Question

In April 2016 Norman, a hairdresser, bought his main residence in Melbourne for $700,000. Legal and stamp duty costs associated with the purchase were $70,000. The home had six rooms. In April 2017 Norman spent $100,000 in making part of his home suitable for his hairdressing business. The business used two of the rooms and he started working from home in May 2017. 3 Advise Norman of the capital gains tax implications of the above facts for the 2016- 17 year

Answer 1

Capital gain is the excess amount of proceed received from sale of non-current assets over and above the cost bases. Capital loss would be the case in case the amount of proceed received from sale of such non-current assets is lower than the cost bases.

In this case Norman has brought his main residence in April, 2016 for $700,000 and has incurred $70,000 on stamp duty and registration of the house. He has also spent $100,000 to modify a part of the house to make it suitable for the hairdressing business of his. Norman uses two out of six rooms of the house for his hairdressing business thus, the whole cost of the house will not be allowed as deduction to compute the capital gain tax. Only four sixth part of the total cost and expenditures shall be allowed and considered while computing the capital gain tax at the time of sale of the house. The two sixth part of the house has been used for business purposes thus, it will be considered for computing taxable income from business.