I have a question regarding whether the following arrangement will trigger partial loss of the home owner main residence CGT exemption upon sale for the individual.
A Company, operates a business out of 50% floor space of a house. The sole shareholder is the owner of the house and lives in this home as a home occupier.
There is no rental agreement for the use of the house by the Company and therefore does not pay rent for the use of the floor space. The 50% floor space is dedicated to the use of the business however the nature of the space could easily be used for domestic purposes (no significant structural changes to the offices that would prevent the use of domestic activities instead). The company does not claim deductions for any expense that would be classified as Occupancy Expenses.
This ATO link suggests that “If you run your home-based business as a company or trust, your business should have a genuine, market-rate rental contract (or similar agreement) with the owner of the property. The agreement will determine which expenses the business pays for and can claim as a deduction.” And in the example: “The main residence exemption won't apply to his studio for the periods that he rented it to his company.” https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/income-and-deductions-for-business/deductions/deductions-for-home-based-business-expenses/company-or-trust-home-based-business
However this link describes: “ CGT won't apply if any of the following occurred with your home-based business: …You operated your business through a company or trust.”. https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/income-and-deductions-for-business/deductions/deductions-for-home-based-business-expenses/home-based-business-and-cgt-implications
Also see example from above link reproduced below.
My question is, as a home owner, living in a premises with 50% of floor space being used by a company for which the home owner using the house as a primary residence is the single shareholder, where there is no lease agreement between the Company and the home owner/shareholder and no rental payments made or Occupancy deductions claimed, and the rooms could easily have otherwise be used for domestic purposes, does this jeopardise the CGT home owner exemption on the Company utlised space for the period of use by the company?
Also would this answer change if the Company made deductions related to Running Expenses?
The context to this question is the seemingly conflicting information on the ATO links.
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.
Harry won't have to pay CGT when he sells his home as it is his company that uses his home to run the business, not Harry.
This means that Harry can't claim any deductions for the interest he pays on his home loan.
However, if Harry charges his company rent for using his home, he may have to pay CGT on the sale of his home.
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