Proposed changes to tax rules could provide relief for small business owners, including farmers, working from their homes.
Chartered Accountants Australia and New Zealand (CA ANZ) said changes in the November Tax Bill will alter a rule that put some businesses in line for a big GST bill when selling their home.
The rule currently affects small business owners who work out of their home and are GST-registered in their own name rather than in a trust or company structure.
CA ANZ Tax Leader John Cuthbertson said sole traders such as farmers working from the family home could now escape a significant GST bill when they sell their home.
“The issue was that GST-registered small business owners who worked out of a home registered under their name, doing a small amount of admin and claiming very little GST against that home, became liable for a relatively large amount of GST when they sold that home,” Cuthbertson said.
“The rule was legitimate, but not intuitive and came as a surprise to many GST-registered home sellers.
“Before 2011 we had a principal purpose test. It was quite simple: you were only charged GST if you used the home for business over 50% of the time. After 2011, you had to charge GST on sale, even if your business activity was very small, say 5-10%. The result is not intuitive for many small business owners.”
Cuthbertson said the proposed change would allow a GST-registered person or business to elect to keep an asset private. The owner would not be able to claim a GST deduction on the purchase of the house, but they would also not have to return GST on the sale. However, under the current proposal, they would still be able to claim GST on home office expenses.