Where an individual is using part of their home as a place of business, this will affect the application of the CGT main residence exemption when the home is eventually sold.
What does that mean?
This mean that the main residence exemption is effectively reduced (i.e., only a partial exemption applies).
However, if that taxpayer does not have an ownership interest in the dwelling (e.g., the dwelling is solely owned by the taxpayer’s spouse), the CGT main residence exemption is not reduced.
This is because the spouse would not have been able to claim a deduction for interest incurred on any borrowings to buy their interest in the house (as they do not use the dwelling for income-producing purposes, the taxpayer does).
Therefore, where a taxpayer uses (or plans to use) part of their home as a sole base of operations (or as a place of business), the dwelling could still retain the full main residence exemption when it is sold if it is owned solely in the name of the taxpayer’s spouse (or even some other family member, where appropriate).
However, in these circumstances, interest expenses incurred on moneys borrowed by the spouse (or other family member) to acquire the property (or an ownership interest in it) are basically not deductible, because the spouse (or other family member) is not using the property themselves for income-earning purposes.
If you have any queries regarding this please don’t hesitate to contact your advisor today.
