Can I claim tax deductions on home improvements?

Tasteful home improvements are likely to add value to your home. This is great when it comes time to sell. However, if you set up a business and work from home, here is an important question to ask your accountant:

Will I have to pay GST or Capital Gains Tax when I sell my home?

• If your home is not your principal place of business, usually, you will not have to pay GST or capital gains tax when you sell.
• If your home is your principal place of business, you may not be able to claim the full “main residence” exemption and will have to pay some capital gains tax. The calculation is based on the proportion of business floor area, the time you use it for business, the “absence rule” and if it was used to produce income before or after 20 August 1996.

Tip: It’s a good idea to have your home valued when you first decide to use it as your place of business, rather than when you first purchased it. A higher value at the time you started the business will reduce the capital gain.

As you can see, for the purpose of tax considerations, it’s important to decide very early if you are going to use your home as a principal place of business or not.

If you are renting and work from home, naturally, there are no capital gains to consider and all the usual tax deductions apply.