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Home Office property business expense calculations?

Posted 22 September 2015 under Tax Questions


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Neil says:
18 September 2015 at 15:44

We run a small hair salon from home for my wife, she does business as a sole-proprietor and the salon is her sole income source. I understand that we can deduct for ease of explanation 10% (amount of space occupied by the salon in relation to the whole property) from all rates and taxes, electricity etc. I am unsure about the interest/rent piece. Can the salon pay "rent" or can you just subtract 10% of the interest on the bond as business expense (bond is in my name). I've also read that deducting this piece as a business expense now can influence your Capital Gains Tax waiver amount when selling the property later on, is this the case?
Regards

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TaxTimTaxTim says:
22 September 2015 at 7:08

Your wife will be able to deduct all the business expenditure incurred for the salon which would ordinarily include a percentage of the rental/interest on the bond and related costs. However as the property is in your name she would not be able to use the normal methods. The best way to do this would be for her to rent out the space from you for which you would charge her a normal marker related rental or the equivalent of her usage. So take the size of the salon as a percentage of the house and then multiply that percentage by mortgage amount and the electricity, rates and levies and other costs which would be considered "'shared"' given her usage of the property for the salon. She would then have to pay you this rent, but would be able to deduct it from her costs and reduce her taxes owing.

Indeed the property will have to be split when sold in terms of CGT to take into account the portion which was not used for living purposes and CGT would be paid on that.


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