Business space at home: deductions now or tax later?
Setting a space aside only for your business, as a place of business, lets you claim part of the home’s occupancy costs each year — and puts that share of the home’s gain outside the main residence exemption. Fin lays out both sides so you can weigh them.
Marginal rate 32% including the Medicare levy · 2025–26 rate · checked 30 Jun 2026 · ATO
Mortgage interest, council rates, strata, home insurance
For running costs at the fixed rate
A desk or shared room
- Running costs you can claim a year
- $700
- Occupancy costs you can claim a year
- $0
- Tax value of the deductions over 4 years
- $896
- CGT on this space when you sell
- $0
The main residence exemption stays whole.
Set aside only for the business (a place of business)
- Running costs you can claim a year
- $700
- Occupancy costs you can claim a year
- $3,360
- Tax value of the deductions over 4 years
- $5,197
- CGT on this share of $100,000 growth*
- $5,600
35% of the gain is outside the main residence exemption.
What the place of business changes
- Occupancy deductions worth, over 4 years
- $4,301
- CGT on that share when you sell*
- − $5,600
- Net
- Tax on sale ahead by $1,299
Break-even growth: about $76,800 of growth taxed with the discount. Below that, the deductions are worth more than the tax on sale; above it, the tax on sale is larger.
*On growth up to 30 June 2027, with the 50% discount. If you sell after 1 July 2027, growth from that date is taxed too, under the new rules below — so the CGT shown is only the part up to 30 June 2027. Dollars are not adjusted for timing: the deductions arrive each year, the tax arrives when you sell.
| Growth | CGT on the share | Net |
|---|---|---|
| $50,000 | $2,800 | +$1,501 |
| $100,000(yours) | $5,600 | −$1,299 |
| $250,000 | $14,000 | −$9,699 |
Net = occupancy deductions’ tax value less the CGT. + means the deductions are worth more.
Law from 1 July 2027
Capital gains accruing after 1 July 2027
If you own the home as an individual (or through a trust or partnership), the 50% discount is generally replaced by indexation of the cost base and a 30% minimum tax on gains accruing after 1 July 2027; if you invest in an eligible new build, you can choose the discount instead. Your gains before then keep the discount, and your main residence exemption is unaffected. The CGT figures above cover growth up to 30 June 2027 only. Growth from 1 July 2027 on this share is taxed under the new rules instead.
This tool doesn’t estimate the tax on growth after 1 July 2027 yet: the method for splitting a gain at that date hasn’t been published.
checked 27 Sep 2026 · ATO
- Occupancy costs count only when an area is set aside and used exclusively as a place of business. A desk in a shared room or a study also used privately is running costs only.
- The taxed share is the floor-area share the mortgage interest would be deductible for — claiming it or not doesn’t change that.
- This assumes the space is used for the business until you sell. If the business started after you moved in, the ATO generally measures the gain from the home’s market value at that date.
- The small business CGT concessions rarely apply to a home, because the whole home has to be an active asset.
- If the home falls in value, enter 0: the business share of a capital loss can only reduce capital gains, not your other income, so it isn’t shown as a tax saving here.
General information, not personal tax advice. Check your situation with a registered tax agent.
A desk, or a place of business
Working from a desk or a room that is also used privately, you can claim running costs — energy, internet, phone, stationery — for example at the ATO’s fixed rate of 70c an hour for 2025–26. The home stays fully exempt from capital gains tax.
When an area is set aside and used exclusively as a place of business — a hairdressing salon or a doctor’s surgery, for example — you can also claim occupancy costs for that floor-area share: mortgage interest, council rates, strata and insurance. The same share of the gain is then outside the main residence exemption when you sell, though the 50% CGT discount still applies to it.
Worked example
35% of the floor area set aside, $9,600 a year of occupancy costs, 4 years until the sale, and a 32% marginal rate (a $100,000 taxable income in 2025–26). The occupancy claim is $3,360 a year, and the deductions are worth about $4,301 over the 4 years.
The CGT on that 35% of the growth, with the discount, is about $2,800 on $50,000 of growth, $5,600 on $100,000 and $14,000 on $250,000. The two balance at about $76,800 of growth — below that the deductions are worth more, above it the tax on sale is larger. Growth after 1 July 2027 is generally taxed under indexation and a 30% minimum instead, which this tool does not estimate yet.
Resident individuals, 2025–26 rates. Assumes the space is used for the business until the sale. CGT uses the 50% discount, which applies to growth up to 30 June 2027; from 1 July 2027 cost base indexation and a 30% minimum tax generally apply instead. General information, not personal tax advice. Check your situation with a registered tax agent.
Business space at home — common questions
Does running a business from home affect the main residence exemption?
Only when an area of the home is set aside and used exclusively as a place of business and you can claim occupancy expenses such as mortgage interest, rates and insurance. Then the exemption does not cover the gain on that floor-area share. A desk in a room also used privately, or a study used for work you would usually do elsewhere, leaves the exemption whole.
If I do not claim the mortgage interest, does that avoid the capital gains tax?
No. The taxed share is the share of the home the interest would be deductible for, whether or not you claim it, and the ATO applies that test even when there is no mortgage. Leaving the deduction unclaimed gives up the deduction without reducing the gain.
The home is co-owned but only one owner runs the business. Who is affected?
Only the owner who runs the business. That owner claims occupancy expenses for the business share and loses that share of the exemption on their part of the gain. The other owner claims no occupancy expenses and keeps the full exemption on their share.
Can the small business CGT concessions reduce the gain on my home?
Rarely. The concessions need the home to be an active asset, and the test looks at the whole property, not just the business part. A home used mainly as a home usually does not qualify.
How long can a former home stay my main residence after I move out?
Up to 6 years for each absence if it earns income, such as rent, and with no time limit if it does not. While it is treated as your main residence, no other home can be, apart from up to 6 months when moving house. You and your spouse have one main residence between you at a time.
Is board from my partner or family rental income?
No. Board or lodging paid by family members is treated as a domestic arrangement: it is not assessable income, there are no deductions, and the main residence exemption is unaffected. A lodger paying market rent is different: the rent is income, costs for their share of the home are deductible, and that share of the gain is outside the exemption.
What changes for capital gains from 1 July 2027?
If you own an asset as an individual (or through a trust or partnership), the 50% CGT discount is generally replaced by indexation of the cost base and a 30% minimum tax on capital gains accruing after 1 July 2027; if you invest in an eligible new build, you can choose the discount instead. This is now law, under the Treasury Laws Amendment (Tax Reform No. 1) Act 2026. Your gains accruing before 1 July 2027 keep the discount, and your main residence exemption is unaffected. The CGT figures in this tool use the discount, so they cover growth up to 30 June 2027; the method for splitting a gain at 1 July 2027 has not been published, so later growth is not estimated here yet.
Sources
Each rule this tool applies, and the page it comes from.
- ATO — Home-based business and CGT implications — last updated 3 Feb 2026; read 27 Sep 2026
- ATO — Using your home for rental or business — the interest deductibility test and the market value when first used to produce income
- ATO — Fixed rate method — last updated 8 Jun 2026; 2026–27 rate not yet published
- ATO — CGT discount
- ATO — Treating former home as main residence — the 6-year rule
- ATO — Living separately to your spouse or children
- ATO — Renting out part of a home
- ATO — Taxation Ruling IT 2167 (board from family members)
- ATO — Tax reform: reforming negative gearing and capital gains tax — last updated 29 Jun 2026; law from 1 July 2027
- Treasury Laws Amendment (Tax Reform No. 1) Act 2026
Computed from published government rates and guidance. General information to prepare with, not personal tax advice — confirm what applies to you with your accountant or tax authority.
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