The Hidden Implications of Working from Home: Things to Consider
As hybrid work becomes a fixture of professional life across Australia, many people are converting parts of their homes into workspaces or even running small businesses from home. While this offers flexibility and cost savings, it also introduces some complex tax and insurance implications.
It’s critical to understand how working from home can impact areas like capital gains tax, insurance, and especially land tax.
- Principal Place of Residence (PPOR) Capital Gains Tax (CGT) Exemption
One of the most overlooked consequences of working from home is the potential loss of the full CGT exemption for a principal residence.
If part of a home is set aside exclusively for income-producing activities—such as a dedicated home office—the ATO may apply partial CGT when the property is sold. The exemption is typically reduced in proportion to:
- The area of the home used for business,
- The length of time it was used that way, and
- Whether deductions (such as occupancy expenses) were claimed.
People who casually work at the kitchen table or couch are unlikely to be affected, but once a space becomes permanently fitted out or regularly claimed, the CGT implications grow.
- Professional Indemnity (PI) Insurance
Many people assume their PI insurance remains valid when working remotely—but this may not be true if their work location changes. You need to look at the wording of the policy.
Insurers may require:
- Disclosure of new work arrangements,
- Evidence of appropriate data security and client confidentiality measures, and
- Updates if clients or staff visit the property.
You should review and update your PI policy as soon as your working arrangements change.
- Business Insurance
Running a business from home can affect eligibility for and coverage under business insurance.
Important considerations include:
- Whether equipment, stock, or records stored at home are covered,
- If portable devices are protected outside the main business premises,
- Whether a home-based business policy is more suitable, and
- If public liability is needed due to client visits.
Make sure you clearly differentiate between casual work-from-home arrangements and full-fledged business use.
- Home and Contents Insurance
Standard home and contents insurance typically doesn’t cover business activities. If you are working from home and storing valuable or business-critical items, they may be at risk of claims being denied.
You should:
- Notify your insurer about business use of the home,
- Consider separate or enhanced coverage for business assets, and
- Understand how your premiums or excess may change.
- Land Tax (Victoria): A Growing Concern for Home-Based Businesses
In Victoria, Land Tax is an annual tax levied on the total taxable value of land you own as at 31 December of the previous year. Exemptions generally apply to your principal place of residence (PPR), primary production land, and certain trusts.
Most people associate Land Tax with investment properties, holiday homes, or commercial real estate. However, if you’re running a business from your home, you may be caught out—even if your property is your primary residence.
The State Revenue Office (SRO) of Victoria has ramped up audit activity targeting home-based businesses. This follows significant media attention and a change in land tax thresholds effective from 2024.
Even small home-based operations—like working out of a shed or garage—are being scrutinised.
The key factor on whether Land Tax is payable is whether the property use qualifies as a ‘substantial business activity’, as defined under Section 62 of the Land Tax Act 2005 and guided by Revenue Ruling LTA.001V2.
The SRO considers several indicators:
- Gross income exceeding $30,000 from the business,
- More than 30% of the land or floor space used for business purposes,
- Employment of non-resident staff or contractors,
- Requirement of a council permit to operate,
- The level and type of deductions claimed on the property.
If these indicators apply, only the residential portion of the land may remain exempt. The business-use portion becomes liable for land tax.
The land tax threshold for general landowners was reduced from $300,000 to $50,000, drastically increasing the number of properties now subject to land tax.
Example:
A business operating from 20% of a PPR’s floor space:
- Before 2024: Only liable if the land’s total taxable value exceeded $300,000.
- After 2024: Liability begins at just $50,000—meaning many homeowners with modestly valued land are now at risk.
Even if the home is not fully commercialised, using just a portion for substantial business may lead to pro-rata land tax assessments.
The SRO uses data matching from various sources, including:
- ATO tax returns (declaring business addresses, contractor payments, etc.),
- Single Touch Payroll (STP) systems,
- Other government databases.
In many cases, simply claiming business deductions from a home address may trigger a review.
Many people want the best of all worlds – they want it to be 100% PPOR for CGT, 100% PPOR for land tax, don’t want their insurance premiums to go up so don’t want to tell their insurers they run a business from home, but want to claim their expenses.
The decision to work from home isn’t just about lifestyle—it has real and sometimes hidden tax and insurance implications. Proactive planning and disclosure are key.
Make sure your get the best advice to make sure you know exactly what the implications are for you. Contact us today!
Recent Comments