Home Based Business Run Through a Company or Trust the ATO has warned you !

My reading of the first post is that IF you deduct rental costs for your home business, you need a proper rental agreement etc. If you dont deduct rent, thats fine. i.e. even if a business is run in a company out of a home, if the company doesnt claim rental deductions, no rules have been broken.

However, the bold part of the post makes it sound like all home based businesses are breaking the rules, which isnt the case.

 

The ATO article is quite good as it differentiates between sole traders and partners and that of a entity. An entity cant incur ownership costs unless it owns the home and that creates a FBT issue. It cant incur rent either unless it has a lease. The company cant claim ownership costs but needs a lease to have a liability for paying rent. Also a FBT issue for the employee if they are also a owner.

The link above page 35-36 explains it well.

 

I have a set area at home for my business and I don't pay or claim rent. I'm pretty sure that's fine.

 

Not so, unless your business is operated by another entity.

 

Doesnt that depend on whether you have other business premises? Is taking work home considered deriving income?

 

Jess your ABN is for a company. You pay rent OR own the home so the company cant claim any $. Neither can you claim a work related deduction. No FBT issues. If you own the home a CGT issue occurs BUT third element costs etc could assist to avoid any CGT impact

 

No. Refer to my post #20.

 

The property will be subject to CGT on sale even without claiming anything but could look at using the small business CGT concessions to mitigate any CGT

 

Okay good. That would suck to pay CGT.

 

@Jess Peletier The following description on the ato website suggests there would NOT be a CGT issue.

It says CGT won't apply if you operate a home based business through a company or trust unless the home owner charges the company or trust rent and gives the example of Harry the travel agent running his business as a company from home, which would appear to align very similarly to how a mortgage broker might run their business from home.

Home-based business and CGT implications

 

Yes the interest test applies to the company, not Harry (or Jess). However if Jess charges the company rent for the 10% office space.....Its why we dont recommend that style of arrangement. And a further reason why a company is preferable to a sole trader. Workers comp is another. Asset protection and liability firewalling etc. Limited liability etc

 

The key confusion about occupancy expenses in a home often results from taxpayers reading the rules for when home is a place of business. Then they confuse the position of the entity with the individual. That is the key issue the ATO raise in the OP thread.

eg They read the following page which appears to suggest a % of rent or other occupancy expenses may be deductible.

Running your business from home

The key issue may be whether the employee (!!) v's the employer can deduct an expense. And if Personal Services Income from a company applies a specific rule may deny what may be apparent as a deduction.

Where a trust is the relevant entity there also may concerns that the trust is not a employer and the relationship is that of trustee and beneficiary as well as employment related. The beneficiary may have no fixed and absolute entitlement to income and always be denied any deductions.