  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Listing the home as the company address won't in itself effect CGT.
     
    Terry_w, 13th Jul, 2019
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  5. Simon Hampel

    Simon Hampel Founder Staff Member

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    I use my accountant's address as my registered office and my home address as my principal place of business (so most correspondence comes directly to me).

    If you are actually producing an income from your home as your principal place of business, this can affect your CGT when you sell

    See: Using your home to produce income

    If you have a dedicated space set aside for operating the business you could also claim expenses related to running your business from home (eg utilities, insurance, rates, mortgage interest) - although you would not be able to claim any of this until you actually start making money anyway

    See: Running your business from home

    If you are not actually operating a business yet, I wouldn't see an issue (but you also can't claim any expenses) - but I would check with your accountant / tax adviser just to make sure.

    That first link has some more detail that's relevant here:

    Using your home to produce income

    Your main residence (your home) is generally exempt from capital gains tax (CGT). However, you don't get the full main residence exemption if you use any part of the dwelling to produce income (such as renting out a room or running a business), and:
    • you acquired your dwelling on or after 20 September 1985
    • you would be allowed a deduction for interest (had you incurred it) on money borrowed to acquire the dwelling – this is the 'interest deductibility test'.
    The interest deductibility test

    The interest deductibility test applies regardless of whether you actually borrowed money to acquire your dwelling. You must apply it on the assumption that you did borrow money to acquire the dwelling.

    If you rent out part of your home, you would be entitled to deduct part of the interest if you had borrowed money to acquire the dwelling.

    If you run a business or professional practice in part of your home, you would be entitled to deduct part of the interest on money you borrowed to acquire the dwelling if:
    • part of the dwelling is set aside exclusively as a place of business and is clearly identifiable as such
    • that part of the home is not readily adaptable for private use, for example, a doctor's surgery located within the doctor's home.
    You would not be entitled to deduct any interest expenses if, for convenience, you use a home study to undertake work usually done at your place of work. Similarly, you would not be entitled to deduct interest expenses if you do paid child-minding at home (unless a special part of the home was set aside exclusively for that purpose). In these situations, you could still get a full main residence exemption.​

    ... to me, I think that's fairly clear:
    1. if you make no income from your business, and
    2. you do NOT pass the "interest deductibility test" (ie you don't have a separate business space set aside to operate the business)
    ... then you would be entitled to claim the full CGT exemption on your home when you sell (but note that you also could not claim occupancy expenses!)

    Simply having a non-trading company listing your home as its principal place of residence would not be sufficient to pass the interest deductibility test in my (non-professional) opinion - thus I don't believe you would need to account for CGT.

    Again, double check this with your adviser before you proceed.
     
    Simon Hampel, 13th Jul, 2019
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  6. jomi

    jomi Member

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    Thanks so much for all the valuable advice!

    In the above scenario, I do not intend to claim any occupancy expense or tax deduct any interest when the business is not producing any income. Ideally, I will be transferring the business address to another place (actual office/business space) just before the business is starting any actual transactions. Like I said, this was more to obtain and retain the business name until said business actually gets off the ground.

    If I convert the PPOR to a rental, I believe I should do a change of address of the business addresses before that anyways? As all mail correspondence need to come back to me I.e. change to my new address (most likely will be rentvesting rather than buying another PPOR). So this should not affect the 6 year rule as well?
     
    jomi, 13th Jul, 2019
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  7. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I think you are conflating the words 'business' with 'company'
    A company is an entity, an artificial person, a business is what a person does. the company may or may not be in business. But either way if you own the property you could not claim the interest as you are not the one in business.
     
    Terry_w, 13th Jul, 2019
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  8. Simon Hampel

    Simon Hampel Founder Staff Member

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    Yes, you don't want any mail being delivered to your tenants - do not use an IP as your registered office address or principal place of business.

    Also remember that your registered office address might be used to serve official documents on you - including legal documents, so it must be an address you will actually have a representative at.
     
    Simon Hampel, 13th Jul, 2019
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  9. Paul@PAS

    Paul@PAS Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    Having a home address as a PPOB or as a reg office could enhance a future enquiry by the ATO into the eligibility of the main residence exemption in full. An address doesnt mean a home is a PLACE of business. Its like suggesting a rural mail box is a farm. Its a place where mail goes. Or a address of convenience. The Reg Office can be an accountants address, or lawyers or even a parents house. The PPOB is not quite the same and is meant to reflect a place ofupied and used by the company for its business activities. That could be to act as trustee for a trust that doesnt conduct a business too.

    Whether or not expenses are claimed doesnt affect the CGT position. Many people avoid claiming a share of the ownership costs etc when they may actually get a benefit from the deductions. When a home is partly used for business for even a single day it can change how CGT is calculated forever and still have $0 CGT in a later year
     
    Paul@PAS, 22nd Jul, 2019
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