We often receive queries from our clients on how to save taxes. In this edition, we continue to put a couple of the most frequently asked questions about family trusts and working from home to our consulting tax specialist – Alan Leung of Aspiron Consulting Group.
This is a complex question and there are a number of factors at play, including risk, tax, income distribution etc and the answer largely falls on individual circumstances.
From a tax viewpoint, however, the Australian Taxation Office has issued a number of public rulings in this area (some have been around since 1984). Once you have navigated through the maze of tax jargons and concepts, the following rules of thumb may be useful:
Of course, there may be other non-tax reasons why a GP may choose to incorporate their medical practice or carry it through a family trust, which would be best to discuss with their lawyer.
Generally speaking, where your home is also your place of business, you may be able to claim a tax deduction on certain occupancy expenses such as mortgage interest or rent, council rates, land taxes and house insurance premiums etc. The amount you can claim must be directly in proportional to the exclusive area you use as the place of business (eg as a proportion of the floor area).
The Australian Taxation Office has issued a number of tax rulings and interpretative decisions that provide further guidance on the criteria in which it would consider a home (or part thereof) as the place of business. They include:
For most GPs, this would equate to an area used as a consulting room or surgery where the GP regularly sees their patients. A room or area that is used for writing medical reports, or undertaking studies or research would not ordinarily be considered as a place of business (particularly for those GPs that works at a clinic during the day). The work area, however, may still qualify as a home office and a lesser range of expenses may be deductible (eg electricity, gas, water, internet, telephone etc).
For those GPs who run their practice from home, while being able to claim part of their occupancy expenses may sound like a good deal, they should also be aware that when they sell their home, the business area of their home would not qualify for the capital gains tax main residence exemption meaning they could be up for some capital gains tax in due course.
Disclaimer: The comments above have been prepared for informational and general purposes only and are not intended to provide, and should be relied upon for tax, legal or financial, or accounting advice. You should consult your own tax, legal, financial or accounting advisors before engaging in any transaction or making a claim on a tax return.
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