Generally, when you sell your home CGT doesn't apply. However, if you used any part of your home for business purposes, you may have to pay CGT.
CGT won't apply if you didn't have an area specifically set aside for your business activities and you did not claim occupancy expenses.
If you had an area specifically set aside for your business activities, you may be eligible to apply one or more of the small business CGT concessions to reduce your capital gain unless the main use of the house was to produce rent.
If the exception or concessions do not apply to you, you will have to pay CGT only for periods when you used your home for your business. For example, if you owned your home for 10 years, but only used it for business in the last 2 years, then you only need to pay tax on the capital gain in the last 2 years.
In most cases, the percentage of the capital gain that is taxable is the same as the percentage for which you could claim a deduction for mortgage interest. This is generally based on the floor area of your home you have set aside for business, for example 10%.
Examples: will CGT apply?
Olga (sole trader)
Olga runs a florist business from her home (which has a mortgage). Olga does most of her work on her kitchen table. She doesn't have an area set aside exclusively for her business and can't claim a deduction for any interest she pays on her mortgage. This means she doesn't have to pay CGT if she sells her home.
Blake and Chantal (partnership)
Blake and Chantal operate a life coaching business from their home that they own. They have set up 2 offices and a dedicated waiting area for the clients which are separate from the rest of the house they reside in.
If Blake and Chantal decide to sell their house, they may need to pay CGT on the area of the house dedicated to their life coaching business for the period of time the house was used in the business. However, if Blake and Chantal are eligible for one or more of the small business CGT concessions, they may be able to reduce any capital gain.
Harry (company)
Harry is a travel agent who runs his business as a company from his home. He is paying off the mortgage on his home. He does most of the work for his company in an office that was previously used as a bedroom.
If Harry sells his home, he may need to pay CGT on the on the area of his home set aside for business (bedroom office) for periods when he used it for his business.
However, if Harry is eligible for one or more of the small business CGT concessions, he may be able to reduce any capital gain.
End of example