Home office pro-rata rent?

This may come to nothing but I'm looking at moving from my one-bed PPOR Docklands apartment to a better one also in Docklands: I'll rent the new one and let out this one as I don't think a buy/sell would be worth it taking account of transaction costs etc and I don't think I'll be missing out on massive tax-free CG (if my current unit increases massively in value, I'll gladly pay CGT!).

I work for myself from home trading as a limited company, no defined workspace in my current home so I don't claim anything. Plan is for the new place to be a two-bedder with one room as my office. This being so, I understand I can claim the appropriate portion of the rent (say 20%) as a business expense? So how would it be accounted? Company pays me this amount, booking it as rent (i.e. tax allowable expense on the company accounts), and it's not declared on my personal return, or nothing on the company side but I claim it as an expense (but it's the company not me using the space)? Advice appreciated.

 

Company pays the rent as an expense. You are just an employee (of the company) that the company is providing a work space for.
You declare the income as rent received.
You lose part of your CGT-free status as your PPOR (new unit) is part being used to generate income.

 

A fringe benefit may occur if the company pays any private expenses. Issues need advice as if your business use relates to Personal Services Income (PSI) the cost may be non-deductible in any event. The issue of not claiming a cent when you own it v's claiming when its rented seems contradictory and may pose a issue either way.

 

The reason I've not claimed so far is that no part of my current place is exclusively used for business purposes - just part of my bedroom, dining table on occasions etc (yes, I'm single!), books in various places etc. The plan is to rent a two-bedder with one of the bedrooms becoming an office on which I can shut the door.

 

Your company pays you rent. It is an expense for the company and deductible. .

You receive rent. It is income for you and must be declared.
Marg

 

Not quite...

The receipt is a reimbursement of a share of the rent (lets say 20%) for the company use of the private property. If it were assessable under the ordinary income provisions a share of the costs would be an allowable s8-1 deduction to the person for a cost necessarily incurred ie say 20% of the rent paid.

Hence the assessable and deductible sums would equate for no net tax position. I dont consider the receipt assessable as it is a reimbursement for a share of costs and not ordiinary income

This is no different to say the business use of a car under the cents per KM method. An assessable amount gives rise to a deductible. In the example of rent I cant see a net assessable event as the assessable will always equal the outgoing to the same extent (ie 20%)

Running your business from home

 

You can only claim your rent (without FBT) if you are operating a place of business as opposed to a "place of convenience". The following factors are considered (TR 93/30):

1. the area is clearly identifiable as a place of business
2. the area is not readily suitable or adaptable for use for private or domestic purposes in association with the home generally
3. the area is used exclusively or almost exclusively for carrying on a business, or
4. the area is used regularly for visits of clients or customers.

A good example is a petrol station with a house at the back.

It basically depends on what you are doing and how often people visit you. It also depends if you have an alternate place of business and if you are required to operate a business from home. This compares to simply maintaining files from your home and having an occasional client visit you.

A room that is used to do paperwork only is unlikely to work.

 

I like the example ... "a petrol station with a house at the back"

 

I work exclusively from home running a one-person software business so multiple PCs etc for development and testing, lots of reference books, files etc. No callers. Genuine full time business use.

 

This case looks relevant. Assuming lots of computers on lots of racks making lots of noise.

Case S16, Board of Review No. 1 (Australian Taxation Board of Review No1), 25 March 1985

Swinford v. Federal Commissioner of Taxation., Supreme Court of New South Wales, 22 October 1984

 

Cases are only guidance for another taxpayer and only as sound as the person reading them - care must be taken in assuming your circumstances are identical and that law hasnt modified since written. The only trust test is a private ruling which should not be required.

It would seem that there may be a dedicated and exclusive use to the work room hence a % of ownership costs would be deductible. Likely based on area for property costs etc and some other basis based on records for electricity and water etc

All sound reasons why having a tax adviser who is available on call to address personal advice is always a good idea.